Until the Federal Reserve reverses course on monetary policy, the current bull market in equities, the longest in U.S. history, is only going to continue, said Mark Skousen, editor in chief of Forecasts and Strategies.
Our next guest has correctly called the 1987 black Monday crash of October. And this is how he's positioned now and how he sees the current economic environment and valuations for the stock market. Mark Scousers is editor of forecast and strategies. He is also a professor of economics at Chapman university.
Mark. Welcome back to the show. David is good to be with you. I'm here in California and enjoying the wonderful weather. How about you? Where? Uh, over in dreary March, Rielle where it's cold and minus 15 Celsius with lots of snow and very few suns. So I'd be happy to trade places if I could. Mark. Yes. And the lockdown on top of it.
So it's good that you're staying in doors. Okay. So Mark, we spoke a few months ago on your birthday actually, and you had. We had talked about 1987 in October. And you had up till that 0.6 months up until 1987 crash in October, you have been advocating for taking profits and you had written this for your clients for your newsletter and your turned out to be correct.
I like to first start off with your outlook on today's. Stock market and the valuations today at the S and P 500 is trading at close to 40 for its price earnings ratio, which is near 2001 territory. I think you have to make a really important distinction between 87, where you had really laissez Faire environment.
You, you didn't have any of the government regulations in place to keep a. Uh, um, crash from happening. So you had a 22% drop in the stock market and one day turned out to be my 40th birthday. And I've never called for a crash since then. Bear markets. Yes, but not crashes because the government has all these instruments now to, uh, to slow it down, to keep it from, uh, from.
Uh, cascading into a total collapse. Uh, so I do think we are in a wall street bubble. There's no question about it, but it's driven by the federal reserve, artificially keeping interest rates extremely low. Uh, and I think that will continue. So I'm, I'm fully invested in the stock market right now. We're hitting all time.
Highs are taking full advantage of it, right? Well, you got to put some stops in place. You have to protect yourself on the downside. You have to diversify into a variety of inflation hedges, uh, in expectation that the fed is going to at one point, uh, stop feeding the inflationary bubble, and, uh, it's gonna, uh, Pull back withhold the, uh, uh, the, the, the party that's going on right now.
So I do think that, uh, we need to be cautious and protective of our profits because they can disappear pretty fast. You could see a 20, 10, 20% correction in the stock market. Once the fed turns, imposes a tight money policy, but they're not doing it right now because. Of this so-called pandemic and locked down.
Uh, they're trying to make up for the LA, uh, lack of productive, uh, uh, economic growth. Uh, the government here in the United States is, uh, spending money like water, a $1.9 trillion stimulus package, which is not going to do a lot to keep the economy going on any kind of a permanent basis. So in that kind of environment, as long as the consumer price index stays relatively stable, as long as interest rates, don't spike up because of interest rates spike up, the fed will have to reverse itself.
So there's a lot of reasons why I'm still 100% invested in the market, but I'm very cautious. I'm very worried about at some point. Um, I mean the last, the last bear market is, is, um, is not the end of bear markets. Another one will be coming at some point, Mark, you said that the stock market is in a bubble, but how long has it been in this bubble?
So it's the longest bull market in history. If we take out that March, April time period last year, When you had a V-shape recovery. So if you ignore that, we've had the longest bull market in us history. Um, and it's primarily driven by and a lecture, uh, several things that are working together. One of course is this, uh, uh, historic low interest rate environment that can justify higher PE ratios for stock and tack and the new IPO's and that sort of thing.
Plus you're going through another revolution in technology. Oh, with, uh, accelerated by the lockdown. So that online technology has really flourished, zoom being just one example of that. Uh, but, uh, all kinds of new technology and care in biotech as well as, um, Uh, online and e-commerce and that sort of thing.
I don't see any end to that. I think that's really possible. It's just that no matter how, just, uh, you can justify the technology, you can still get ahead of yourself in terms of pricing. So I could see a lot of tech stocks dropping 30 or 40% when the bear market hits. Right. So. Okay, we're gonna, we're gonna talk about this bear market in just a bit, but you said that you're still fully invested.
Well, if you think the stock markets are in a bubble, Mark, why would you not take off some profits off the table and, uh, and, uh, be more, a little, be a little more defensive. Uh, I think the best way to be defensive is to have stop orders in place, uh, and to follow up on those stop orders. Uh, and so, and I normally put in a stop order about 20% below the current price.
So that's my definition of a bear market. And most historically, if you go through those stop orders, you're going to be stopped out. But why, why be on the sidelines? It's very, listen. If you go to cash, I'm telling you investors, it would drive investors crazy to have money in their pockets, burning in their pockets, thinking, Oh, I'm missing out on the bull market.
I'm not saying you can, you can get every penny out of the bull market, but because we're, we're not going to sell. At the, uh, at the top of the market, nobody does that. Nobody buys at the bottom, nobody sells at the top, but if you get 80%, in-between I feel that's, that's a better way to go. Okay. Well, Mark, how would you define a bubble?
