Financial Fridays: The Stock Market is Bullshit

It’s not Friday but who cares. The stock market is lying to you.

This is the worst open of a year since 1932, the middle of the Great Depression, when there was 20%+ unemployment and it was only going to get worse.

Banks were about to get all shut down. People were on soup lines. And another eight years of hell were in store for people.

This is not happening now. Let’s look at what is happening in reality:

China’s Manufacturing Growth Went Negative

This is the main reason the stock market has been falling.

How do I know this? I don’t read any of the news but this morning I looked at all the headlines and this is what they said. “CHINA MANUFACTURING DECLINE CAUSES U.S. STOCKS TO PLUNGE”.


Let’s look at reality:

– China manufacturing growth has been slowing for the past six years in a row. So this is no surprise.

– China manufacturing has a tiny effect on the US economy.

I’d be more worried if the Chinese service economy was slipping. That’s the part of the economy that spends tourism and consumer dollars in the US.

Instead, the service part of the Chinese economy (like any developing economy, including the US, when manufacturing slows) is hitting an all-time high.

– Chinese manufacturing plus new tensions in the middle east, helps keep a cap on oil prices which are ready to explode upwards. Low oil prices are effectively the same as having lower taxes. This leads to higher stock prices.

“But China is the second largest economy!”


This is a great pundit argument ready to go for TV and for academics.

Who cares.

In the 1990s both the Soviet economy and the Japanese economy (the two other largest economies back then) totally collapsed and never returned. NEVER.

What happened to the US economy? It became larger than ever. Economies are linked….until they aren’t.

A Famous Bet that Explains What Is Happening

In 1980, Julian Simon bet the economist Paul Ehrlich that no matter what basket of commodities Ehrlich picked, prices would be lower ten years later.

Ehrlich, a decently smart guy, laughed at how easy it would be to win this bet.

Ehrlich picked nickel, copper, chromium, tin, and tungsten.

Julian Simon won the bet.

Why did he win? Because he knew that no matter what materials the US economy depended on, we would innovate faster than the costs would rise.

New inventions and technologies would outpace the demand for those commodities so that as we needed their functionality more, the prices would fall.

Think about computers: your price per speed and functionality in your computer has gone down every year since they’ve been invented.

Another Great Example of Innovation and Deflation

Think about lighting your house. In the 1880s you would have to work for 15 minutes to pay for an hour of kerosene lamp usage.

Today you have to work for 1/2 a second to get an hour of reading light.

Ditto for cars. For clothing (as a percentage of your income) and even for food (as a percentage of your income – food costs have gone from about 20% of your income in 1969 to about 3% of your income. )

The same as true for the linking between world economies. When Russia and Japan collapsed, we found new sources of commerce that linked the US to the rest of the world (the Internet, for instance).

Where is the U.S. Innovating

Robotics, biotech, energy, 3D printing, shared economy business models that help families make money on any excess capacity they have (e.g. extra rooms? Rent them on Airbnb).

And probably many other areas that I don’t even think of (Chemistry improving various metals and food production, etc).

It’s even interesting to look at where we are stagnating. Education and healthcare. Prices are going up while quality is either staying flat or going down.

And yet… someone wrote me the other day about a website he used to get a doctor’s house call and a complete medical procedure. Total cost to him was $50 instead of $500 in a hospital.

And sites like Coursera,, Khan Academy, Udemy, and more are quickly replacing the automatic reflex to send kids to over-priced colleges and schools.

Are We Heading Into a Great Depression?

Someone asked me if prices are too high and about to collapse.

What prices are too high? Housing, while recovering, is still not as high as 2006.

What about stocks? I doubt it. Apple, one of the fastest growing companies ever, is trading at just five times cash flow.

Imagine a bond that you buy that gives you $20 (20%) for every $100 you buy of it.

That’s what investing in Apple is like right now. Investing in T-bills, by comparison, gives you 2.25% for every $100 you put into it. That sucks compared to Apple. .

Can Apple go lower? Sure. But then it’s more of a buy. Anything can go lower in the short term.

But where is the cash to buy these things.

In 2009, banks were about to go bankrupt. They had no money.

Now banks have an extra $2.4 TRILLION sitting around doing nothing. Meanwhile, commercial and industrial loans were up over 10% last year.

