09/21/15 – Mike Swanson – The Scott Horton Show

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All right, y'all, welcome back.
I'm Scott Horton.
It's my show, The Scott Horton Show.
Our first guest today is our good friend, Mike Swanson.
He keeps WallStreetWindow.com.
He's also the author of the great book and audio book, The War State.
The audio book done by Listen and Think Audio.
Available at Audible.com.
All right, The War State, it's great.
It's all about the rise of the military industrial complex after World War II, the first three presidencies after World War II, Truman, Eisenhower, Kennedy.
I think you'll really dig it.
But his real thing is making money and telling other people how they can make money, too, with their investments.
And he's got this brand new book out.
They're giving it away for free on Kindle, or for Kindle, or your Kindle app for your phone, or whatever it is, at Amazon.com right now.
It's called The Stock Market Bubble Bust of 2015 and Beyond by Michael Swanson.
The Stock Market Bubble Bust of 2015 and Beyond.
Go to Amazon.com and get it for free right now.
And so welcome to the show, Michael.
And how long is it free?
Oh, thanks for having me, too.
Tomorrow night, I guess midnight.
I've got it set up just for people to download it for free.
My hope is people will download it, and if they like it, we'll leave reviews for it, because people need to see reviews before they'll pay money for something.
Right.
All right, good deal.
So yeah, man, go check that out, guys, if you're interested at all.
The Stock Market Bubble Bust of 2015 and Beyond.
It's free through midnight tomorrow night.
So I started reading it.
Obviously, I was not able to get all the way through it this morning.
I wish I'd really started delving into it last night.
It's really not that long, everybody.
You can probably sit down and get it read in one sitting, if you've got a minute.
But the introduction, chapter one, chapter two, that's as far as I got.
So yeah, let's just start with the introduction.
What's so important about this book?
Do you think this needs to be done?
This needs to be in front of people's eyeballs right now.
Well, there's really two meanings in the title of the book, in the content of the book.
As I was listening to you, I realized it actually might be to give people the wrong impression, the title of it.
But the title of the Stock Market Bubble Bust of 2015 and Beyond, I'm suggesting that the stock market has topped out back in July and is going into bear market.
That's what the meaning of the first couple words are.
But and beyond, I'm not trying to suggest that it's the end of the world or it's going to fall forever.
The and beyond part is really about the strategies, I think, used to take advantage of it, the market falling, not just this year, but in the next couple years.
Because when the stock market goes into bear market, it causes lots of gyrations to take place, the volatility in the stock market increases.
And, frankly, we were already seeing that in the past couple weeks.
The S&P 500 has made several moves of over 1% or down 1% in a single day.
And to do it as many times as it has in the past couple weeks is actually very rare.
And the only other time it's done that in a single month that many times is 2008 and 1929.
Oh, man.
It's just an example of the wild volatility in the stock market.
And that's what happens in bear markets.
You get these wild swings up and down.
And when you have up days, the people in the market get hopeful and they think, well, maybe it's not really a bear market, and things will go back up.
And then you get the down days and stuff drops anyway.
So that's kind of the situation that the market's in now.
Well, now, you know me.
I know a little bit of Austrian economics, and yet I don't have any money to invest, so I don't pay that close of attention to this.
But I think I can really empathize with the common man trying to invest in the market.
And, you know, there's no point in having a savings account.
You lose out to inflation.
So people are trying to invest if they didn't already lose everything they had back in 2008 or whatever it is.
But, you know, when there's a few down days in a row, a few up days in a row, for the average person, it's almost impossible to tell what does this mean, right?
Are we still going up, but we had a couple corrections, but we're still going up?
Or, you know, now we've begun the descent down into the bear.
Every time it jumps back up again, they're led to believe, oh, no, maybe we still are on the way back up.
And I guess by the time it's clear that, oh, this is a bear, and it's going to keep going down for a while, it's too late.
You know, Goldman already got out and left them holding the bag, that kind of thing.
So how can you tell?
Yeah, that's exactly right, and that's a very good point, because what people are told in a common, I don't know if you've ever heard this, but a lot of the people you see in the financial media, they'll say a bear market is when the stock market falls 20%, and a correction is anything less than that.
So I'm afraid what's going to happen to people is they're going to hold, and then if the market falls 20%, then they'll go, oh, no, we're in a bear market, and then start selling in panic, you know, because they know bear markets can be bad.
I mean, we saw the one in 2008 and 2000.
But the key is what you just asked, how do you know the difference?
And I think the answer is you have to have a real clear definition of what a bear market really is beyond, well, it's just down 20%, or I've lost a lot of money, when it's obvious and too late.
So that's really what the first couple chapters in the book are really about, is trying to explain to people how they know what a bear market is and what a bull market is.
And there's a couple things that precede a new bear market.
We have had all of them actually take place, and one of them is stocks being overvalued.
And if you look at the price people pay for earnings, the P-E ratio for market as a whole, that's been the case for some time, actually.
The other thing is very bullish sentiment because the people in the stock market start to convince themselves that the valuations don't matter, it'll just go up forever, and that's kind of happened too.
