To view our most recent Wealth & Wisdom video, click here. For the transcript, edited for clarity, read on ...
Kenny Polcari: Hello, and welcome. I'm Kenny Polcari, your host. And I've got so much exciting stuff to talk to you about today. Here at Weiss Ratings, I'm going to interview today Dr. Martin Weiss. We're going to talk about wealth and wisdom. Now, some of you may know me. I've spent 42 years on Wall Street, 40 of those at the New York Stock Exchange. You may see me on CNBC or Fox Business, doing some market commentary. I'm really very involved in services and streaming services and talking about markets and investing and trading and management. And I think that's what wealth wisdom is going to bring us. So, let's bring in Dr. Martin Weiss. Thank you very much for joining us and joining me today as we make this great announcement.
Martin Weiss: Kenny, when you and I talk, 90% of the time, you've been interviewing me as the host, right?
Kenny: Right.
Martin: And I do want you to do that today, because I have a lot of ideas to share.
Kenny: Right.
Martin: But before we're done today, I want to return the favor.
Kenny: You're going to turn the table.
Martin: I want to reciprocate.
Kenny: Okay.
Martin: Or maybe take some sweet revenge, which way or whichever way you look at it. I want to put your feet to the fire.
Kenny: Right.
Martin: And ask you not only, what you've been doing, but also about your experience, what you think about what's going on in the world.
Kenny: Yeah.
Martin: And the point I'm trying to make here is that people know you as a host.
Kenny: Right.
Martin: The Weiss Ratings readers know you primarily as a host who interviews others, right? The fact of the matter is you are much more than that. You're an analyst. You're a market commentator. And you understand the markets sometimes, in greater depth.
Kenny: Right.
Martin: And with greater depth of experience than some of the best experts in the world. So, go ahead and ask me what I think is going on. And then I'm going to return the favor.
Kenny: I think that's great. And I look forward to this. So, let's just talk briefly, broadly, I guess, about what's going on. What's going on in the current environment, and where does Weiss Ratings see the economy, inflation, the Fed, where do we see that going? Because I've got plenty of my own ideas, but let's talk.
Martin: The one word that best explains what's going on in the world and in this country is the word, “crisis.” We have a convergence of different crisis ... coming to us in many ways.
Kenny: Monetary crisis, geopolitical crisis.
Martin: Inflationary crisis.
Kenny: Right.
Martin: We have an interest rate crisis.
Kenny: Right.
Martin: And some of those are predictable.
Kenny: Yeah.
Martin: And some are much less predictable.
Kenny: Correct.
Martin: And the less predictable events, some of them, big surprises are black swans, right?
Kenny: Black swans. Right.
Martin: There are many events that are unexpected. But this is both dramatic and unexpected.
Kenny: Right.
Martin: And it's a bat out of hell. It's a black swan. It strikes, it swoops down from the dark clouds and causes chaos.
Kenny: Yeah.
Martin: The black swan that has struck Eastern Europe. Yes, some people may have predicted it, but I don't think anyone predicted the, the full range of consequences that it's had. It's like shock waves that have now rippled across the globe and completely transformed the geopolitical balance in the world that we have.
Kenny: And it's still transforming. It's not even done yet.
Martin: Just recently, Finland has unanimously decided, among all their leaders that they absolutely want to join NATO. Sweden is following in their footsteps.
Kenny: Russia's not happy about that.
Martin: There are always going to be consequences like a new Cold War.
Kenny: Right.
Martin: But maybe it won't be as cold as we want it to be. Maybe there are going to be hot spots that are going to continue to cause ricochet effects.
Kenny: Right.
Martin: Not only in the political, the adversarial relationship, but to spheres of the globe, but also in terms of economic and financial ripple effects in the financial markets. Another black swan that is looming is a parallel or similar event in East Asia. For example, the possible future attack or attempted attack by the mainland Chinese against the independent republic of Taiwan.
And there are others out there that we don't know what they are yet. We have no clue. There's a difference between the two events that most people don't recognize. And that is in the case of the Russia invasion of Ukraine, the NATO in the West basically said, "The door is open."
Kenny: Right.
Martin: Because the Western powers declared publicly that they will not, the United States and NATO, will not come to Ukraine's defense.
Kenny: Right.
Martin: And so that was effectively an invitation.
Kenny: Right.
Martin: Or an open door, I should say, to the Russian Federation.
Kenny: Right.
Martin: So, okay. If you come in, we're not going to bump you out.
Kenny: Right.
Martin: Okay. In Taiwan.
Kenny: Right.
Martin: Since the revolution in 1949.
Kenny: Yeah. Yeah.
Martin: The position of the West and the United States has been, "We're not telling you what our position is."