Businesses grow faster when they can borrow to finance their inventories.

Then they can sell out faster, pay more wages, and the people who are paid those wages can buy TVs and houses, and the people building houses can buy new cars, and so on.

In 1933, 4000 banks collapsed. How many banks collapsed in 2015? I think less than ten.

What About Rate Hikes?

What about them? In 2006, rates were at 6%. Now they are less than 1%. That’s a lot of hiking that has to happen.

The only reason the Federal Reserve is slowing bring up rates is because the economy is crushing it.

AND, unlike the uncertainty we have had all 2014 and 2015, the Federal Reserve has now been very transparent about how fast they will raise rates. i.e. Not fast at all.

I don’t want to say buy stocks now. I don’t like to predict the future.

But the reason we are alive as a species is because our ancestors who paid attention to bad news (a Lion running at you is very bad news) lived and the people who didn’t pay attention…died.

The news knows this. So they put bad news in front of you all the time to scare you so they can sell subscriptions. Bad news and porn.

The people who are happier and more successful, know that we are no longer in the jungle.

Every day is a day to create and innovate. To start a business or to help make other businesses better. That’s where you tap into the flow of success.

You don’t have to fly to Mars. Or make a cure for cancer. You just have to always ask yourself, how can I help in some small way today?

This is success.

  • Jack Dryden

    Great follow-up to your 1% newsletter today James!

    Also your book giveaway is awesome, at the very least I’ve just added another 20 to my ‘to-read’ list. For those that don’t know, James is giving away a bunch of his favourite books, go here to enter!

    Since reading your books and newsletters I’ve realised the extent to which ‘asset allocation’ isn’t a term strictly reserved for money management. It’s who you talk to, how you spend your time, what books you choose to read and not to read…and more.

    Great stuff

  • Daniel Chicago777

    (don’t want to be part of a circus lol but) I Agree With this Post 107% James I have really been enjoying your emails taking your advice even did the Coding from your advice to your daughters etc Thank You from the Heart Honest! you are helping in my Journey. one of the advice I still yet to do is Try to contact those you look up to. James I will contact you just so you know =) im passionate and I Never Quit I really need an Angel investor as well *sighs Daniel. user name Chicago777 in

  • Agreed with all except the call on Apple. I’d be a buyer of IBM instead- Cloud, Watson, AI, etc…

    • WHy IBM Jeff?

      • The stock has had a rough time and been out of favor as IBM has been transitioning it’s business model over the last few years. Apple no doubt was the leader and best performer.
        But times do change….
        IMO the cult following that APPL so enjoyed for many years is over and the switch will be into IBM. Odd lot purchasing in IBM picking up and odd lot selling in APPL increasing. (cult)

        • Jerry McIntire

          AAPL *and* IBM, both conservative and a great value right now. Two of my favorites, together with SNA– and James’ recommendations.

    • foljs

      IBM is not that big in the Cloud. And nobody cares much for Watson and AI, they’re mostly circus acts atm.

      • IBM cloud business brought in $9.5B in 2015. Not that big?

    • Stimpy

      IBM treats its employees badly. Nothing unusual there, I’d say most big American corporations do that. Maybe I shouldn’t let that influence me but I’ll pass on IBM.

  • Ryan Fuller

    What’s that health website you mentioned? I could use that.

    • Kelly Bell

      I would also really like the name of that independent health care website… Google search provided no clues.

      And, just saying – if I were an MD this is exactly what I would do right now. I’d start a business connecting individuals with direct services and cut out every bit of middleman-healthcare-insurance-bloated infrastructure I possibly could. It’s a huge market and an opportunity waiting to happen.

      • Greg Larkin

        Hi Kelly, I think he’s referring to Pager. Which is available in NYC and SF. It looks brilliant!!

        • Kelly Bell

          Thanks Greg!

    • Cor Bader

      I don’t know the name of the site that person used, but I do know of a couple that could help.

      Religious? Check out an alternative to health insurance that is cheaper, no ‘out of network’ zones, and covers more than regular insurance and allows you avoid Obama Care “fees”:

      If you have planned surgery check out these guys. They take no insurance and are thus completely out of the gov system. They even list their prices up front!

      If anyone has the house visit site please share!

