TINA — Typical Industry Nonsense Abounds: Cash Will Always Be an Option

Dear Reader,

Remember TINA?

There Is No Alternative.

Really?

As reported by Forbes on 16 March 2020 (emphasis added)…

…as stock were plummeting, yields on 30-Year U.S. Treasuries were rising and gold fell. Bitcoin, which its proponents have advertised as a safe haven, crashed. Cash was where nervous investors wanted to be. It isn’t just any currency that is king. U.S. dollars are in particular demand as borrowers around the world start to pay a premium to obtain U.S. dollars.

Isn’t it funny how people have discovered there is an alternative?

Cash was and always will be an option

However, the self-serving investment industry cleverly framed its marketing message to deliver TINA as a fait accompli.

In The Gowdie Letter, readers have regularly been challenged to think for themselves.

To ignore the illogical TINA nonsense.

With regards to this…

U.S. dollars are in particular demand as borrowers around the world start to pay a premium to obtain U.S. dollars.

This is from the 2 March 2020 issue of The Gowdie Letter (emphasis added)

All the talk at present is about buying gold as a hedge against COVID-09.

The contrarian in me, is looking to do the opposite. I get nervous when the crowd starts prefacing recommendations with ‘you can’t go wrong buying’. Yes you can.

My gut feel is the gold price is going to get hammered in the coming years. All those trillions of USD-denominated Emerging Market (EM) debt — taken out when the USD was weak — has to be repaid, restructured or default on.

My guess is EM borrowers will sell gold to meet their obligations.

And that’s what appears to be happening…gold holding borrowers are scrambling for US dollars.

Anyway, back to the industry nonsense.

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Not that long ago, various industry commentators were eager to tell cautious investors how much their cash holdings had cost them.

The spoke with such authority…as if those reported gains were rock solid, locked in.

At the time — as you’ll see shortly — I pointed out that the quoted gains were only on paper. Unless they were cashed in, the gains meant nothing.

Those very same commentators are now warning investors not to sell.

Why?

These are only paper losses.

Hang on…you can’t have it both ways.

Gains are treated as ‘locked in’, yet losses are only temporary.

The truth is, gains AND losses — unless converted to cash — are both on paper.

Yes, there’s the word the industry loathes…cash.

As people are finding out the hard way, money in the bank is the only real money you have.

The blatant inconsistency and bias in the messaging makes nonsense of the industry commentary.

This extract from the 16 December 2019 issue of The Gowdie Letter alerted readers to this nonsense

‘Is there an AM and PM? A high tide and low tide? A sunrise and sunset? Heads and tails?

Of course there is. Every yin has a yang.


Tje Rum Rebellion

Source: Wikipedia

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With that fact firmly established, can you identify the ‘imbalance’ in this extract from a rival (more bullish) newsletter?

I worry about those who have believed their negative predictions and as a consequence have missed out on the huge property price surge since 2012 and the stock market’s 150% gain since March 2009.

There’s actually more than one imbalance.

The writer (who shall remain nameless) is selective in their bullish starting points.

If you were bullish on Aussie shares in October 2007, then you can forget about the 150% gain. Your experience has been breakeven at best. As shown in the following chart of the ASX 200…


Tje Rum Rebellion

Source: Trading Economics

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And if anyone purchased property outside of Sydney and Melbourne did they miss out on a huge property price surge?

Maybe. Maybe not.

There are regions in Australia where it’s been a case of ‘price surge? What price surge?’.

With those misleading generalisations out of the way, let’s get to the real imbalance in this statement.

…missed out on the…huge price surge…and 150% gain.

These gains — on paper — have been achieved in the ‘up’ phase of the investment cycle.

Unless those quoted gains are realised (cashed out) then they’re only a snapshot of what value existed at that time.

The same broad sweeping statement of gains achieved on paper could equally apply to early 1929 or early 1987 or late 1999 or mid-2007. All these periods were prior to the market rotating into the down phase of the cycle.

As someone who — over a period of nearly 25 years — provided clients with six-monthly portfolio updates, I can tell you that the ‘before and after’ portfolio snapshots give a very different picture on ‘gains’ made.

What the unnamed writer fails to realise or acknowledge is that every yin has a yang. The ‘up’ phase of the cycle gives way to the ‘down’ phase.

Unless you take the money off the table in the good times, then those ‘gains’ aren’t worth the paper they’re printed on.