Kenny: Right.
Martin: "We, we're not going to, we're not going to declare one way or the other."
Kenny: Right.
Martin: "We're not going to commit to defend, as in the NATO treaties." But we're also not going to …
Kenny: Not commit."
Martin: "... not commit. So, we're leaving a gray area there."
Kenny: Right.
Martin: And that is not a strong deterrent, but it does significantly raise the risk factor.
Kenny: Sure, it does.
Martin: For China. Right.
Kenny: Sure, it does.
Martin: Right.
Kenny: And it raises the risk factor for China, but it really raises the risk factor around the world.
Martin: Well, yes, but my point is that the Chinese are not going to be as … they are going to think twice
before they take or make a move like Mr. Putin has made.
Kenny: Right.
Martin: But those are two crises in Europe and Asia, right?
Kenny: Potentially looming.
Martin: Right. And there's a third black swan that's very predictable. And that is the consequence or the offshoot of the dramatic, wave of hunger that's spreading throughout the developing world. This cannot happen without consequences.
Economic consequences, wars, revolutions, which most people in the Northern Hemisphere tend to ignore until it's too late.
Kenny: Right. That third event in your mind, an event that investors have to just have kind of simmering on their back burner so that they're aware that it's potentially out there, or you don't think it's there yet?
Martin: I think it's there.
Kenny: You do think it's there?
Martin: I think it's there. So, let me explain a little bit more clearly how a black swan works.
Kenny: Right.
Martin: Okay. We cannot predict what the black swan will be. The black swan is more of a symptom of what's happening in terms of the economic trends.
But we can predict that there will be black swans and that the frequency of black swans will increase as the tension behind them increases.
Kenny: Right.
Martin: So, the best way to look at the tension and how that tension is increasing, how we can predict it is to think of it as a hurricane. We have all the science we need. We're very, very advanced in predicting how big the hurricane's going to be, where it's going to strike, and giving advance warning about that hurricane. But the hurricane spins off multiple tornadoes, right?
Kenny: Right.
Martin: Nobody can predict where those tornadoes will strike. That's very random. So, think of it that way. The tension and the pressures that we see building up in monetary tensions and the economic tensions and disparity. World hunger, all those things are like hurricanes. We can see them coming.
Martin: But we don't know what specific black swan they will spur. What it will spin off.
So, the same goes for black swans of history, in the history of the 21st century. The black swan event that struck, New York on 9/11.
Kenny: Yeah.
Martin: And destroyed, threatened valuable treasures of our country. And then set off a chain reaction of events that continue to ricochet until this day. The rise of the Islamic State, the wars in Afghanistan and then in Iraq, and all the consequences from that to this day.
Our departure from Afghanistan, which took place very recently, our sudden departure from Afghanistan is connected in space and time with the Russian invasion of the Ukraine.
Kenny: Yeah.
Martin: So, it's these events that started on 9/11 continue to ricochet to this very day. Or like the black swan that struck America on September 15th, not September 11th and not 2001, but September 15th, 2008.
Kenny: Oh, yes. I remember that day.
Martin: So, what was that?
Kenny: Yeah. That was the Lehman collapse.
Martin: Thank you. Right.
Kenny: Right. And it was the March before, it was the Bear Stearns collapse.
Martin: Yes.
Kenny: It really started in, when Bear Stearns collapsed, but then it built up and it built up.
Martin: And you were sitting as a governor in the New York Stock Exchange at the time.
Kenny: Oh yeah. It was an amazing moment in history.
Martin: Right. But that event has also caused a sequence of events that chain reaction of events that continue to ricochet through time.
Kenny: Around the world.
Martin: Yes. And the primary one that has continued to this day has been the great shift in monetary policy.
Kenny: Yeah. Right.
Martin: If you look at the Fed's balance sheet
Kenny: Yeah.
Martin: Going back to the beginning of our history in Fed's balance sheet, you'll see that, for years and years and years, it increased at a very slow and steady pace, right?
Kenny: Yeah.
Martin: There was only one time there was a little blip.
Kenny: Right.
Martin: And that was actually two times a little blip. One was just before Y2K. When the Fed was very concerned that there might be some disruptions.
Kenny: Right, turn of the century.
Martin: Right. And there was a little blip.
Kenny: Yeah.
Martin: We, at the time, said, "Oh, my god. This is huge," right? And then it went right back down.
Kenny: Right.
Martin: So, they pumped and then they exited.
Kenny: Then they exited.
Martin: Right. The second one happened on 9/11.
Kenny: 9/11.
Martin: Right. The NASDAQ collapsed again after all having collapsed through most of 2000, 2001. The Fed said, "We gotta do something about this." And there was another blip. At that time, we thought, "Wow, the Fed is pumping, pumping like crazy. This is crazy."
