Brain Freeze

We think we believe what we know,
but we only truly believe what we feel.
–Laurence Gonzales,

Wags among traders say, “If you’re gonna panic, panic first.” Well, its a little late for that if the Wave Principal’s primary forecast of a Grand Supercycle bear market drop from here (Dow Jones Industrial Average 19,173) to a low in the neighborhood of 3,8oo by 2022 holds true.

The suddenness and severity of the decline-10,395 points, 35.1% in five weeks-is, to me, a compelling indicator that, after two false starts in the last twenty years, this is it.

It will be said that the crash is due to the COVID-19 pandemic. The implication is that when we get this under control we can get our economy and our lives back in order. The problem with that notion is that bear markets are deflationary events that bring about debt deflation, no matter what the catalyst for its start may be.

Pandemics, as terrible as they are, are fleeting events in history. This one may be contained by the end of the year. But a deflation of the colossal amount of debt in all sectors of the global economy will take much longer and bring about a huge contraction throughout the system. It will take decades to rebuild the American economy after it bottoms. And the basic need in both business and investment to prepare for this is to reckon with today’s most probable reality right now.

In short, I believe that what remains of the first wave in this bear market is that a still fully invested investor, having suddenly lost 35% of her 401k’s value, will lose another 80.1% of what she has left. Here’s what the path of the market looks like to me:

I realize that it is very hard to imagine such a crash. No one alive has any experience with anything of this magnitude. Brokers and bankers are actually telling their clients to buy. They, along with their clients are dogged with cognitive dissonance, sometimes called Amygdala Hi-Jack, where the Amygdala (reptilian brain) battles fiercely to reject any decision that would inflict pain. So, to take action contrary to conventional thinking, investors have to take matters into their own hands. I’ve suggested in the last two emails that anyone still holding stock place an arbitrary stop loss under their stock and stock fund positions to avoid further erosion of your wealth.

But you have to recognize that you are the only one who has skin in your game. I’m a trader, and it has always been true that the hard trading decision to make, the one I really hate, is usually the best one.



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