“Nobody is more bearish than a sold-out bull.” — Old Wall Street saying
“I hate to be wrong. But I hate more to stay wrong.” — Paul Samuelson
I appeared last week on the Tom Woods Show to talk about something that has me deeply concerned. It is what academics call “loss aversion” — the fear of losing money. It’s a problem that all investors face, whether bullish or bearish.
Some investors are worried so much about losing money in the stock market that they become “permabears” and get out of the market completely. They live in mortal fear that the market is about to crash at any time and are vulnerable to prophets of doom who are predicting Apocalypse around the corner.
You can click here to listen to my interview with Tom Woods.
It is natural for investors to worry about losing positions. Recently, a subscriber came up to me at an investment conference and asked me about one of my recommendations that had lost money.
I told the investor to be patient and it would turn around. I then asked him, “Have you invested in any other stocks that I recommend?”
He said that all my other recommendations had made money for him — a lot of money.
And, yet, he was most concerned about the one stock that has decreased in value.
Beware of the Permabears
What is the greatest threat to your investments today? Normally, I tell subscribers that it’s the government. Washington can do a lot of harm to your investments via inflation, taxation and regulations.
But there’s even a greater risk out there — following bad investment advice from the prophets of doom and gloom.
These are the gold bugs and the majority of Austrian economists.
Why are Austrian Economists Doom-and-Gloomers?
Why are Austrian economists almost all pessimistic about the economy and the stock market?
I address this question in my book “A Viennese Waltz Down Wall Street: Austrian Economics for Investors.”
As my loyal subscribers know, I’m a big fan of Austrian economics, and I have written whole books on the subject, including my magnum opus, “The Structure of Production,” and “Vienna and Chicago, Friends or Foes?”
The title of my book “A Viennese Waltz Down Wall Street” is a play on Burt Malkiel’s classic work, “A Random Walk Down Wall Street.” I argue that the action of the stock market is not random, nor is it like a drunken sailor, whose next step is unpredictable.
To me, the stock market is like a waltz, with certain rules and patterns to follow, but still allows the freedom within those rules to move in a direction you desire. Sometimes it’s a slow waltz, like the Tennessee waltz, and other times it’s fast and exhausting like the Viennese waltz!
I learned this concept from the great Austrian economist Ludwig von Mises, who argued that all action is “purposeful human action.” Behind every change in a stock price are the rational buy and sell decisions of human beings.
I have individual chapters and applications for each of the Austrian economists: Carl Menger on the importance of marginal pricing… Eugen Bohm-Bawerk on the value of saving and investing… Friedrich Weiser on the “great man” theory… Ludwig von Mises and Friedrich Hayek on the Austrian theory of the business cycle…
My Viennese Waltz book seeks to answer:
- Why the “Austrian Indicator” (inverted yield curve) does a better job of anticipating recessions and market tops. Short-term rates are still low, and we have a positive yield curve, so I don’t see a crash happening any time soon.
- Why gold and silver have become superior inflation hedges since President Nixon closed the gold window in 1971. Gold and silver are moving back up, finally!
- How to distinguish between genuine prosperity and artificial prosperity. We have both going on now, with new technologies representing genuine prosperity, along with easy money and wasteful government spending as artificial prosperity.
- Are we headed for another stock market crash? Will the dollar collapse? Not until interest rates rise sharply.
- Where is the next asset bubble? It’s almost everywhere right now — in tech stocks, bonds, real estate and Bitcoin.
- What are the dangers of the “gold bug syndrome”?
The last question concerns me the most, and it is the source of the “fatal flaw” — the tendency to be pessimistic and negative when the markets are optimistic and bullish (most of the time).
Austrian financial advisors know that Ludwig von Mises and Friedrich Hayek were pessimists. They both predicted the stock market crash in 1929, and were pessimists throughout the 20th century, having lived through two world wars and the Great Depression.
But they were stigmatized by these difficult times that they failed to see the strong recovery in the markets; the bulls were the big winners of Wall Street during the 20th century and into the 21st century. In fact, U.S. stocks outperformed all foreign markets.
Rich Dad’s Prophecy Fails Again
Robert Kiyosaki, author of “Rich Dad Poor Dad,” has been predicting “the biggest crash in world history” since 2002, when he came out with a book entitled, “Rich Dad Prophecy.” He has repeated this same forecast in 2015 and 2021, only to be proven wrong time and time again. Just last month, he said his prophecy would come true.