Martin: But today on the chart, it looks like a little blip.
Martin: And again, after they took that action and the normalcy was restored.
Kenny: Settled back down.
Martin: They exited.
Kenny: Right.
Martin: Right. After September 15, 2008.
Kenny: The crisis, they never stopped. Went on for a decade.
Martin: They stopped for a while.
Kenny: Right.
Martin: Temporarily.
Kenny: Yeah.
Martin: They never exited.
Kenny: Right.
Martin: The stop ping or pulling back that only caused the chart to kind of level off. Maybe a tiny decline, right?
Kenny: Tiny, if there even was.
Martin: Right. But overall, it's just continued to stay.
Kenny: To increase.
Martin: Right. They created two words, right?
Martin: The first word, instead of calling it money printing or some other term that might make them look bad, they came up with the word “quantitative easing.”
Kenny: Easing.
Martin: Give me a break, right?
Kenny: Right.
Martin: It's jargon.
Kenny: Right.
Martin: Right, QE.
Kenny: Right, but it was more than just QE. It was QE1, QE2, QE3, and infinity, QE-infinity.
Martin: My point entirely. And the second word that has emerged from this whole process is tapering.
Kenny: Right.
Martin: Tapering. It's a euphemism or a “CYA” phrase, right?
Kenny: Right.
Martin: For continuing the money printing but maybe at a slower pace.
Kenny: Which is kind of where we are right now.
Martin: Right. No exit.
Kenny: Right.
Martin: So, the big, tough talk on inflation has to come with an exit.
Kenny: Right.
Martin: But to be successful in combating inflation. And that's the other black swan that's facing us.
Kenny: Right, and that's much more imminent, because we're right there on the cusp of that.
Martin: Right. Let's describe that black swan. Let's talk about what that might look like.
Kenny: Okay.
Martin: The first thing we have to recognize is that this inflation crisis we're going into is unlike any other that we've experienced as a nation for two, couple reasons, several reasons. But the first reason is, this is the first time in my lifetime … I'd have to ask my dad about what happened before my lifetime that we have high inflation and extremely low interest rates at the same time. So, the inflation-adjusted interest rate, the real interest rate after subtracting inflation is the lowest in history. It's never been this way before. Before, if inflation was high, maybe interest rates were a little bit behind the curve but they were kind of …
Kenny: Close. Right, they were catching up.
Martin: Catching up. Now, the interest rates are, start at zero, and inflation rate right now as we speak year-over-year is 8.3 percent.
Kenny: Right.
Martin: So, what has happened? Has the Fed started to get control over this?
Kenny: Right. I don't think the Fed has control over this yet.
Martin: No.
Kenny: And that's the issue.
Martin: The Fed is actually falling behind the curve even further.
Kenny: Way behind.
Martin: Because the interest rate since the Fed started talking tough the interest rates have gone up less than the inflation rate. So, the difference between them is greater and greater. That real interest rate I talked to you about has actually gone down further.
Kenny: Because inflation has accelerated.
Martin: Inflation has accelerated faster than the Fed is willing to raise interest rates.
Kenny: Right, or at least faster than the Fed has been willing, right? So, we'll see. And that's the black swan event.
Martin: Well, I'm not done yet.
Kenny: Okay.
Martin: In the past, right up through 1980, it was possible, it was thinkable for a Federal Reserve to actually get tough and do what it takes to squash the inflation. And that's why Paul Volcker was actually, despite causing a lot of pain, it was in retrospect tolerable pain.
Kenny: Right. But he had to do it.
Martin: He had to do it.
Kenny: When inflation was running at 13 and a half percent, and Paul Volcker jammed interest rates up to 21 percent because they had to get above, the interest rates had to go beyond the inflation rate in order to tamper it down. To your point, inflation today is 8.3 percent, but interest rates are one percent.
Martin: At most.
Kenny: At most. And so, we're way, way behind the eight ball.
Martin: Way, way behind the eight ball. And the eight ball is exactly the word, because it's eight percent inflation price.
Kenny: Right!
Martin: So, now that's the black swan.
Kenny: Right.
Martin: At what point, how aggressive is it going to be in that? And what point does it trigger the next chain reaction of events?
Kenny: And that means?
Martin: Which is a huge impact on all credit, all fixed instruments.
Kenny: Right.
Martin: Bonds and all forms of loans, mortgage loans, bank loans. What does that happen? How does that affect that market?
Kenny: Right.
Martin: What impact does it have on the liquidity of the marketplace?
Kenny: Right.
Martin: As you know, in 2008, and in 2020 when these black swan events struck, the most liquid market in the world, the U.S. money markets froze.
