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The following is a transcript from a recent interview with Jim Rickards
Matt Insley: There is a lot of frustration out there in the markets. My name is Matt Insley, I'm here with Paradigm Press, and people are frustrated. The markets keep going up, right, but yet the economy, politics, America doesn't really seem that great. I've got a few comments I want to read right now, and I want to have Jim Rickards, our man on the scene, chime in. Here are the questions, Jim. It says, “How can stock soar when the world is on the verge of World War III, we're in major wars, national debt, an open border, political mess?” And then here's another question, it says, “In the face of all the negative news, why is the stock market responding so positively?” This is a common question right now amongst investors and Americans. Jim, what's your take?
Jim Rickards: The S&P 500, the Dow Jones Industrial Average, and the NASDAQ 100 all peaked in late '21 and January 2022. Look at a three-year chart, stop looking at a three-day chart. I don't mean you, I mean just people in general. Stop looking at three-day charts, look at a three-year chart. They all peaked, NASDAQ peaked in November 2021, and Dow Jones and S&P peaked in January, like the first week of January 2022. They, those indices, are down significantly from where they were almost two years ago or over two years ago. So, you can talk about the bull market all you want, they're down over the last two years, period. Now, has there been a rally lately? Yeah, and there have been four or five along the way. I'm not saying you can't make money, but I'm saying it, in this volatility, up and down, up and down, the trend is down. So, let's not get too excited about the stock market because the trend is down, as I described. Just again, just look at a three-year chart, you'll see exactly what I'm talking about. Now, where do we go from here? Stock markets are bubbly in the face of something horrible. Where have we seen that before?
I mean, the stock market, during the cycle around the 2007-2008 financial crisis, remember that crisis started in the spring of 2007. It kind of reached a fever pitch in February, sorry, August 2007. That was when Jim Kramer had that famous meltdown with Erin Burnett on CNBC, “They know nothing! They know nothing!” But the stock market actually peaked in October 2007. So, there we are, six months after HSBC warned about rising defaults in mortgages, two months after the Fed almost caused a meltdown, Jim Kramer called the meltdown in August '07, but the stock market peaked in October '07. So, stock markets go their own way.
They're supposed to be leading indicators; they're really not. And so first of all, the stock market is not peaking. The peak was two years ago, right? And the peak is exactly when I said it, November 15, 2021. So, that's more than two years ago, and it still has not regained that peak. So, let's, that's the reality. Now, and there's, and you're right, Matt, there's some rallies, but there's some big dips along the way if you're looking at that. So, okay, right now, we're in kind of rally mode. Why is it rallying? Well, interest rates are going down.
This started in mid to late October. The Fed signaled that maybe they're done raising interest rates, and maybe they are. We'll talk more about that as we get closer to the December meeting. But so, you know, finish rates go down, stocks go up. You know, that's the narrative. Wall Street always has a narrative for you. You know, Goldilocks, soft landing. There's no such thing as a soft landing, by the way. There are hard landings, there are crashes, and there are booms, but there's no such thing as a soft landing. If you're going down, you're going down.
So, that's why stocks are rallying right now because interest rates are coming down. But what people don't stop to ask is, okay, interesting, why are interest rates coming down? Could it be we're in a recession? Could it be we're seeing disinflation, maybe even deflation? Could it be industrial production was down, which it was, that was reported the other day? Initial claims are up, that was reported the other day. Unemployment ticked up a little bit, not huge, but in the last report at the beginning of November. This is in addition to the more technical signs.
I don't want to get too far in the weeds in terms of inverted yield curves, negative swap spreads, and a lot else. Those are long-term or long-range indicators of recession. We've been talking about those for a year. They're very powerful indicators, but they don't tell you the exact timing. But the other items I mentioned, things like industrial production and so forth, are much more real-time, and they're all turning negative. So, I would expect the stock market to turn around and kind of go down significantly between now and the end of the year, early next year, certainly because by then, the data will be undeniable.
Right now, again, the Wall Street Goldilocks soft landing scenario prevails. It doesn't mean it's right; it just means that that's what people believe. But Wall Street, again, they're just trying to sell you stocks. They'll sell you stocks right up until the day it crashes. I'm actually writing one of our newsletters. I'm writing it today, and I went back and looked at the recessions in 1974 and 1981.
And the Dow Jones, in the 1974 recession, Dow Jones fell 45%. In today's level, that would be the equivalent of 15,000 Dow points, slightly more. So, imagine the Dow Jones down 15,000 points. That's a 45% decline from today's level, and that's what happened in 1974. It's not ancient history. What caused it? Well, it was the Arab oil war in the Middle East and Arab oil embargo, when higher oil prices. Sound familiar? I mean, that's kind of what we're going through right now.
We're going back to 2021, the supply shock. And so, and then in 1982, '81-'82, that recession, the NASDAQ fell 38%, so, you know, peak to trough. So, that's what a real recession looks like, and that's what a stock market crash looks like. And so, we could be heading for something like that. But, you know, it peaks when it peaks. But by the way, it peaked two years ago, so we're not even at the peak. But yeah, it could go down 30, 40%, maybe 50%, from here.
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