October 23rd is the 89th anniversary for the 1st day of the Crash of 1929  

The Smoot Hawley Tariff was the cause of the crash of 1929 which commenced 89 years ago on October 23, 1929.  The legislative process that the Smoot-Hawley tariff underwent beginning in 1928 was the cause of the 1929 stock market crash and the Great Depression.  The chart below depicts the two biggest crashes that occurred between 1925 and 1932.

The Trump tariffs have the potential to cause a crash of the stock market and initiate the first worldwide depression since the 1930s.  Those who do not learn from the mistakes that were made in the past are bound to repeat them. However, in this case it’s difficult for to learn from the past since the history books are inaccurate.  The history books are in need of being rewritten.

The roaring 20s, rampant fraud and speculation were all blamed by historians for the crash of 1929.   According to my research each of them got a bad rap. The real culprit was the Smoot-Hawley tariff.  It’s understandable as to why historians have not laid blame on the tariff which was blamed for extending the depression.  Smoot-Hawley was not signed into law by President Herbert Hoover until June of 1930. That was eight months after October 1929 crash occurred.     

The tariff that would take the name of Smoot, the Chairman of the Senate Finance Committee and Hawley, the Chairman of the House Ways and Means Committee evolved from the 1928 campaign promises that Herbert Hoover made to U.S. farmers.  After the U.S. House of Representatives passed their broad version of Smoot-Hawley Act on May 28, 1929, the Dow Jones Industrials composite declined by 3.6%. After assurances were made by members of the U.S. Senate Finance Committee that it would not pass a broad version of the tariff the stock market continued on to advance to its September 3, 1929 all-time high which would not be surpassed until 1954.  

What caused the 1929 crash of the market to begin was the news of the US Senate flip flopping and going from a position of being against a broad tariff to being for a broad tariff in the late afternoon of October 23, 1929.  The market had anticipated that the worst-case scenario would be for the Senate to pass a very narrow and agriculture products only version of the tariff. It was because a majority of Senators had formed a coalition against a broad tariff earlier in 1929.  The chart below depicts the market corrections and crashes that were caused by the Smoot Hawley tariff’s news from 1928 through 1930.

What caused the market to bottom in November of 1929 and to begin its climb back to its long-term trend line by May of 1930 was the US Senate deciding to postpone its December 1929 vote on the tariffs.   After Hoover informed the economists that he would not veto the tariff in May of 1930 the Dow’s trend changed from accumulation to liquidation.

The parallels between the 1920 to 1929 bull and the 2009 to 2018 bull are eerily similar.   The average annual return for the 1920 bull was 24.8% and the return for the 2009 bull to date is 22.3%.   The unemployment rate at the peak of both the 1920 and 2018 bulls were at record lows. The income tax rates in the late 1920s were comparable 2018.  Finally, both Hoover and Trump were Republicans who made tariff campaign promises to win their Presidential campaigns.

The following are my key gleanings from conducting my research on the Smoot Hawley tariff:

• The author of the NY Times Watchtower column quoted Senator Thurman who stated “Nobody wants it and everybody is for it”.  The nobody was the investors and the everybody was the US Congress.
• The members of Congress and President Hoover were oblivious to the fact that investors were very upset about tariffs.  Some senators petitioned the President to throw his support behind the tariff because they believed that it would stop the crash from accelerating.  
• The Smoot Hawley tariff articles by the press in 1929 were not headline articles.  Instead of headlining the tariff the news media leveraged the market volatility to create sensational headlines about the market declining.

The analysts, economists and pundits who are predicting that the tariffs will not have an impact on the markets are wrong.   Savvy investors pulled their money out of the stock market from 1928 through 1930 for the same reasons that they will pull their monies from the markets until the tariffs are eliminated for the reasons listed below.    

Tariffs:

• Restrict the flow of trade
• Increase in consumer prices and inflation  
• Reduction in sales growth and profits for corporations
• Increases in interest rates
• Reduction in foreign investment

The chart below depicts the expansion of PE multiples after FREE exploded due to the fall of communism and China opening its economy in the late 1980s.

The chart below depicts the contraction of PE multiples after President Bush enacted steel tariffs in 2002.   

The performance of the S&P 500 during the period that the Bush steel tariffs were in effect is a prime modern-day example of the damage that a tariff can cause for a stock market.  The tariff was abolished in 2003.