The liquidity disappeared. So, then the question is at what point does the Fed trigger that kind of a liquidity panic? And then what does it do?
Kenny: Right. And then the other night, he finally recognized and acknowledged that the way out may be a little bit more painful, because he's been running with the narrative that we have it under control, we got it, don't worry. And now he was actually right after he was confirmed.
Maybe he was waiting for his next senate confirmation to come out with the bad news. But he actually came out after he got reconfirmed to say that the road out might have some pain in it, which I think is an acknowledgement that he recognizes that he is behind the eight ball, and …
Martin: Yeah, but “might have some pain” is kind of a gross understatement, isn't it?
Kenny: Of course, it is. Of course, it is, but, but he's got to be, he's got to choose his words carefully because …
Martin: I had the privilege at a conference in D.C. of being in the break room with a gentleman by the name of Paul Volcker.
And we sat down. We're the only two people in the room. And I said, "Listen, we have a mutual friend." And we were talking about, um, Kurt Richebacher, who was former Chief Economist through the Dresdner Bank.
And was a very good friend of Paul Volcker's and a very close friend of my dad’s. My dad's side of the family.
Martin: Yeah. So, we talked about him and his views, and then I asked Mr. Volcker what he thought about all this money printing. This was around 2009.
Kenny: Right.
Martin: And he said, "If you had told me that this was going to happen, that our central banks would be doing this today, when I was the chairman, I wouldn't have believed it." He said, "I never in my wildest dreams could have expected this." Kenny, that was great. I very much appreciate your pounding me with questions. But now, you are starting on this new great project. We call it Wealth and Wisdom.
Kenny: Right.
Martin: Two very important ingredients for success in life and in financial matters, right?
Kenny: Right and investing.
Martin: So, right. And as I said at the outset, I enjoy being interviewed by you as many times you've done. Now, it's my turn to ask you about yourself and about your view of what's going on in the world.
Kenny: Right.
Martin: So, how did you arrive at this place? I see you all the time on Fox Business, on CNBC, you have a regular appearance, you interview others but you're also providing your own commentary.
Kenny: Right.
Martin: How did you get here?
Kenny: So, it's been a road well-traveled, right? I spent 40 years in New York at the New York Stock Exchange, 38 of those as a member of the New York Stock Exchange.
Martin: On the floor.
Kenny: On the floor of the exchange. I was one of those guys that ran around screaming, yelling all day long, buying and selling on behalf of institutions both domestic and international, clients out of Europe, clients out of London.
Martin: When you say clients, they were not individual investors.
Kenny: No, the institutions. So, they were mutual funds, they were hedge funds, pension plans, foundations and institutions managing assets on behalf of individuals.
Martin: What firm?
Kenny: Well, I had a couple of firms. So, when I started, it was William Latham and Company, which was an independent brokerage on the floor of the New York Stock Exchange. I went from there to Salomon Brothers where I ran the whole New York Stock Exchange division for them.
Martin: You ran the New York Stock Exchange division for Salomon Brothers!
Kenny: Right, which no longer exists. Salomon Brothers got taken out by Smith Barney.
Martin: I know, but Salomon Brothers was a big name.
Kenny: It was. Being at Salomon and managing their New York Stock Exchange division and we had 14 brokers. We had 40 …
Martin: Floor traders?
Kenny: 14 brokers were the floor traders, but then the support staff were the other 40 people there, the clerks.
Martin: All on the floor of the exchange?
Kenny: All on the floor of the New York Stock Exchange divided up amongst the four different rooms that existed, and then ultimately five different rooms that existed to make up the floor of the New York Stock Exchange.
And after, Salomon Brothers, when they got taken out by Smith Barney in late '97, early '98 when we had the whole WorldCom MCI crisis and the Russian ruble crisis and Argentinian debt crisis. It all kind of happened at the same time.
Martin: Yeah.
Kenny: Warren Buffett, who was the majority owner of Salomon because he bought all that preferred Salomon stock in the early 80s when they had the bond crisis.
Martin: Yeah.
Kenny: And Warren Buffett came in and saved Salomon Brothers.
Martin: I remember that.
Kenny: He owned the majority of the preferred stocks, so he was the majority owner. But when that whole MCI WorldCom Russian ruble crisis happened in '97, he basically called up his buddy, Sandy Weill at Smith Barney, and said, "Take me out." And so, Smith Barney, Sandy Weill ... Now, Smith Barney was a very different organization than Salomon Brothers.
Martin: Yes.
Kenny: Smith Barney was very retail, right? They were a retail broker. Salomon was very much an institutional broker.
Martin: So, that's why your clients were mostly institutions.
Kenny: They were all institutions.