  • bodrad

    Sorry to disappoint, but no circus comments here. Love the opposite spin in this article. It smacks of hope and potential, rather the fear and despair most other letters (including your pals at Palm Beach Research Group) have been highlighting. I certainly hope you are right, your points absolutely make sense and put things in perspective.

    • Cid

      i just read this article which must have been quickly rewritten to put in the current dates and some current events. But, I exited out of one of the flying put your email here to find out how to make 12.5% today when all of a sudden the comments changed from 2-3 years ago to mere hours now. No James, even you are leaving bullshit!!

  • nimue

    I agree with every insightful word. Innovation and freedom/ability to get things done is what keeps the US great.

  • Great article! Just yesterday my father said his investments went down 40% last year. Actually, he said he “lost” 40%. I said, “no, you didn’t lose anything. You don’t gain or lose until you cash out. That’s all paper money.”

    The question came to me is, isn’t the stock market there so companies can raise money? Why are people so invested in it (like myself) and isn’t there a better way for most people? (I’m starting a business to invest in myself, rather than others, for example).

    Again, loved the post, and non fireworks here, though I do have my popcorn waiting.

    • Quentin, sorry… but many advisors are using that line to keep you in the stock market and probably average down. BIG MISTAKE. When you’re dad’s position is down by 40%… that same investment has to go up by 66% just to break even. (I don’t know how many investments can do that on a regular basis) I’m sorry… but this wrong teaching is what is causing more people to lose money! Here’s the most shocking table no one is showing you:

    • Chuck Hinners

      QG. The stock market is simply reallocation of savings dollars-certainly not investing. You hit the nail on the head by investing in yourself. Commissions, AUM fees and management fees siphon off 3% of the average retail “investor’s” $$ every year. That cuts your wealth in half in just 24 years

  • issanitydead

    right on James! You hit the nail on the head. Bullshit is everywhere in the financial markets. Talking heads everywhere. Meanwhile folks at Goldman continue to laugh at the lemmings while they continue to rake in no stop profits. Frigging scam they run but it is what it is all backed by our government. It is a circus.

  • Kelly Bell

    James’ comment about an ensuing “circus” is what I call a “preemptive strike”. By pointing out that one is coming, he defused the circus in advance. It’s pretty darned effective in my experience, and if results are to be believed, worked well here too. :)

  • justinsane

    I agree with the lack of pessimism in the macro sense, but what is the best strategy for investments and holdings at this stage? Follow the hysteria or hold out and buy with this optimistic view?

  • marino777

    is oil the new “nickel, copper, chromium, tin, and tungsten” or is it time to start investing in that area a bit heavier now that crude is languishing around 34 a barrel ?
    Isn’t there always going to another war or international incident that will send crude up ?

  • zwi

    Shorting usdcad then

  • Fabian
  • Good post James…You make a lot of sense.

  • Peter Connor

    Paul Ehrlich the…biologist?

  • Peter Connor

    What say you about Amazon, at 980x earnings, Twitter at 0 earnings, Tesla, a money losing, not innovative (there were electric cars 100 years ago), not energy saving gadget for the wealthy?

  • Stimpy

    I like to panic early and often. Someday I’ll have the courage to heed Jame’s advice and scarf up some bargains.

  • 941031


    I love your work and am still glad I did a lifetime subscription.

    Please take the time to read Ludwig von Mises: Human Action and The Theory of Money and Credit.



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  • fmfdevildoc

    good stuff. keep it coming

  • Awesome post! Finally some clarity cutting through the noise.

  • Huw Davies

    Love it James! Stick those wellies on and walk through that BS!

  • Business Development India

    This post is really good,
    Your post help me to know the stock matrketing and sales strategy

  • David Moorman

    These are the kind of posts I love reading from you. You provide some great perspectives and ideas for research.

  • Martin Miller

    “So shines a good deed in a weary world”

    Thank you for standing up against all the constant negative noise which the media is obsessed with selling us.

    All your posts are great but thanks so much for this one. Vintage Altucher

  • Dylan Geraci

    Awesome post James! Right on brother!

  • allen801

    I call bullshit, not specifically with the “stock market” but the phrase the author uses here: “China manufacturing has a tiny effect on the US economy”

    Tell that to the hundreds of my American co-workers who had their jobs outsourced to china. Not a big effect eh?!

    these were your fellow american citizens, some with 5 kids to support and a mortgage to pay. And who benefted from all this outsourcing? The investor class or more recently known as the 1%.

    these people didn’t have the opportunity to “choose themselves”, they had fucking bills to pay and a family to support.

