“Human beings are born with different capacities. If they are free, they are not equal. And if they are equal, they are not free.”
Aleksandr Solzhenitsyn
“Our Enemy, the Government,” is the title of an article by Ramesh Thakur (Thakur, is a former UN Assistant Secretary-General), which I read with delight since it agrees with my deep belief that present Western democratic governments do not represent the interest of the majority of the citizens but that they pursue policies that serve these bureaucrats’ own personal interests. Naturally, I also agree with Thomas Sowell who wrote that, “The fact that so many successful politicians are such shameless liars is not only a reflection on them, it is also a reflection on us. When the people want the impossible, only liars can satisfy.”
But let us get back to Thakur’s essay: “The years of living with increasingly oppressive Covid restrictions and mandates is a tale of many villains complicit in tyranny and a few heroes of resistance. It’s a story of venal, incompetent politicians and brutish police – thugs in uniform – acting at the behest of power-drunk apparatchiks.
We have had to relearn two abiding verities: once governments have acquired more powers, they rarely relinquish them voluntarily; and any new power that can be abused will be abused, if not today by current agents of state, then sometime in the future by their successors.” I should add thatRussian/AmericanAyn Rand (1905 – 1982) had expressed similar views : “We are fast approaching the stage of the ultimate inversion: the stage where the government is free to do anything it pleases, while the citizens may act only by permission; which is the stage of the darkest periods of human history, the stage of rule by brute force.”
Besides being a supporter of libertarian economic policies what motivated me to publish the article by Thakur was the fact that a friend of mine sent me an article about The Theory of Economic Regulation(1971) by George Stigler (winner of the 1982 Nobel prize in economics). Stigler was one of the leaders of the Chicago School of thought, which promotes the value of the free market with limited government intervention. [In 1947, Friedrich von Hayek, Frank Knight, Milton Friedman and George Stigler worked together in forming the Mount Pèlerin Society, which is an international forum for libertarian economists.] One of Stigler’s favorite concepts is what's called “regulatory capture,” which occurs when “regulatory” (‘irregulatory’) agencies are influenced or controlled by the industries they are supposed to regulate. “Regulatory agencies seem to be vulnerable to capture because the bureaucrats running those agencies want to keep their jobs (big companies pay politicians to pressure, demote, punish or fire them, or pay bureaucrats under the table or give other unjust rewards like a future big paying job to the bureaucrats). Big companies have more information, resources, and organization than consumer groups. It gives them an advantage in influencing regulatory decisions. And this outsized influence, in turn, gives big companies a leg up on the competition. By pressuring the government, big corporations can push for regulations that make it harder for smaller or mom & pop competition to survive... or even get off the ground. Plus, big corporations can take a bigger slice of the government budgetary pie through handouts, bailouts or tax breaks.”
In the August report a subtitle read: Money will likely shift out of FAANG and related Stocks into Financials, Energy, Value and Foreign Stocks. I still maintain this stance and I view the NASDAQ 100 Index as particularly vulnerable.
To be fair, I also need to mention stocks which moved up on earnings that exceeded expectations such as Microsoft (MSFT), Meta (META), Spotify (SPOT), Amazon (AMZN), etc. However, so far none of these stocks has made a new all-time high and most of them have given back the gains they made right after the positive earnings announcements. Furthermore, and I must emphasize the following: most long-term charts of FAANG+ related stocks look horrible. Now, I would never rely 100% on technical analysis for making my investments but I find chart patterns to be at least as reliable as the typical stock analyst working for a brokerage firm. Moreover, I would never buy any asset without looking at long-term charts.
So far, I have only discussed the vulnerability of FAANG+ stocks. But I need to add that cyclical stocks such as automobiles, etc. are equally vulnerable as well as banks, which I discussed last month, and industrial companies. The weakening trend of most industrial companies’ stocks would suggest that these companies are already feeling the recession.
Of some concern should also be the fact that the KBW Bank Index (BKX Index) closed at the lowest level since the 2020 low.
Lastly, rubbing salt in the wounded US stock market is the US bond market, which began its long-term uptrend in 1981 and which has come to a brisk end. A distinguishable breakdown from a well-established uptrend occurred in the second half of 2023. From here on, interest rates are likely to be in an uptrend and bond prices in a downtrend whereby these long-term trends will likely be interrupted by recurring brief counter-long-term moves. [As I explained in earlier reports, inflation and interest rates move in long-term cycles, which last from peak to peak between 40 and 60 years, or even longer.]
I am bringing up countertrend moves here because both the US stock market and more so, the US bond market are from a short-term perspective badly oversold. Therefore, investors should refrain from taking huge and leveraged positions betting that stocks and bonds would collapse right away.
Furthermore, investors must be aware that the seasonality of the US stock market is turning up right now! According to market technician Tom McClellan, “We are just about to wrap up the 3rd year of the current presidential term, and head into the 4th year, also known as election year. The 3rd year has a long history of being an up year nearly every time.
As I have explained in earlier reports, I hold a relatively large position in cash deposits. But when I look at the chart of the KBW Bank Index, I am concerned that not all deposits will be paid-back. Deep at heart I feel much more comfortable holding precious metals in physical form. Furthermore, the geopolitical conditions in the Hamas/Israel conflict could worsen, which would likely propel precious metal and oil prices much higher.
As we move slowly into the festive season, I would like to close my comments with three quotes about peace because tensions arise and wars follow, as 19th century English philosopher and political economist John Stuart Mill observed, by “He who knows only his side of the case knows little.”
Sadhguru opined that, “Peace cannot be enforced from outside. It is a consequence of how we are within ourselves,” while Mahatma Gandhi thought that, “An eye for an eye only ends up making the whole world blind.” Finally, Albert Einstein maintained that, “Peace cannot be kept by force; it can only be achieved by understanding.”
With kind regards
Yours sincerely
Marc Faber
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