Martin: Yeah, so at Weiss Ratings, 99% of our subscribers are retail. And even if they are with an institution, they're subscribing personally. We don't do business with or have relationships with large institutions.
Martin: And that's deliberate.
Kenny: Right.
Martin: Because many of the rating agencies on Wall Street, the big three: Moody's, S&P...
Kenny: They're beholden to the big guys.
Martin: So, we don't want that relationship.
Kenny: Right. Right.
Martin: But so, tell me what is it like, what single experience do you remember that gives us a taste or a feel for what it's like dealing with those guys?
Martin: This is a surprise question. And the fact that you're stumbling in getting the right answer is a testament to the fact that we didn't prepare any of this.
Is there an experience? Is there a conversation that would be a memorable one that you'd like to tell us about? To illustrate what it was like.
Kenny: Well, I could pick from a whole range of them. I could start with the birth of the bull market in the summer of 1982 when interest rates were 21% and inflation was 13.5%. Paul Volcker, who was Fed chair at the time, and Henry Kaufman, who was at Salomon Brothers, they came. Ronald Reagan was president. They had just passed the Reagan tax reform package.
The markets were struggling. It was August 17, 1982. The date is seared in my memory.
Martin: Okay.
Kenny: But it was people, individual investors that had any money at all who could take their money and buy stocks or they could take their money and go to the bank and give it to the banker and earn 21% guaranteed, “riskless sleep at night” in the bank. Because interest rates were 21%.
Martin: And yet, it was the beginning of a bull market.
Kenny: Well, because Paul Volcker came out on that Tuesday morning, with Henry Kaufman and made this announcement that they had broken the back of inflation.
Martin: They declared victory over it.
Kenny: They declared victory and why did they do that? To the other point, is that they had to raise rates above inflation in order to kill inflation.
Martin: Right.
Kenny: Which they did.
Martin: So, once they declared victory, it meant that no matter how inflation, how high interest rates were, looking forward into the future, you could see them going down.
Kenny: And that was the birth of the bull market. And so, on that day, on Tuesday, August 17, when that announcement came out at 8:30 in the morning before the markets opened, the place went crazy. And as I sit here and I think about it as I'm telling you this story, I can feel myself standing there on the floor. I can hear the phones ringing. I can hear the people, screaming buyers. Everyone wanted to buy, buy, buy. And it was one of the most amazing moments in my career, in the history that I had in the 38 years that I was there.
It was an amazing moment when I think about it. When the Fed, chaired by Paul Volcker, came out from behind the curtain, opened the door, went to the podium, made this announcement that they were cutting interest rates. Listen to this.
Cutting interest rates two full percentage points. So, they were going from 21 to 19%.
Kenny: That was a massive move, considering today they're talking about raising rates by a half of one percent and everyone's having a nervous breakdown, right?
Martin: Right. Right.
Kenny: So then, because rates were so high, he made this announcement. They had beaten inflation. Now, it was his time to start to bring rates back down. He was going to draw money out of the banks into where? Into the market. Which then created the greatest bull market this country and the world have ever known. And for retail investors, it was a gold mine.
Martin: But today, we're in exactly the opposite side of the pole.
Kenny: That's exactly right. So, it's going to be a very interesting time.
Martin: Yeah.
Kenny: But to your point, you know, when you said, "Tell me an interesting story." What I think is so appropriate is because it's the polar opposite of what happened then. Right?
Martin: Yes.
Kenny: It’s that interest rates were already up here.
Martin: Right.
Kenny: Inflation was here. And so, rates were above them. He cut inflation but he cut the interest rates and made the point that inflation was going to start subsiding and interest rates were going to normalize and go down. And so, it created massive opportunity for investors to jump in and get in the market. And it was the birth of the bull market that took us from 1982 right until 2000.
Martin: You have nailed it. Even though I didn't prepare you with the questions.
Kenny: Yeah.
Martin: And you have nailed it to exactly what's appropriate and interesting for us today at this moment in time.
Kenny: Well, because it is the polar opposite of where we were.
Martin: You were there.
Kenny: I was 19 years old. I was going into my senior year in college.
Martin: Oh. I thought you were in the stock exchange.
Kenny: I was on the stock exchange for the summertime. Because August 17 was the summer. So, I was interning on the floor.
Martin: Oh. You were interning as a 19-year-old College student.
Kenny: That's right. So, I was on the floor. I had done it the summer of '80, '81 and now I was back for the summer of '82.
This was my third summer. It was August 17, so it was middle of summer, I was still interning. That announcement came out. The markets went absolutely ballistic, as you might remember.
Martin: Yes.
Kenny: And actually, what was really interesting about that day is when that news came out, remember, there was no internet then. There was no Facebook, Twitter, LinkedIn. There was none of that.
