Ken Fisher Talks Tariff Court Case, No More Pennies, Identifying a Bear Market Bottom and More

Transcript

Ken Fisher:

Inflation is a debasing of the value of our money by creating more of it than we create in goods and services. So, every month I get questions sent in to me and call out some to bring to you and try to answer as best I can in a hurry. I'm not very good at the hurry part. Sometimes I just bog myself down babbling about things that I seem to think require more attention. So, the first one this month is how should we invest during an inflationary period? I'm just going to tell you. You know what inflation is, although most people don't. They say they do, but they don't. Inflation is a debasing of the value of our money by creating more of it than we create in goods and in services. It doesn't come from anything else. It comes from debasing the value of our security through excess money creation by the central banks. That's what it comes from. That excess money creation goes down different channels at different times, but it always comes back to the quantity of money. It's a debasing of the value of the money. But the effect over time, and when I say this, you know, it's just going to annoy some people. The most consistent way to do well during an inflationary period is to own stocks. Stocks have a higher long-term return than the other things that people think of as inflation hedges, some of which correlate positively with stocks, and some of which don't. But the fact is, stocks are a price and the price gets inflated too. If you take periods like the inflation that we saw that started in 2022, in the aftermath of Covid. Initially, stocks were falling during 2022. But if you suffered all of that decline, by the time you had gotten through 2023, you'd made up for it plus the inflation. And in 2024 surpassed it. Now, mind you, gold is thought of often as an inflationary hedge, but it has far, far, far longer periods and many more of them where it does not respond to inflation. The one that's the most legendary that Goldbugs refuse to face and accept is that from 1980 to 2008. Gold first fell, then wiggled wildly and couldn't get back up to its 1980 price for 28 years, over a quarter of a century, and during that whole time period there was inflation. Some years more, some years less. But it never hedged any of that inflation in a long period of inflation. But oh, by the way, if you own stocks during that period you did fine. Does that mean you do fine with stocks all the time? No. Stocks have bear markets. You probably heard that stocks are volatile. You probably heard that. All of that's true. But investing in stocks is the best way to overcome inflation. It's just really simple stocks price includes inflation. It isn't perfectly precise in timing but it always ends up occurring. It always ends up covering inflation, eventually, in not too long. Thank you for listening to me. That's number one. I told you I talked too long on these things. I supposed to do them quickly, I barely can. How do you know where the bottom is in a bear market scenario? Do you only know that you're past the bottom when you've seen several weeks of consistent gains? How do you gauge that? And you got about three questions here. So first, do you only know that you're past the bottom when you've seen several weeks of consistent gains? Heaven forbid, No. The fact is that in a bear market, you get a lot of volatility on the way down. So you get weeks and weeks and weeks, several weeks, you get several weeks of false rally within bear markets. And that that kind of thinking prior price action doesn't help you at all. I will give you one basic pattern about, not all, but most bear markets. With most bear markets, they start off very gently. The reason why is The Great Humiliator. The market wants to fool people into thinking it's another buying opportunity within a bull market ahead. So, there's enough people throwing money into the market, hoping that they're catching another opportunity, and then it builds speed and goes down. As a rule, not a perfect rule, but a pretty good rule. A pretty good heuristic. The first two thirds of the time in a bear market, time, only constitute about one third of the percentage drop of the bear market. And the last one third of it constitute about two thirds of the drop. Now, the exception to that is what I would view as flash bear markets, these bear markets that come and go so fast that they technically qualify as a bear market, but they last almost no time at all. They're like an oversize correction. A real bear market is associated with a classic business cycle recession, and they last more than a year, sometimes 2 or 3, and follow that pattern that I described. The flash corrections are over so fast there's not much you need to worry about doing about them anyway. Example, the most classic example in modern history is the Covid bear market, which was really just a matter of weeks. Fell out of nowhere fast, got down to a drop big enough, if I remember right, But maybe I don't, was down fully 35% at its bottom. But there was just days there, and did that in just a couple of weeks. And then came back and within another few weeks after that, maybe five of them or so, you're back up to where you were and wouldn't have thought of as a bear market. It's too fast to really do something about it, unless you think you're the best darn trader in the world, which I know you aren't. And therefore what I want you to see is, other than the flash bear markets, and let me step back for a moment. Bear market is technically defined as an extended drop of more than 20%, not a drop of 20% or less, which is 10 to 20 is thought of as a correction. Less than 10 is thought of as noise volatility, and 20% or more is thought of the bear market. So, in some ways, those definitions are definitions without real meaning, because the difference between a drop of 19% and 21% is insignificant, and often could be within one part of one day's trading, even though the 21% would end up being categorized as a bear market in the 19% wouldn't You get the notion of detailing without actual detailing, with definition, without actual functionality. But if you think of a real bear market associated with a business cycle recession, you're talking about something that's longer than a year, could be as long as three years. That's on the long side, but 1 to 2 and follow that pattern. So, one thing you're looking for is the part that's gone gently. And then the first two thirds making up about a third of the drop and then the last one third in time having a steep downhill. And then what you're looking for is an overwhelming degree to which people are pessimistic, pessimistic, pessimistic and think it's different this time and won't come back. The history around bear market bottoms is people just think we are in for bad times ahead and there's no getting around it. That's the best news you could possibly ever hear. Does the Supreme Court's tariff case pose a risk to markets? In the short term, maybe volatility, depending on what they decide to do with the tariff announcement when they come to their ruling. There's no way to know that. So, there's certainly volatility that they create in the longer-term though. In the longer-term markets will adjust to it. What is the impact of some retailers no longer accepting cash and the end of the penny? Well there's no significance really at all to the end of the penny. It is pretty penny ante to even think about that. When you get right down to it, if you think about things like this kind of stuff, you could pay for a lot of stuff, you know, with a smartphone. You could pay for with a credit card. You can pay for it other ways. But once you make your payments digital, it just is more efficient than the process of having green bills and passing out $1 bills. And that cost them money, of course, could cost them money also to run credit card and all that, but it's an efficient and less costly process. So, the answer is, is there an impact? This is just the evolution of technology, which in some ways is no different when you get right down to it, than the transition of people going from horse drawn carts to trains once upon a time, to automobiles and flying in airplanes. It's just all about what the technology renders. Thank you for listening to these questions. Send in more questions. Next month I'll try to answer some. I always appreciate it. I always enjoy it, and I look forward to seeing you next month. Thank you. Hi, this is Ken Fisher. Subscribe to the Fisher Investments YouTube channel if you like what you've seen. Click the bell to be notified as soon as we publish new videos.