The Bull & Bear Tracker’s GREEN and RED signals are a great way to trend trade the market’s downside and upside and to also capitalize from sudden spurts of volatility.  The signals are utilized to trade the Direxion Daily S&P 500 Bull 3X Shares ( (SPXL[ARCA]) and the Direxion Daily S&P 500 Bear 3X Shares (SPXS[ARCA]).  From the April 9th through October 12th, the period that the signals were published on Equities.com the Bull & Bear Tracker significantly outperformed the S&P 500.  

The performance of the signals which are now exclusively available to subscribers at has since increased since October 12th since the signal has been red since October 18th.  The Bull & Bear Tracker’s signal alerts are available at BullsNBears.com. For information on the Bull & Bear Tracker and to get access to the alerts go to https://shinypennystocks.com/bull-bear-tracker/.

To better understand my math as well as to learn about the secular bear market and the recession-investing strategies that I am recommending from now through 2030, watch my recently taped two-part interview. A private pre-screening of part two of my interview, which is being aired on the Fox Business channel at 3:30PM on Saturday October 27th on the Fox Business channel is NOW exclusively available to BullsNBears.com’s alert subscribers. Click here to subscribe to BullsNBears.com free alerts.  Part 1 of the interview is also available to subscribers.    

Below are my most recent must-read articles pertaining to why I believe that the market will be substantially lower in the coming weeks and months:

• Market Correction which began on October 10th NOT over, October 22, 2018
• Tuesday’s Big Move was a Sucker Rally, October 17, 2018
• Perfect Storm for Market to Continue; Bull & Bear Tracker’s Crash signal up 14%, October 14, 2018
• Day of Reckoning Approaching for Market, October 9, 2018
• Perfect Storm Brewing for Possible Market Crash Next Week, October 5, 2018
• Market Vulnerable due to Buyback Blackout; Bull & Bear Tracker signal now Red , October 4, 2018
• Nobel Laureate Shiller says Current Market is Eerily similar to late 1920s, October 4, 2018
• Frenzied Market Blow Off Underway, October 3, 2018

Additional information about the tariffs including videos are available at BullsNBears.com which covers the research categories listed below.

• Crashes
• Crypto Infrastructure
• Secular Bull & Bear Markets
• Tesla
• Markets & Economy
• Tariffs
• Negative Cash Flow Research
• Dollar/JPY Indicator
• Digital Economy
• Startups & Microcaps
• Non-Public Markets
• Digital Tax Impact

Disclaimer. Mr. Markowski’s crash predictions are frequently ahead of the curve. The September 2007 predictions that appeared in his EquitiesMagazine.com column stated that share-price collapses of the five major brokers, including Lehman and Bear Stearns, were imminent. While warnings were accurate, they proved to be premature. For this reason he had to advise readers to get out a second time in his January 2008 column entitled “Brokerages and the Sub-Prime Crash”. His third and final warning to get out, and stay out, occurred in October of 2008 after Lehman had filed for bankruptcy. In that article “The Carnage for Financials Isn’t Over” he reiterated that share prices for Goldman and Morgan Stanley were too high. By the end of November 2008, the share prices of both had fallen by an additional 60% and 70%, respectively — new all-time lows.

 

The Dow 30 industrials and S&P 500 declined significantly when the US markets opened this morning.  Stock market indices in Asia and Europe declined earlier today. The declines were from the anxiety which was caused due to the official start of the trade war between the US and China which began at the end of last week.  The economies of the two countries are the world’s largest.

The war officially began on June 15, 2018, when US President Trump announced that the US was moving forward with its instituting 25% tariffs on $50 billion of Chinese goods that are imported into the US.  China retaliated with $50 billion of tariffs on US’ soy, corn, wheat, cotton, rice, sorghum, beef, pork, poultry, fish, dairy products, nuts and vegetables. All of the US indices including the Dow Jones 30, S&P 500 and NASDAQ ended Friday lower.   For the week ended June 16, 2019, the Dow 30 index had its worst performance within the past 12 weeks.

There is a reason why the markets are now discounting the trade war instead of when Mr. Trump threatened to start it.  Many had believed that Mr. Trump was only using the tariffs as a bluff and a negotiating tactic.

Now that trade war has officially begun the markets discounting it has also begun.  The bottom line is that tariffs negatively impact share prices since they compress PE multiples.  It’s because tariffs constrict FREE trade and this reduces global economic activity. The charts below illustrate that the PE multiples declined and also that the market declined by 28.7% while the Bush steel tariffs were in effect.