Martin: Right.
Kenny: There was no television on the floor, no radio on the floor, nothing.
No Bloomberg's on the floor, nothing. Right? But when that news came out and the markets just took off, the market was up, the Dow was up 4.5% that day.
Martin: In one day.
Kenny: Yeah. But 4.5% was 35 points, because the Dow was trading at 800, 792. Right? So, 4.5% today would be 15, 14, 1500 points today. Right?
Martin: In one up-day.
Kenny: In one up-day. Right.
Martin: We've seen that happen in down days, but we don't see that in an up-day.
Kenny: Right. It was the birth of the greatest bull market.
Martin: Interesting.
Kenny: I graduated Boston University in May of 1983 and then came right back because this guy that I was working for offered me a job. You know, nine months down the line when I went back in September, he said, "You come back in May when you graduate", which I was salivating for. I couldn’t wait to go back.
Martin: So, as soon as you graduated, even before your summer vacation, you just went straight to the exchange.
Kenny: Well, I called them up in April and I said, "Listen, I'm never going to get a chance to do this. I want to go to Italy for one month before I start this job."
Martin: Okay.
Kenny: And he laughed at me. He was the greatest guy. I love this guy.
Kenny: So, I went for the month of June with a buddy of mine. We went up and down Italy. And I came back at the end of June and moved to New York on July Fourth weekend in 1983.
Martin: Which reminds me. I understand that there's another side of you that's connected to your Italian heritage. Which makes people salivate. Literally salivate. Can you tell us about that?
Kenny: Yeah. So, I love to cook. Well, I'm the middle of five kids from a Boston Italian family, right? So, I had my grandmothers and my mother and even my father's a great cook. And so, I grew up with a pot in one hand and a spatula in the other. It's just what we did, right?
Kenny: People like to play golf or they play tennis. I like to cook. It's just what I like to do.
Kenny: And I find it relaxing. And I find it, there's an intimacy in cooking when you cook in your house and you invite people into your home, there's a real intimacy about that. And that's how we grew up. And so, that's how my wife and I live our life today. But I love to cook, and you can find me always talking about food and finance, because there is a connection.
Martin: Food and finance. Okay.
Kenny: There is a connection.
Martin: Which is?
Kenny: Well, because finance can be so unnerving for people.
Martin: Yes.
Kenny: But, food, on the other hand, is so nurturing, right, for people.
Martin: That's the way we see wealth and wisdom also.
Kenny: Exactly right.
Martin: So, yeah.
Kenny: Exactly right. Which I think why this is perfect. But one way or the other, so that day is seared into my memory as one of the greatest days of my career. Now listen. There were a bunch of others. There was the crash of 1987, which was the complete opposite kind of feeling, right? Devastation.
Kenny: I was on the floor and I was 26 years old.
Martin: What do you remember about that experience? Because I know there were periods of time where there was no liquidity. You couldn't sell stocks. Basically, the market mechanism had basically shut down, right?
Kenny: Well, there were some stocks, more the illiquid names. But you just couldn't do anything with them. But the big names, that's why you saw such devastation in the large mega-cap names. So, for instance, Johnson and Johnson, right? On Friday, October 16, closed at $96. On Monday.
Martin: Black Monday.
Kenny: Black Monday, October 19 when the markets came under duress and the Dow lost 22.5% of its value in six and a half hours.
Martin: In, not one day. Six and a half hours!
Kenny: Yeah. That's one trading day, right? Six and a half hours.
Martin: Oh, okay.
Kenny: It's from 9:30 until 4:00.
Martin: Right.
Kenny: Johnson and Johnson closed at $45. It lost 50% of its value in that one day.
Martin: In one six-and-a-half-hour period.
Kenny: Because the markets came under such duress that people needed to raise money. And they sold what they could, to your point. They sold. Now, they didn't necessarily want to sell Johnson and Johnson, but they couldn't sell Bank of Hawaii.
Martin: Right.
Kenny: Because Bank of Hawaii trades 100,000 shares a day. Johnson and Johnson trades three million shares a day. The market cap is different. So, they couldn't, while they should have sold Bank of Hawaii.
Martin: They couldn't.
Kenny: So, they sold what they could. So, you hit button and you sold Johnson and GE and American Telephone.
Martin: So, let me ask you this, and the question everybody wants to ask, right?
Kenny: Yeah.
Martin: Could that happen again? And if so, why or not?
Kenny: Okay. So, it couldn't happen in the way it happened in 1987 because out of 1987 were born a whole new set of regulations and circuit breakers. Circuit breakers did not exist. 1987 gave birth to those circuit breakers.
Martin: I remember that. So, the market could go down, but it would be interrupted with these.