But the third thing is really the most important because the other two don't really enable you to time it.
They're just kind of like warning signs.
But the third thing is very significant, and that is at the very end of a bull market, you only get a couple stocks that are still going up, and most stocks actually go down.
And that started to happen last year and got worse and worse basically every month until in July when the stock market made a new high.
The NASDAQ topped out on July the 20th.
Half the stocks in the stock market had already fallen over 10% or even more from their highs, and it was only about 20 stocks that were still driving the market higher at the very final week.
And the same thing happened in October 2007 and towards the end, or towards the first couple months of, or I should say April 2000.
So those things all happen.
But the more important thing is how do you define a bear market?
Those are warning signs.
And to me, and I have examples of this in the book, a bear market is a technical thing that happens when the prices fall below their 200-day moving average.
And that's an indicator people use on stock charts.
And what it basically is is the average price over the past 200 days.
And if something goes below that for a period of time, what it means is that the prices are actually now trending down from their average over the past 200 days.
And if something's trending down, this is a long-term indicator.
People use five-day, 20-day, 50-day moving averages.
But the 200-day is a long-term thing.
And on charts, stock charts, what tends to happen is this indicator will become a resistance point.
So right now, the S&P 500 is below 2,000, and that indicator is around 2,100, which is pretty far away on a stock chart.
So that's a sign to me that it's really a bear market, and it just started a couple months ago, or last month, when the market broke below that indicator.
All right, hold it right there.
We'll be right back, y'all, with Mike Swanson from WallStreetWindow.com.
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All right, y'all, I'm back.
It's the Scott Horton Show here on the Liberty Radio Network.
Hey, you people that listen to just the interviews, you do know the interviews come from this live show that I do from noon to 2 every weekday on the Liberty Radio Network, right?
You can hear the whole show archives, too.
Right now I'm talking with Mike Swanson.
He wrote the book The War State.
I hope you'll read it.
It's great.
Also, he does Wall Street Window and has a brand-new book out.
It's available on Amazon.com in Kindle format for free through midnight Tuesday night, The Stock Market Bubble Bust of 2015 and Beyond.
The Stock Market Bubble Bust of 2015 and Beyond.
The Kindle edition for free at Amazon.com right now.
The Stock Market Bubble Bust of 2015 and Beyond by Michael Swanson.
Okay, so, Mike, we were talking about all the signals that you're seeing and the tea leaves and how you're reading them and why you think that rather than having a kind of minor correction while the stock market's still, generally speaking, on the way up, like they all say on cable TV news, that actually the bear has begun.
So let me ask you about the news because I saw, well, I didn't even read it, but I saw on the front of the newspaper it said Janet Yellen and the Federal Reserve announced they're going to hold interest rates right where they're at, which is, what, negative 10 or something like that?
So how can we be in a bear market when the Federal Reserve is still expanding bank credit and telling all the companies on the Fortune 500 list that here's a bunch of free money for you guys to have?
That's not good enough to help keep the bubble going?
It doesn't look like it.
And, you know, if you listen to other people, like let's say Peter Schiff over the past couple of years, he's asserted that the stock market needs not simply low interest rates but quantitative easing to go higher.
And the past two times they entered the quantitative easing program, there was a correction and then the Fed resumed it and then the market continued higher.
So they last entered their last quantitative easing program well over a year ago, and the market's been able to go up.
But I think at this point, you know, it just needs – it's running out of air.
Without that fuel quantitative easing, it looks like it's topped out and going lower now.
Wait a minute.
In other words, what you're saying is having low interest rates doesn't guarantee bank credit expansion necessarily.
But what does guarantee the expansion of the money supply is the Federal Reserve buying bad debts up and introducing new money into circulation in order to do so.
Am I reading you right?
Yeah, that's right.
Now, the problem is, right, with the stock market and the Fed, which helps, I think, to argue the bearish case in the stock market, is that the Fed really can't just all of a sudden next week say, we're going to do more money printing and quantitative easing and make it all go back up, because they spent the past almost all year saying that we've fixed everything, the economy's going to be back on track by the end of the year, and the phrase they've been using in the media is liftoff, meaning the economy is going to return to normal and they're therefore going to be able to raise interest rates.
And even though they didn't raise rates last week, they still are kind of saying that's where we're headed to, it may just take an extra couple months.
So they're kind of politically in a box where they can't just all of a sudden abandon what they've been saying without making people really panic and think something's seriously wrong.
And what that means to me is that it'll take the stock market going lower before they would do a quantitative easing program or something else to try to stimulate things.
Now, the problem I see with that, too, is even though it worked throughout this last bull market, there's no guarantee that it'll work again.
And if you think about the last two bear markets, from 2000, 2003, and 2007 to 2009, the Fed did all kinds of things to try to stimulate things and it didn't stop the stock market from falling.
So I believe once you're in a bear market, it's very difficult for the Fed to just stop it.
Things just kind of have to run their course.
So I think it's a real mess that the Federal Reserve has gotten itself into.