The elimination of a tariff has the exactly opposite effect.  It expands free trade and the stock market’s PE multiples. However, there is not an example of this since there has not been a previous time in world history for what happened after tariffs were lifted.  Therefore, the best example is what happened in the late 1980s. Communism collapsed in eastern Europe after the Berlin Wall was knocked down and China transformed its economy to allow free trade. See white paper “China: Economic Transformation Before and After 1989” by Barry Naughton. This increased the number of consumers to purchase goods by over 1 billion.   The two FREE Trade events were the drivers of the expansion of PE multiples at approximately the mid-point of 1982 through 2000 secular bull market.   The chart below depicts that expansion of PE multiples from 14 to 34.

The 3 minute, 2 second video below is an interview of me.  The video is about the effects that tariffs have on PE multiples.

For those investors who do not want to take minimal risk and yet have the potential for their portfolios to grow I am recommending the deployment of a 90/10 Crash Protection Strategy.  For information on the strategy which is the only fail-safe strategy that one can utilize to protect their liquid assets from crashes, recessions and depressions view video below entitled “Profit From the Crash”.  

The probability is 50/50 that the announcers on CNBC and Bloomberg will be shouting “mayday!” on May 1, 2018.  The first day of May is also known as May Day.

The potential for a “mayday” alert on May Day 2018, is because the stock market has the potential to decline significantly.   The first day of May 2018 happens to coincide with the date that the Trump tariffs go into effect. Based on my viewing Bloomberg and CNBC there are plenty of pundits and analysts who believe the tariffs will never go into effect.  Their theory is that President Trump is using them as a negotiating tactic. I do not agree for these reasons:

• If President Trump backs off on the tariffs he will lose the electoral support of the rust belt states which elected him.  Also, the President announced the tariffs within a few days after he announced that he was going to stand for reelection as President in 2020.  
• The leaders from two of Western Europe’s leading countries visited President Trump at the Whitehouse last week.  Neither had any positive news about the tariffs to give their constituents.

“Mayday” was originated in 1923, by a senior radio officer at a military airport in London.  The officer was asked to pick a word that could be used over the radio to indicate distress. He proposed the expression “mayday” from the French word m’aider which translates to ‘help me’.  

“May Day” was an ancient pagan holiday celebrating the start of summer. In Gaelic traditions, it is known as Beltaine (or the Anglicized “Beltane”).  

What I have not seen or read from any of the analysts and pundits that I have been watching or reading is why a tariff is so bad.  The simplest way to explain why is to look at what happed in the past when FREE TRADE increased exponentially. That occurred in 1989 when the Berlin Wall was torn down and China opened up its economy.  For example, with the failure of communism, the market for consumer products increased exponentially. To put it simply, the market for the potential buyers of OREO cookies increased by more than one billion.  The result was an expansion in PE multiples for the US and global equities markets. The video below is an interview of me by WFN1 about why tariffs are so bad for the global equities markets.

The expansion of the multiples due to the collapse of communism enabled the 1982-2000 secular bull market to regain its strength.  It could have lost its steam after the October 1987 crash.

Instead the 1982 secular bull became the longest US secular bull since the late 1800s.   

President Bush’s steel tariff from March 2002 to December 2003 is a prime example of how a tariff can compress the PE multiples for the market.  During the period that the Bush steel tariffs were in place the S&P 500’s PE multiples contracted and the index declined by 28.7%.

More information about secular bulls and bears and why they last for a minimum of eight years is available at ProftFromTheCrash.com. The video below provides details about the secular bull and secular bear markets that have occurred since 1802.   

 

To insure access to all of my articles, reports and alerts covering the new bear market which was born on January 31, 2018 (see my February 6, article “Bull DEAD, BEAR DOB 1/31/18: Expect Stock Market Decline of at Least 50%”) sign up for alerts at ProfitFromTheCrash.com.

Disclaimer.  Mr. Markowski’s predictions are frequently ahead of the curve. The September 2007 predictions that appeared in his EquitiesMagazine.com column stated that share-price collapses of the five major brokers, including Lehman and Bear Stearns, were imminent. While accurate, they proved to be premature. For this reason he had to advise readers to get out a second time in his January 2008 column entitled “Brokerages and the Sub-Prime Crash”.  His third and final warning to get out, and stay out, occurred in October of 2008 after Lehman had filed for bankruptcy.  In that article “The Carnage for Financials Isn’t Over” he reiterated that share prices for Goldman and Morgan Stanley were too high.  By the end of November 2008, the share prices of both had fallen by an additional 60% and 70%, respectively — new all-time lows.