Kenny: It would be interrupted. Correct. It wouldn't go down like it did on Black Monday.
Martin: So, what do you think, looking into the future, might trigger such an event? Such a sharp sudden decline.
Kenny: A black swan event.
Martin: A black swan event. Back to black swans.
Kenny: That's right.
Martin: And we don't know what that black swan …
Kenny: And we don't know what that black swan will be.
Martin: Right.
Kenny: Look, it could be a monetary central bank black swan event. It could be this out-of-control inflation that we're experiencing right now that doesn't want to subside, that doesn't want to roll over and die, that wants to remain elevated. Or continues kind of inching up even, right? Recognizing that Jay Powell's policy is not working.
Martin: So, this is the key now. If, the hurricanes we could see coming got bigger, we know they're coming.
Kenny: Yeah.
Martin: And if those hurricanes spin off …
Kenny: They spin off those tornadoes.
Kenny: Right.
Martin: And one of those tornadoes is a black swan that strikes the market
Kenny: Correct.
Martin: We don't know exactly when that tornado will strike. But we know there's a hurricane coming. It increases the probability. Maybe we'll at some point be at the point of certainty.
Kenny: Right.
Martin: That black swan events will strike.
Kenny: Right. Well, they will strike. We know that.
Martin: Right. So, now the big question is, how do you prepare for such an event? How do you build a wall of protection around you? And the next question is going to be even more intriguing.
How do you actually turn that crisis into a profit opportunity that protects your other vulnerable investments?
Kenny: Well, that's such a great question and, there's a lot to unpack there because you can build a wall around you or around your portfolio that feels like it's right, feels like it's protection. But you get hit with a black swan that you're not expecting, and you don't know whether that wall really works. Right?
Martin: So, instead of having a fixed idea ahead of time, what exactly you're going to do, you need the knowledge, the flexibility to adapt.
And you need the wisdom coming from someone like yourself, wealth and wisdom to act in an appropriate way at that time.
Kenny: At that moment.
Martin: You can't give me a recipe for a black swan event that you can't forecast.
Kenny: No, you can't.
Martin: Right? You can give me a recipe for one of your choice dishes.
Kenny: Yes. I’d be happy to do that.
Martin: Yeah. You can't give me a recipe for it. You have to give me the tools and the knowledge now.
Kenny: Right.
Martin: And get me prepared so that when the time comes, I can adapt quickly and that's the other part of this, okay? With the bull markets, we've had now since the Fed started printing money, right?
This bull market really began, the one we've seen so far, it really began in early 2009.
Kenny: Correct. Exactly when it began.
Martin: So, that's close to 12 and a half years.
Kenny: 2009 to 22, 2022.
Martin: 12 to 13 years.
Kenny: Right. But this has been fed by …
Martin: The Fed.
Kenny: The Fed has fed it, right?
Martin: The fed has.
Kenny: They've been feeding it with the stimulus.
Kenny: And the zero interest rates and the stimulus.
Martin: And a lot of people are fed up.
Kenny: Yeah. How great is that? It was fed by the Fed and now we're fed up. I think that's perfect. I'm going to use that in my note tomorrow, I think.
Martin: Okay.
Kenny: I will be on Wall Street Week with Maria Bartiromo tomorrow.
Martin: Oh, Maria.
Kenny: Actually, tonight and tomorrow.
Martin: I remember Maria from the old days when she was with …
Kenny: Yeah, she was on CNBC on the FNN.
Martin: FNN. Yeah.
Kenny: She was like 24 when she came down to the floor. That's when we first met. She was the first reporter that was allowed to broadcast live from the New York Stock Exchange. And that was Dick Grasso who was President of the Exchange at that time.
That let her do it. And what was fascinating about that is that by allowing her to do that, by allowing the television to come directly to the floor, he opened up the world of finance to the world. Right to your living room. You could turn on your TV and feel like you were right in the thick of it because she was right in the thick of it. There were times there where she did. We'd be going crazy, and earnings were out, and the crowd would be crazy. And she'd stick herself right in there with the camera and film what was going on. It was really unbelievable.
Martin: Okay. So, now let's get back to the fact that we have to start getting ready now.
Kenny: Right.
Martin: And the biggest enemy in my opinion of being ready is the big word I call, complacency. The consequence of complacency is catastrophe. So, we have to be ready.
Kenny: Agreed.
Martin: So, what does one do to get ready? Well, first, you need cash, right?
Kenny: You need cash. You need knowledge, like you said, right? You have to understand the dynamics. You have to understand the stocks you want to own. You have to understand the history of them.
Martin: You have to be flexible. I don't care how much you love all the profits you have in a particular stock.
Kenny: You can't get married to them. You have to be flexible.
