Things I Shouldn’t Write

Inside today’s Daily Journal…

• Essay: Things I Shouldn’t Write

• The Fed holds steady

• China buys Nvidia chips

• Another fast-food joint goes bust

• Chart Of The Day: iShares Silver Trust trading volume

• Reader Poll

• Today’s Mailbag

Why Telling Subscribers About Risk Leads To Terrible Outcomes

You’d think I was yelling “fire” in a crowded theatre.

Over the last several days I’ve been writing about the growing risks of a 1973-1974 financial crisis.

If you haven’t seen the last several Journals, the narrative is simple to understand: the ongoing decline in the dollar worsens, investors begin to dump Treasury bonds more rapidly, and interest rates suddenly spike higher, above the “Biden Bust” level of 2023.

To prevent enormous damage to the banking system (which owns trillions of Treasury bonds), the Federal Reserve engages in large-scale operations, buying trillions in Treasury bonds to “peg” interest rates below 5%. The result is a huge loss of confidence in U.S. assets, leading to massive selling in the stock market.

In that exact scenario in 1973-1974, stocks fell 50% and didn’t recover, in real terms (adjusted for inflation), until 25 years later. These kinds of risks, by the way, also triggered the 1987 “Black Monday” stock market crash. Other factors (portfolio insurance) caused that sell-off to be even more severe, but the root cause was a falling dollar and the risk of much higher interest rates.

My goal in writing about these risks was to simply warn all of you that they exist. It is something you should understand and be prepared to handle. But I did not say “sell everything today.” And, even if these events were to unfold tomorrow, for many of you the advice to sell everything is unlikely to be practical or useful.

I’ve gotten dozens and dozens of letters from concerned subscribers, many of whom have asked complicated questions about what they should do. Rather than writing a new Journal today, I’ve instead posted several of these letters. I hope this will address concerns you have too and give you more context around what my warnings mean for you and your portfolio.

In many ways, I wish I had never brought any of this up. And I want to reassure you that if you, like me, are a life-long investor with income that’s outside of the market, a crisis like this is primarily a buying opportunity. The world is not going to end. It just might feel like that for a few months.