Yesterday, US President Donald Trump announced that the US would impose a 25% tariff on those countries importing steel and a 10% tariff on aluminum into the US. The reaction by the leaders of foreign countries has been harsh. President Trump’s push back tweet “trade wars are good and easy to win” against the incoming wave of criticism by foreign leaders and US economists and analysts has further aggravated the situation. The tariffs are the fourth nail to be pounded into the 2009 Bull’s coffin.

Trade wars do not go well with markets. The value of US steel and aluminum companies increased by $2.1 billion yesterday. The value of everything else in the market declined by $328 billion.

Give my history-repeats-itself philosophy that have utilized throughout my 41year career to research the markets I went to the history books. In June of 1930, Herbert Hoover enacted the Smoot-Hawley Tariff Act which was eight months after the 1929 crash. The belated Jude Wanniski, the former the associate editor of the Wall Street Journal argued that the stock market crash itself was heavily affected by Smoot-Hawley since Senator Smoot and Representative Hawley had introduced the bill in 1928. The excerpt below is from the article “Did the Smoot-Hawley Tariff Cause the Great Depression?”:

“Wanniski argues that “the stock market started anticipating the act as early as December 1928” and it fell over the next year as the legislation to raise tariffs looked likely to pass and rose when it seemed the legislation might fail.”

This instituting of tariffs and the declaring of trade war is another history-repeats-itself lesson that should have already been learned by the Trump Administration. A tariff is a bad omen for the stock market. It’s yet another reason why the world’s savviest investors will continue to exit the market. With each additional nail the probability increases that the market is not get back to its January 2018 anytime soon. Read my February 28, 2018, “Another Nail Pounded into 2009 Bull’s Coffin” article to see the three first nails.

The chart below which depicts the stock market’s bubbles since 2007 is based on the price history of the S&P 500 versus long-term US government bonds for the period of 2003 through February 2018. The large bubble which had been in place prior to the election of Donald Trump as U.S. President has expanded significantly.

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I have been monitoring this bubble since 2016. It was originally discovered from my crash research that I have been conducting since the Bank of Japan (BOJ) instituted a Negative Interest Rate Policy (NIRP) in February 2016. My research enabled me to find the bubble and other historical anomalies or distortions in the capital markets that have been present for the last several years. Watch the video below to view the charts and graphs for the anomalies and distortions which have put the markets on the precipice of a crash.

To insure access to all of my articles, reports and alerts covering the new bear market which was born on January 31, 2018 (see my February 6, article “BULL DEAD, BEAR DOB 01/31/18: Expect Stock Market Decline of at Least 50%”) sign up for the free newsletter at http://www.dynastywealth.com/news-nviro-1.php. Additionally, all of my updates including my play by play on the 2018 crash upon its commencing will be sent to the newsletter’s subscribers.

I am recommending the deployment of a 90/10 Crash Protection Strategy. For information on the strategy which is the only fail-safe strategy that one can utilize to protect their liquid assets from crashes, recessions and depressions view video below entitled “Crash! & 90/10 Crash Protection Strategy”.

My crash research that I began to conduct in 2016, resulted in my developing an algorithm that I utilized to issue market crash warnings during 2016 when negative interest rates posed great risks to the global economy. See equities.com article “NIRP Crash Indicator Signals Very Reliable for 2016”. Due to the ebbing of negative rates in 2017, after Mr. Trump’s election as President and the unprecedented low stock market and especially currency volatility, the NIRP Crash Indicator was disengaged in March of 2017. See equities.com article “No Longer a Need for NIRP Crash Indicator Signals”. Upon currencies volatility picking up the NIRP Crash Indicator will be re-engaged. Its warnings will be available to Trophy Investing’s members.

Disclaimer. Mr. Markowski’s predictions are frequently ahead of the curve. The September 2007 predictionsthat appeared in his EquitiesMagazine.com column stated that share-price collapses of the five major brokers, including Lehman and Bear Stearns, were imminent. While accurate, they proved to be premature. For this reason he had to advise readers to get out a second time in his January 2008 column entitled “Brokerages and the Sub-Prime Crash”. His third and final warning to get out, and stay out, occurred in October of 2008 after Lehman had filed for bankruptcy. In that article “The Carnage for Financials Isn’t Over”he reiterated that share prices for Goldman and Morgan Stanley were too high. By the end of November 2008, the share prices of both had fallen by an additional 60% and 70%, respectively — new all-time lows.