This is from the September 2019 issue of The Gowdie Letter:

Based on John Hussman’s comprehensive valuation models, he says…

‘“I continue to expect a market loss on the order of 60-65% over the completion of the current cycle.”

Should the expectation of a 2/3rd loss be realised, it means the S&P 500 index will fall back to a level it first breached in early 1998.


Tje Rum Rebellion

Source: Macro Trends

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More than 20 years of gains are at risk of being wiped out.

Personally, I think it’ll be worse than this.

When the investment cycle turns from up to down, that S&P 500 blue line is headed south to a destination as yet unknown.

However, if history is any guide, most — if not all gains made since 2009 are at risk of being vaporised.

And for further confirmation of this, Real Investment Advice published the following chart dating back to 1904, with the accompanying commentary (emphasis is mine):

While most financial media types present bull and bear markets in percentages, which is deceiving because a 100% [gain] and a 50% loss are the same thing, it worth noting what happens to investors by viewing cumulative point gains and losses. In every case the majority of the previous point gain is lost.


Tje Rum Rebellion

Source: Real Investment Advice

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Based on the principle of ‘a 100% gain and a 50% loss are the same thingthen that means…

‘a 150% gain and a 60% loss are the same thing’.

Based on John Hussman’s model, the US market is poised to post losses in ‘the order of 60-65% over the completion of the current cycle.’

If this forecast proves to be somewhat accurate (which history tends to suggest will be the case) then those 150% gains are going to disappear…at a much faster rate than they were gained.

And that’s for those who actually made those gains.

Typically, the majority do not get in at the bottom…March 2009.

Most tend to buy in the latter stage of the cumulative bull market AND then, sell out towards the bottom of the cumulative bear market.

The only thing the average investor manages to compound is their losses.

Only those in the disciplined minority — the ones who don’t buy the bull dust and sell prior to the cycle entering the down phase — will be able to count any gains made from this market as genuine.

The rest will be just another footnote in the history of markets joining the very long list of investors and economists who thought…’

Those who bought into the industry’s inherent nonsense are starting to see their losses compound.

What do those investors do now?

Sell?

Stay?

Will it be over soon and go up or continue going down further?

Most will opt to stay.

Why?

They believe the industry spin.

What happens when there’s another big wave down? One that takes the market much lower?

Then we’ll see a shift in the narrative.

The industry mouthpieces will start to sound a tad nervous.

Publicly putting on a brave face, while on a personal level they are racked by uncertainty.

Thoughts of ‘this is not how it was meant to be’ will mess with their heads.

I know.

I witnessed the behind the scenes discussion first hand in 1987, 2000/01 and 2008.

There is one point the industry commentators and I agree on…it is different this time.

However, my reasoning is not the same as theirs.

Unlike those previous market corrections, this time the Fed is impotent.

There’ll be no hastily manufactured market turn-around.

They are out of ammo…or at least, the amount of ammo needed to make this market soufflé rise again.

Sure, there will be attempts to re-commence the glory days.

But only a sucker would fall for that…which is precisely why they’re called…suckers’ rallies.

We are in for a torrid time.

Having a clear head and a well-defined strategy is how investors can capitalise from the coming market carnage.

Then you need two critical qualities.

Patience, and an ability to tune out to the industry’s nonsense.

Because, believe me, in these times when the industry is going to be fighting tooth and nail to remain relevant, you can expect TINA — Typical Industry Nonsense Abounds — by the bucket load.

Regards


Signature
Vern Gowdie,
Editor, The Rum Rebellion

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Vern has been involved in financial planning since 1986. In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners. His previous firm, Gowdie Financial Planning, was recognised in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top five financial planning firms in Australia. In 2005, Vern commenced his writing career with the ‘Big Picture’ column for regional newspapers and was a commentator on financial matters for Prime Radio talkback. In 2008, he sold his financial planning firm due to concerns about an impending economic downturn and the impact this would have on the investment industry. In 2013, he joined Port Phillip Publishing as editor of Gowdie Family Wealth. In 2015, his book The End of Australia sold over 20,000 copies and launched his second premium newsletter, The Gowdie Letter. Vern has since published two other books, A Parents Gift of Knowledge, all about the passing of investing intelligence from father to daughter, and How Much Bull can Investors Bear, an expose on the investment industry’s smoke and mirrors. His contrarian views often place him at odds with the financial planning profession today, but Vern’s sole motivation is to help investors like you to protect their own and their family’s wealth.


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