    The author has his fucking head in the sand. Go stuff it mack!

    • salient1

      Actually, you’re the one with your head in the sand. The author is correct. The fact that you have friends that have been laid off doesn’t really mean anything other than they bet on the wrong careers. While that’s painful, it’s fixible if they learn a skill that make sense in the new economy (which is doing just fine, thanks). In short, there are PLENTY of jobs in the US available if you get the requisite education to perform them, you will have no problems making your mortgage payment. And seriously, who is dumb enough to believe they can compete with China when it comes to manufacturing costs. It’s just not possible and you’re friends were doomed from the start. It’s called getting in touch with reality.

      • allen801

        really? So all the manufacturing jobs that were outsource by the corporate CEO’s just happened to be a “bad bet” on the part of the workers who had those jobs for 20+ years??

        And everything is A OK if you just re-train yourself for the “new economy”.

        Just try that when your 55.

        Things are allot worse than you make them out to be or you wouldn’t see anti-establishment candidates making the kind of impact they are on this election season.

        The “social contract” that existed after WWII to the late 1970’s was shredded and flushed down the toilet by the 1%. There was never any “vote” on NAFTA or PNTR for China.

        Look, we aren’t going to agree. You’re not going to change my mind and I am not going to change yours.

        But every piece of data I’ve seen that traces the fortune or misfortune of the middle class shows a sizable downtrend in wealth since approximately 1980.

        To the point where it is quite common knowledge (unless you live inside the FOX news bubble) that the USA is no longer a democracy.

        I stand by what i said and you may disagree but China had and still has a HUGE negative impact on the middle class of this country.

        I’m done. Good day.

  • A B

    Ah, welcome to the Real World. Somehow, chess players always guess late at that.
    That along with your “I am away” story is great. You are ready. It’s all one giant bullshit, welcome to the smoke and mirrors eCONomy. I highly encourage you to now pay a visit to alternative online media, such as . Read it and comments specifically for the next level. You’ll thank me later.

    US is not innovating. FANTAsy stocks (Facebook, Alphabet-Google, Netflix, Tesla , Amazon) are all virtual. They can flop to 0 tomorrow and it won’t significantly affect real economy, not a single bit. 100 unicorns in mobile apps is not innovation. It’s fraud.

    >>How many banks collapsed in 2015? I think less than ten.
    9 out of 10 banks are or were insolvent based on real accounting. They are only alive due to FED’s fractional reserve and mark-to-unicorns accounting. Not a single one of them is in jail in last 10+ years too.

    Your writing is great. Your biggest problem is no exposure to the other , non-materialist side. You live in a most materialistic country in the world, in the most materialistic city in the world. You also work with materialists , money all the know and all they talk about.

    You lack a soul, your writing lacks a soul and direction, not the “spiritual” BS direction. Other than it is superb, and yes you can sell.

    Come back.

    Or better yet, NYC is not America, America is outside and it is great. Go around. Go to the world, get some experience airbnb -ing. Then come back.

    Cheers, wish you best.

    • Bora Bosna

      Took your advice, Zero Hedge seems great.

  • Orion Alnitak

    I don’t understand what this post (rant) is saying.

  • rothmere

    Good article. Also, remember, the U.S. is the leading global consumer economy in the world and it is on relative life support, fueled by debt. The stock market is a virtual reality (and overvalued) optical illusion borne of repeated and ongoing Central Bank machinations and 0% capital infusions, FASBE, financial engineering, capacity utilization (including mass layoffs), executive stock options and their concomitant stock buyouts to fuel the values of same, not growth cycle(s) at least not yet. It remains an investing tool but it’s not a ‘market’; not until valuations correct to means.

  • Robin S

    My second national start up is just starting to make money now after 5 years. Hard work. Knowing your business. Never giving up. And most importantly, having the best product that has zero competitors. I invested in myself. The ONLY way to make the biggest return on investing is to find a small, new company with a big upside. Vet it down to make sure the founder’s aren’t blowing smoke and decide to buy as many shares as you can. We’ve got “A” shares still available but the minimum is 25k.

  • Sonia Garces

    What about the stock market in the Phil?