Is it simply a market that has overstretched valuations or are you looking at something else? Because it seems to me that you think prices could still climb to the upside. Regardless of valuations right now. Am I correct to say that you basically, it's a momentum play and you have a lot of momentum right now in the markets they're hitting all time highs.
Why would I not be in the market and all the time? And I do think there's time to get out. It's not like you're going to have. Severe liquidity problems, uh, to get out on the downside. I mean, and some stocks that are highly illiquid, you do want to get out as the stock is moving higher, and if you've doubled your money, you might want to take 50% off the table.
I've made 50%. I've made a hundred percent over a hundred percent on my Bitcoin investment. And so we have, in our short term trading of service, we, we had a 207% return and we said, let's sell half of our position and protect us on the downside. And then I had other stop orders as well. So. Yeah. Things that are extremely volatile, you do have to take money off the table.
So I would grant you that that's that's, uh, let's talk about Bitcoin because we've spoken before. And I don't remember asking you about Bitcoin. I didn't know you were in, uh, investing in Bitcoin. When did you get in on the security? Well, I've been in Bitcoin on and off for the last five years in my newsletter, forecasts and strategies, but since it's so volatile, I missed.
An investment that drops 50% that's way too volatile for most of my subscribers. So we did take some profits, uh, several years ago, but we got back in a little bit late in October and we've seen, uh, we're up 150% in three months. So. Uh, those kinds of opportunities don't happen very often, but I'm still a long-term bullish on Bitcoin for a couple of reasons.
One is institutional buying. It's becoming an asset allocator. And even if they only put 2% of the portfolio in Bitcoin and there is going to be a Bitcoin ETF coming out and you can invest in gray scale when there are other ways to invest in Bitcoin and heck you can buy Tesla. Now they have a position in Bitcoin.
But, uh, institutional buying. I also think that, uh, Bitcoin has replaced, uh, gold as the digital gold. It's the new inflation hedge. Uh, the dollar is strengthening and I think that turning precious metals, uh, gold more than silver, I'm still quite bullish on silver. Uh, how much of your portfolio is allocated into let's say gold, silver and Bitcoin.
So I put an equal amount in all of, I have like 15 recommendations right now in forecasts and strategies. And I put an equal amount in each one. So it's about a 5%, maybe 7% possession in Bitcoin. Same thing in gold and silver. Uh, I'm into arc innovation fund, the arc group that Kathy would. Uh, she's the new Warren Buffett she's been being called the new Warren Buffett.
So we have a big position or we have a big position in the Baron growth funding. The Baron partners fund, the Baron partners fund has a 45% position in Tesla. So we've been recommending that since July the Baron partners fund we're up over a hundred percent and for, to make a hundred percent in less than a year on a no load mutual fund.
That's pretty rare. Yeah. Okay. Now I wonder if let's say Bitcoin didn't exist. Cause you said 5% Bitcoin, 5% silver and gold. If you were to take that 15% allocation, would you, would you, uh, would you fill that up with just gold? Where would you scale it down to just still 5%, but, uh, gold. You know what I mean?
So we, um, If we took a, if we sold our position, then we allocate more money in each other areas. So it's not like we're limited to 5% in gold or silver or Bitcoin, but if we sell out a position, we'd simply increase our position and our other investments, uh, or we may add on. Who investment? I mean, for example, in cannabis stocks, uh, uh, pot stocks, or, uh, also an, a major bull market, the Biden administration, they th the, between the pandemic and the change in the administration, that's four make dramatic changes in our portfolio.
We used to be invested in. In income stocks, uh, that we were doing really well on, uh, Exxon and mobile and business development companies. Uh, I had a lot of high income stocks and I shifted to grow stocks and to cannabis stocks and to Bitcoin and to gold and silver last year, my own, the one investment that has been a bit of a disappointment is, is my, uh, gold position in B2.
Gold BTG is the symbol. I mean, I think that's a fundamentally, a solid company at the Haas yielding dividends. Uh, gold stock as far as, um, uh, mining stock is concerned. Yeah. Uh, so these are, these are all great, great companies that I think will have good long-term profits. You're you're in a lot of aggressive, high growth sectors by the sound of it.
I'm just going back really quickly to my previous question. It just seems to me, a lot of people are taking, let's say, let's say traditionally, they had a 10% allocation into gold. Now they're splitting that 10% into 5% gold, 5% Bitcoin would you. W w what'd you say, that's what you're doing now kind of diversifying your, your safe Haven position.
Yeah. You can actually be in a lot of aggressive positions, but if you diversify different industries, you're actually protecting yourself on the downside. So you have Bitcoin, which is doing extremely well. We're in that. Yeah, we'll show him gold. That's not doing particularly well. Uh, but it could be that when Bitcoin falls out of favor, gold will pick up, uh, same thing in technology.
Look at the oil stocks. I mean, everybody said after Biden was elected that, uh, Uh, you better get out of oil and gold, uh, oil and gas and get into alternative energy. And of course we have been in alternative energy. We are a big supporter of Tesla. Uh, Tesla's hitting all time highs, but we do it indirectly through the arc innovation fund and through the Baron partners fund.
