The Black Monday

Asia sold off like crazy. Europe came apart at the seams and the US futures were lock-limit down before the open. That is precisely what happened in 21 years ago. On Friday October, 16 1987, stocks cratered. Then the following Monday, stock markets around the world absolutely cratered. In a single session, the Dow 22.7% — in a session — the single largest point decline in history.

The financial winds are blowing unfavourably. As money is being printed uncontrollably, inflation is the only option and fiat currencies are doomed. Global capital flow is shifting direction and composition. In other words, money is escaping risky assets and making a beeline to safer U.S.-dollar based assets and cash.

When the stock market bubble burst in Japan back in 1989, (the real estate bubble burst a couple of years later), the Bank of Japan pumped massive amounts of yen into the financial system and that pushed interest rates to zero. The key lesson is that when banks have a massive amount of bad debts, the liquidity fails to translate into lending. Furthermore, Japanese consumers, after being crushed by the stock market crash and watching real estate investments crumble, weren't interested in borrowing anything at any rate. And many had no collateral left to borrow even if they wanted to. Does any of this sound eerily familiar?

My long-standing forecast for this phase of the decline is 7,200 on the Dow. But do not assume that will be the final bottom.

In his testimony before Congress yesterday, former Fed Chairman Greenspan confessed that this financial crisis may be the worst in 100 years. If that's the case, then it's not beyond the realm of reason to anticipate a stock market decline that's also among the worst in 100 years.

We may get a sharp rally at any time, especially if the government intervenes. If so, use it as your opportunity to sell the balance. But crisis is also opportunity — for the country to heal itself and for you to build your wealth.

Trade well and follow the trend, not the so-called experts.