Martin: Right.
Kenny: When the tides turn, the tides turn.
Martin: Right. And when Weiss Ratings downgrades a stock, you have to sit up and listen. Stand up and listen.
Kenny: That's exactly right.
Kenny: Which is why I tell you this all the time. I use Weiss Ratings on my portfolio every month. I look at it.
Martin: Let me ask you a question. Let me ask you a question. Have you gone onto the Weiss Ratings website, selected or clicked on the stocks that you own or that you're very interested in and created your own personal watch list?
Kenny: Watch list. I most certainly have.
Martin: Okay.
Kenny: And so, then I get the emails every time there's a comment, every time there's a ratings change. Boom, I get the email right away. And so, then that forces me to go back, look at it. I want to go back. And I end up checking my whole portfolio again. Once I get one email about one stock, then it makes me go back there and do the analysis all over again, right? Even if I did it yesterday, I'll do it again today if I get the email today. I just will do it. That was the first thing I did, was create my watch list.
Martin: I'm so glad we're having this conversation to launch today with this mutual interview. Wealth and wisdom.
Kenny: Right.
Martin: Because not only will you be able to bring your own knowledge to the table and we got a small taste of that today, just a small taste.
Kenny: Just a tiny little taste.
Martin: And it wasn't as delicious as the recipe, but it was a good, it was a good taste. And we are now looking forward to getting your wisdom but also, the wealth of knowledge that you can tap into among all the editors. Who have you spoken to recently among our experts?
Kenny: So, Mike Larson who I adore. I think he's so great. He's methodical, thoughtful, forward and balanced. He's forward looking. He's so well-prepared. And he's a good guy. He's just a good guy.
Martin: Yeah.
Kenny: Right? I look forward to talking to him. Then there's Juan Villaverde, which I'm going to speak to, I think actually in a couple of weeks.
Martin: Beyond Juan, who do you have on your deck?
Kenny: Chris Graebe, who's one of the newest Juans.
Martin: Yes.
Kenny: Who’s going to be talking about his pre-IPO service.
Martin: Yes.
Kenny: And which is also going to be fascinating.
Martin: Right.
Kenny: I'm organizing with him.
Martin: You can interview anyone anywhere in the world.
Kenny: Around the world. Which is really amazing, right?
Martin: Yeah.
Kenny: And that is one of the things that the pandemic, made so exciting for people.
Martin: Good things come out of bad.
Kenny: Yeah. Agreed. So, I look forward. But there's a lot on the calendar. I don't want to give it all away.
Martin: You've had some conversations also with Tony Sagami.
Kenny: I have. I think Tony Sagami was great. I enjoyed the conversation with him. He's got a wealth of knowledge.
Martin: He's also a veteran, a long-time veteran.
Kenny: Well, he's been at Weiss Ratings for 30-plus years with you.
Martin: Yes. And Tony's forte is dominators, in other words the big dominating companies.
Kenny: Dominators and disruptors.
Martin: Yes.
Kenny: And so, we had a great conversation.
Martin: And you need a balance of both, right?
Kenny: Absolutely.
Martin: In your portfolio.
Kenny: It's kind of like wealth and wisdom. Dominators and disruptors. Because the dominators are the names that are dominating in the space. And the disruptors are the names that are disrupting the space. And so, it was a very interesting conversation. I think once that gets completed, I think subscribers and the partners and the members will really enjoy that one.
Martin: Have you spoken with Jon Markman?
Kenny: I've spoken with Jon Markman once.
Martin: Jon is a genius in something that's probably the trickiest in the world. Timing with options.
Kenny: Options.
Martin: Yes.
Kenny: Right. He's got a great service.
Martin: So, when you purchase options, you have a short time frame to make that option work.
Kenny: Right.
Martin: It either works or it doesn't.
Kenny: Right.
Martin: And hanging on to the option for the long term does not.
Kenny: No, but that's not the strategy of options.
Martin: Time works against you.
Kenny: Correct.
Martin: Right? So, Jon has perfected a method of really getting the options, be it puts or calls at that right moment and getting out.
Kenny: It's also a fascinating topic, right?
Martin: Yeah.
Kenny: But those are all ways to help you protect and build that wall, to protect.
Martin: Exactly.
Kenny: So, I look forward to having that conversation with him as well.
Martin: Great. Well, I'm so glad I had this opportunity to reciprocate.
Kenny: Reciprocate.
Martin: Yes.
Kenny: Turn the table on me.
Martin: Turn the tables on you. And it's really a two-way conversation.
Kenny: It is. Yes, it is.
Martin: We seem to have a lot in common. Thank you so much.
Kenny: Thank you.
Until next time,
The Weiss Ratings Team