I guess he hasn’t read my “Maxims of Wall Street,” which quotes John Maynard Keynes: “When the facts change, I change my mind. What do you do, sir?” (p. 32, see www.skousenbooks.com).
He should also ask, “When I’m wrong, what am I missing?”
Kiyosaki has rightly warned that the Federal Reserve has overstimulated markets and devalued the dollar. He’s advised investors to prepare for the downturn by stocking up on precious metals and cryptocurrencies. It’s been a good call on these inflation hedges, even if he’s been wrong about an imminent stock market crash.
Good Financial Advisors Profit from the Inflationary Boom and Protect Themselves from the Bear Markets and Recession
There are two sides to the business cycle, so why not play them both? That’s my approach. The fatal error of most Austrian economists is that they get out of the market too easily, thinking that the inflationary boom can’t last for long and must turn into a bust.
As a result, they miss out on huge opportunities to make money.
Inflationary booms last much longer than the gold bugs expect, sometimes years, like 2003-2007, or 2009-2021, or longer.
And when the deflationary bust happens, it’s fast and furious. As they say on Wall Street, “the stock market takes the stairs up (the bull market) and the elevator down (bear markets).”
Or as Nicholas Vardy puts it, “The bull walks up the stairs. The bear jumps out the window.” (Both quotes are on p. 99 of “Maxims”).
I’m one of the few Austrian economists who takes full advantage of the bull market (I’m still 100% invested) but protects himself when the bear market finally appears.
How to Profit from Austrian Economics
If you want to join me and make money in both bull and bear markets, I urge you to go to www.skousenbooks.com and buy a copy of “A Viennese Waltz Down Wall Street: Austrian Economics for Investors.” It’s a 256-page book that will tell you all you need to know about Austrian economics and finance.
See especially chapter 6 on the Austrian theory of the business cycle, pp. 37-60.
And be sure to check out the photo of Jo Ann and me dancing the Viennese Waltz in the front of the book!
The price is only $20 each, and I autograph each copy and mail it right away. It makes an excellent gift book during the holidays.
This Two-Day Conference Will Sell Out Soon
EconoSummit, April 2-3, 2022, Ahern Hotel, Las Vegas: Limited to 300 attendees, this private, two-day financial/economic conference has already sold 101 tickets. Sponsored by the Investment Club of America, the price is only $199 per person, and that includes a Saturday night dinner! I’ll be speaking on “Creative Disruption: How I Use Austrian Business Cycle (ABC) Theory to Profit from New Trends and the Boom-Bust Economy.”
Other speakers include Jim Woods, co-editor of Fast Money Alert, Eric Fleischman, M.D., advisor to the Hollywood stars on anti-aging and preventative medicine (a must-see), Ira Victor on personal and financial privacy in an age of big government and big business, attorney Josh Effron on your First Amendment rights and Jo Ann Skousen on the all-important cultural question: “Are We China?” To register, go to www.econosummit.com.
Good investing, AEIOU,
You Nailed It!
Aaron Rodgers, America’s #1 Quarterback and Hero
Aaron Rodgers, the long-time quarterback for the Green Bay Packers, should be congratulated for defying the government and pushing back on the National Football League’s political agenda.
After consulting with his medical advisors, he has chosen not to take any of the COVID-19 vaccines, contrary to the demands of the Biden administration and the NFL.
Rodgers is in a unique position to “Just Say No” to this drug. He is the reigning Most Valuable Player in the NFL, having won this award three times. He has a Super Bowl ring from 2010.
For skirting the NFL’s coronavirus protocols, Rodgers was fined $14,650 by the league for attending a Halloween party (a breach of protocol for unvaccinated players), and the Packers were slapped with a $300,000 fine, as well.
Fortunately, Rodgers can afford it. He recently had COVID-19 but has recovered and is expected to play on Sunday.
What I like about Rodgers is that he’s more than just a jock. He is a knowledgeable and well-educated citizen. He was a contestant on Celebrity Jeopardy several years ago with the late host Alex Trebek and won the contest against Kevin O’Leary of the “Shark Tank” television show. Rodgers donated his award of $50,000 to a charity.
Mandates are un-American. We should have a choice when it comes to what we inject into our bodies. We shouldn’t be treated like children.
I salute Aaron Rodgers and other citizens who have taken this courageous stand against the “Powers that Be” while withstanding media criticism that seems disproportionate for an American who simply is exercising his rights under the law.