Stock Market Warning — Looking Backwards to See the Future

In 2005, Steve Jobs was invited to address the graduating students at Stanford University.
His talk was as entertaining as it was inspiring.

For those who haven’t yet seen it, you can watch it here…it’s brilliant.

If like me, your youth is a fading memory, you’ll appreciate this extract:

Of course it was impossible to connect the dots looking forward when I was in college. But it was very, very clear looking backward 10 years later.

Again, you can’t connect the dots looking forward; you can only connect them looking backward.

So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

Hindsight gives us a bird’s-eye view of the path we’ve travelled. The ravines. The peaks. The zigs here. The zags there.

But that was then. What about the future? Will it be smoother or rougher? Richer or poorer?

As the 19th century Danish philosopher and theologian, Søren Aabye Kierkegaard sagely wrote…

Life can only be understood backwards; but it must be lived forwards.

Is the Australian economy in danger of a Japanese-like economic winter?

Living forward is an exercise in trusting…your gut, destiny, life, karma, whatever.

For me, gut feeling has been an evolutionary process…shaped by the experiences responsible for forming the dots in my life.

My gut has been telling me for a little while now that life is likely to become much more challenging.

The compounding debt-financed economic growth model has promised so much to so many.

The need for permanent (and ever-increasing) government and central bank support is surely a sign that all is not well with the world.

The system — weighed down by the cost of society’s overly-inflated expectations — is incapable of standing on its own two feet.

Something has to give…as it did in the 1930s and in Japan in the 1990s. There needs to be a reset. And that my friends, is an extremely painful process.

Which is why no one really believes it will be allowed to happen. Our conviction rests on the belief that governments and central banks simply won’t permit it.

Anyone who says otherwise, well, they’re a clown. Someone to laugh at and ignore.

To quote from Kierkegaard’s work of Either/Or:

A fire broke out backstage in a theatre. The clown came out to warn the public; they thought it was a joke and applauded. He repeated it; the acclaim was even greater. I think that’s just how the world will come to an end: to general applause from wits who believe it’s a joke.

Warning Signs in the Stock Market

The warning signs we are being given are no joke. Dismissing them as one is a future dot you most definitely do not want in your life.

In his extensive study on the history of empires, Ray Dalio identified that going from one extreme (excessive optimism) to another (depression) is not the exception…it is the norm.

Unfortunately, as he noted ‘most people thought, and still think, that it is implausible that they will experience a period that is more opposite than similar to that which they have experienced’.

Dalio offered this very logical reason for our inability to think laterally (emphasis added):

Most people are equipped with just the lessons they learned from the experiences they have had, which are very different from the ones they will have; learning from one’s experiences is not adequate, and learning from history is essential. As I explained earlier, because the big cycle lasts for as long as or longer than a lifetime, what people will encounter will be new to them.

Society’s collective lack of experience and historical context explains why the prospect of the theatre on Wall Street ‘burning down’ is so laughable.

But burn it will. The Stock Market is always correct. And over-overvalued stock markets eventually fall very hard.

And when that happens, I expect many people will be joining different dots to the ones they had envisaged at the start of this decade.

People will be forced to reassess their value systems.

Is the hamster wheel-like pursuit of material goods the real purpose of our lives or is there more?

In recognition of a world that’s likely to be vastly different to anything we have ever experienced, the updated version of The End of Australia included a new chapter on ‘Shattered Dreams. Social Strain’.

Here’s an edited extract:

Shattered Dreams. Social Strain.

We’ve all heard it.

Politicians love talking about it.

“The Great Australian Dream”.

But what is it?

In broad terms, Wikipedia defines it as…

“[The] Great Australian Dream is a belief that in Australia, home-ownership can lead to a better life and is an expression of success and security.”

Over the generations, the collective belief in the Dream has driven our economic progress.

The Dream is not unique to our island nation. 

In his 1931 book, The Epic of America, James Truslow Adams wrote (emphasis is mine)…

The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement…it is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.”

For some the dream becomes a reality.

For others, due to circumstances beyond their control, it doesn’t.

What happens when the land is not “better and richer and fuller for everyone” or people do not attain “the fullest stature of which they are innately capable”?

When The Epic of America was published, America was in the grip of The Great Depression.

For those whose dream turned into nightmare, life become a matter of survival…by any means possible.

“The Great Depression brought a rapid rise in the crime rate as many unemployed workers resorted to petty theft to put food on the table. Suicide rates rose, as did reported cases of malnutrition. Prostitution was on the rise as desperate women sought ways to pay the bills.”


Seven years after James Truslow Adams gave us his definition of The American Dream, American sociologist, Robert K. Merton developed the Social Strain Theory…

“Strain theory is a sociology and criminology theory developed in 1938 by Robert K. Merton. The theory states that society puts pressure on individuals to achieve socially accepted goals (such as the American dream), though they lack the means. This leads to strain which may lead the individuals to commit crimes, examples being selling drugs or becoming involved in prostitution, to gain financial security.”


The Social Strain Theory was developed after Merton’s completed a comprehensive study of US crime statistics.

Merton’s theory puts members of society into five compartments. 

The Social Strain Theory

Source: Social Science

[Click to open in a new window]

Cultural goals — vertical axis — is The Great American Dream.

People accept the dream or reject the dream.

Institutionalised means — horizontal axis — is the traditional way to realise the dream.

Hard work, gainful employment and/or pursuing worthwhile endeavours to provide the means to make the dream a reality.

Once again, people have choice. They can accept or reject the traditional approach to making a dollar.

Merton’s neatly boxed model is a “black and white” view of the world. There are no shades of grey. Therefore, we have to recognise it as a generalisation of characteristics.

With that limitation noted, here’s how we can identify which box we fit into.

Conformity — is where we accept the notion of the dream — a life that’s better, richer and fuller — AND pursue traditional (institutionalised) methods to help us create that reality.

Innovation — people buy into the dream of a better life, but resort to illegitimate (innovative) means (drug dealers; embezzlement; theft) to attain the goal.

Ritualism — You don’t buy the dream, but engage in the traditional ways to earn a dollar.

Retreatism — You don’t buy the dream and you don’t want to be gainfully employed.

My educated guess is that the majority of us fit into the “Conformity” box.

Which is why our society — on balance — functions in a relatively ordered fashion and our economy continues to evolve.

However, with the prospect of another serious economic disruption in our future, we could see a migratory trend out of the “Conformity” box.

Where might some people — in greater numbers — migrate to?

My guess?

The fifth box…Rebellion.

This is the box where people live by new goals and new means (perhaps the old barter system becomes new again…trade you some eggs and veggies for some meat and milk).

Sounds laughable, I know.

But I suspect that’s what most people thought in the late 1920s.


Vern Gowdie Signature

Vern Gowdie,
Editor, The Rum Rebellion

PS: In a brand new report, market expert Vern Gowdie warns of the dangers waiting in a post-COVID-19 world. Plus, he outlines the steps you should take now to protect your wealth. Learn more.

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 Fat Tail Investment Research 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.

Vern is Founder and Chairman of The Gowdie Advisory and The Gowdie Letter advisory service.

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