Streetwise for Friday, August 11, 2017

An unexpected spike of anxiety in the continuum of world news will usually be followed by the words, “Equities are over-priced, the markets are too buoyant, a major correction is eminent, traders are not being prudent.”

This will be followed up by a stream of rhetoric from people who have not had a clue about the markets for ages. And their guidance is always same. The economy and Wall Street are headed for a correction, because of…and here you can substitute an event de jour.

The latest incident of course came after President Trump’s warning that any threat against the United States by North Korea would be met with “fire and fury” if the United States feels threatened. This was in response to Pyongyang’s statement that it stood ready to give Washington a “severe lesson” with its strategic nuclear force in response to any U.S. military action.

The President’s comments were in direct conflict with previous statements out of Washington indicating that while we stand ready to use force if or when necessary, we, like virtually every other country, would prefer to utilize global diplomacy and when necessary, sanctions.

A more muted response is one of common sense. Military and intelligence officials have stated that open warfare with North Korea would be catastrophic for South Korea, Japan and any U.S. military personnel within range of North Korea’s missiles. Preemptive or retaliatory, it would make no difference. The ensuing barrage would claim hundreds of thousands of lives.

While the President’s words may have been harsh, with any actual conflict unlikely, Wall Street took the commentary to heart and quickly sent the major equity indexes southward into negative territory.

The result was a golden opportunity for the soothsayers of doom to once again stoke your fears about investing in the financial markets, followed up by a cornucopia of solutions for, according to the fine print, a “small” cash payment.

And what advice will you receive by subscribing to their fount of knowledge? It is always the same. Sell everything and buy commodities such as gold and silver, which coincidently they would be happy to sell you, usually in the form of overpriced coins or bullion.

They also promulgate their belief that any potential military action is a scare tactic designed to give the government the excuse it needs to confiscate your cash and your guns. As always, such words are nothing but a deafening din of ridiculous discourse.

On a more serious note, Patrick O’Shaughnessy once wrote that the so-called experts are surrogate thinkers. They think so you do not have to. Not only do experts allow us to outsource our thinking but because of a psychological bias known as the “halo” effect, the better known a forecaster is, the greater the confidence in their predictions.

Meanwhile, if the commentators on world events have you wondering if Wall Street is the Street you should be on, maybe the following will help shine a bit of realistic light into that dark abyss we call the future.

Begin by looking back in history to the 1970s. Investing back then was a courageous feat when you consider that the Dow Jones Industrial Average fell from 1,072 in 1973 to a low of 578 in December of 1974. That makes any pull-back in today’s market look sort of puny.

The stock market has always had its ups and downs. And every time the equity indexes drop, even back in 2008, during what we call the Great Recession, it is always followed by an upward cycle that will take the markets to new highs.

Simply put, that is how Wall Street operates. You can develop as sophisticated a model of the financial markets as you want but in the end the essence of it all is that a growing economy translates to increased corporate earnings and higher share prices.

So, what do you do when an event temporarily sends share prices downward? The answer is easy and you know what it is. Any pullback is a buying opportunity. In other words, seize the opportunity to invest in companies that you believe have the greatest potential to generate gains during the next upturn and well into the future.

Lauren Rudd is a financial writer and columnist. You can write to him at Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to