So for all the thousandaires in the audience, who should they be betting against?
In what sense?
Which market?
Yeah, I mean, I think you say you're shorting all these guys right now, right?
Yeah, well, there's two things about it.
Yeah, I'm shorting the stock market that I have for the past couple months, so I'm betting against it.
I'm also the long gold stocks and gold and silver because I think they're going to go up at some point.
Now, the second part of the book is about how to figure out when to buy stuff and what to buy.
And that's just as important as getting out or not losing money because what most people do in a bear market is try to guess the bottom over and over again and chase the same stocks that were hot a couple months ago, when in reality, some of the best opportunities to buy come as a result of bear markets happening, but they're not in what everyone else is buying.
So what you need to do is look for stuff that's holding up, even though the stock market's dropping, and then starts to turn up and go higher.
So since the market peaked in July, gold and mining stocks, they haven't taken off, but they're holding up relative to the rest of the stock market.
And if they continue to do that, at some point they'll just start to go up as the stock market drops.
And what I'm trying to do is find other things that may do the same thing.
It's still real early into this, so it's going to take time to find out what else is going to do that.
But that actually, what I've just described, is actually one of the best ways to invest in anything and make money is to find stuff that isn't falling when the stock market is because typically what will happen is that stuff will take off and can go up for years.
In 2000, tobacco stocks and gold, too, did that.
In 2007, bonds did that in the summer and then did really well in the following year.
Bitcoin is something I've really followed.
I actually wouldn't be surprised.
I don't remember when it came into being, but it wouldn't surprise me if it was holding up, too, in 2008 and then just took off because typically what happens is...
Well, I think it was actually created at the beginning of 2009, so it missed that last test.
Oh, it did?
Yeah, its price is actually relatively low right now.
If I had any money, I'd be buying them up.
It's at, like, $2.30, something like that.
But, yeah, that's an example.
I've never bought Bitcoin.
I'm just kind of like, oh, Bitcoin, it never struck me, and it was something I heard about after it went up for a very long time.
But if it's something that holds up while the stock market drops for a couple months, then I would think it will take off, too.
So that's what I'm looking at, is what kind of things will hold up when the stock market falls.
And that's, frankly, a lot easier to make money doing that than it is to bet against stocks.
Because when you bet against a stock, you can only make...
I'm looking to make, like, 30%, 40%, 50% or something.
Whereas if you buy something and it starts to do bull market, you can make quite a bit more than that over a couple years.
Yeah, well, there you go.
But now, so let me ask you this.
How come the crash isn't so severe as it was in 2008?
It seems like a softer, slower slope here.
Well, I don't know.
One thing about what's happened is if you look at 2008, the stock market topped out in 2007, and it fell into January, it bounced in the summer.
The drop, we all remember, is the one in the fall, which was sort of like a crash, basically.
In fact, I looked at the 1929 crash.
They're actually very similar, which is pretty amazing.
The amount the stock market fell in 1929 and 2008 is almost identical.
Now, what happened is in 2009, the stock market fell two more years, whereas 2008, it bottomed out in March.
That's the real difference.
But the thing about what's happening with the stock market now is it's really taken me by surprise because in July, I was actually – that's when I was – let me put you this way.
For really over a year, a year and a half, I was thinking, well, bear market is coming.
It's overvalued and people are really bullish, but it's not here yet.
Now, in July, I started to think differently and think it was actually here.
I started to bet against stocks at the end of the month.
However, the market fell differently than I'd ever seen before at the start of a bear market.
In August, when it fell for four days, about 10%, the Dow fell 1,000 points in the open one morning.
I'd never seen a bear market start like that, that quickly off the high, and no one else has either.
So, in a way, we are kind of, I think, in an uncharted territory and no one can really know how exactly it's going to play out.
So, I don't know.
I just know it's a bear market and it just has to adjust accordingly.
I mean, if it repeats what it did last month, it'll be something else.
Yeah.
All right.
Well, I'll be watching from here through the cracks in my fingers over my eyes.
Thanks very much for coming back on the show, Mike.
I always learn a lot.
Thank you.
Great talking with you.
Really appreciate it.
That's where you find Mike Swanson's investment advice.
Through Tuesday night at midnight, you can get his new book, The Stock Market Bubble Bust of 2015 and Beyond at Amazon.com for free.
The Stock Market Bubble Bust of 2015 and Beyond Kindle Edition for free at Amazon.com.
And then, after that, it's going to be cheap enough.
Buy it.
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You can now order transcripts of any interview I've done for the incredibly reasonable price of two and a half bucks each.
Listen, finding a good transcriptionist is near impossible, but I've got one now.
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Hey, y'all, Scott Horton here for wallstreetwindow.com.
Mike Swanson knows his stuff.
He made a killing running his own hedge fund and always gets out of the stock market before the government-generated bubbles pop, which is, by the way, what he's doing right now, selling all his stocks and betting on gold and commodities.
Sign up at wallstreetwindow.com and get real-time updates from Mike on all his market moves.
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