Uh, and then we, uh, but, but look at what oil will it go? What Exxon has done. I mean, Exxon, I think is up 25% this year. Why? Because the Biden administration is anti-fracking they closed the Keystone pipeline. Uh, they they've done a lot of things that I think are bullish on, uh, on traditional energy position.
So you have to adjust your portfolio. To the financial times that you need to know the signs of the financial times and they are changing. Now, you mentioned your invested into the arc innovation and ETF. Well, that's heavily invested in technology. So 10% of the ETF is yeah, it's it's yeah. 10% is weighted into, into, uh, into a Tesla, for example.
So you said earlier that you anticipate a bear market and detect, and I'm wondering why you're still positioned in a fund that's. Pretty much just tech, you know, the studies by academics in that there's only one technical system that really works and that's called momentum trading. It's like Gerald loves said, instead of buy a buy low, sell high, you buy high and sell higher.
So I'm not saying that my position and arc innovation fund that is all the rage that's. That's a fund that has done it. That's an ETF that has doubled in value in the last year or more than doubled. And we've been fully invested in it, but we use our stop order. So I'm, I may well be out of ARG innovation fund a year for now, if it hits our protective stops.
So we keep moving it up. Uh, and at some point we may exit I've accident, arc innovation fund. In the past, it was short-term speculation you to exit this and say, look, the tech industry or sector is a little bit too faulty right now. It's time to get out. What would make you think that it is possible that I could actually realize that it's too frothy.
And, uh, let's take some money off the table. I may actually sell half my position near the top, and then I would place a stop order, maybe 10%, maybe 15% below that. And if it then starts dropping, we may get out of our entire position. You have to have these protective stock orders in place. Uh, because I do have a saying, I have a little book that I've called the maximums of wall street.
And in that book, uh, there's a great quote that I have never let a profit turn into a loss. So you don't want a situation where you've doubled your money on arc innovation fund. And then we have a major bear market and it, and, and you lose all of it. No, we don't want to do that. We want to take some profits.
I want to talk about inflation now and, uh, how your macro thesis ties into inflation because that affects both gold and other acids you had called Bitcoin and inflation hedge as well. So should inflation railroads head and continue higher? Would that have a positive impact? You think on the Bitcoin price?
There's no question in my mind that we are in highly inflationary era. Now, when I say inflation, I am not just talking about the consumer price index, which is relatively tepid in is a very narrow focus on what price inflation is too. You really need to consider the assets in the stock market and in real estate and what's happening there.
And the easy money policies have been highly inflationary. In real estate in the stock market in Bitcoin, hasn't been so much in gold, uh, but silver and copper, most commodities oil prices are all very high indicating an inflationary environment. So investors need to broaden their perspective on what inflation is and not just narrowly focused on the CPI.
Uh, But what I, I would look ultimately at interest rates. If interest rates really spike up, that is the danger sign and especially the yield curve. If the yield curve turns negative, where the short-term rate is higher than the long-term rate, that's a danger sign and we're not facing either situation right now.
We're not seeing the 10 year treasuries. Spiking where we're seeing them move up a little bit, but they're not spiking and we're not seeing an inverted yield curve until we do that. Uh, and until the fed announces they've, uh, they're going to raise the discount rate. They're going to raise the overnight rate at when, once they start doing that, then I'm going to pause and I'm going to say, maybe we're getting closer and closer to the top.
Finally, let's talk about freedom Fest. Maybe give us a synopsis of what this year is. Freedom Fest will be about and where it's going to be. House freedom fast is the world's largest gathering of free minds. And it's pretty much a libertarian type of conference. Uh, and we've had it for 14 years in Las Vegas.
We attract two to 3000 investors and citizens and professors and authors and politicos. And we've even had Donald J. Trump speak there. One time, half the people gave him a standing ovation, the other half sat on their hands. So very divisive personality. Uh, but we, uh, the lockdown, uh, really hurt us at, uh, in Las Vegas and they're still in lockdown basically.
So we made the decision to. Leave sin city for the Badlands of South Dakota. So we're actually in rapid city, South Dakota at the Rushmore shipping center, July 21st through the 24th, we already have 1100 people are signed up. People are very excited about it. And, uh, They, they love this governor Kristi Noem of South Dakota.
She's an up and coming political star. She's going to welcome us. And we have our film festival. We have our in financial conference there. Uh, we have, uh, uh, over 200 speakers. So people go to freedom fest.com. They can read all about. What we're doing, and we've actually sold out three of our hotel rooms, our hotels there.
So we're, we're filling up pretty fast, but people are tired of sitting at home. They, this is an in-person conference. Uh, we're expecting a record turnout, maybe 3000 people. And it's just nice to be in a place that gives us that kind of freedom. And yes, people can make their own personal. Why don't we take personal responsibility?
Um, what you want to do in terms of distancing and wearing a mask and that sort of thing. We don't need the government to tell us what to do and how to protect ourselves. Mark. I appreciate you coming on the show today to give us an update and, uh, and tell us about your investment portfolio. Let's speak again when you decide to reallocate some of your holdings.
And we'll talk about that. Thanks very much. Thank you, David. My pleasure. And thank you for watching Kitco news. I'm David Lynn.