A Market Correction Long In the Making

Whether From Tariffs Or Something Else, Stocks Were Due To Fall 

Will Trump’s Tariffs Push The World Into A New Depressio

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Table of Contents

• Whether From Tariffs Or Something Else, Stocks Wer …

• Will Trump’s Tariffs Push The World Into A New Dep …

• “You’ll be jealous of others if you miss this…”

• Three Things To Know Before We Go…

• And one more thing… Tariffs take their toll 

• Mailbag

You know when you’ll never hear from your broker or your asset manager?

On a day when the CBOE Volatility Index (VIX) is trading above 30 and stocks are crashing!

But you will hear from me, because these are the days I live for! This is when great values emerge.

As you probably know, the VIX is an index that tracks the value of put options on the S&P 500. When it trades above 30, that’s an indication that investors are paying way too much for put options because they’re afraid the market is going to collapse.

Back in March, I told you to watch for the VIX trading above 30 – and to look to buy great businesses when it did. I’ve got an update to that advice, but first, let me answer the obvious question: How did I know stocks were about to tank?

Because the stock market was, until a few weeks ago, trading at the highest prices (measured against earnings) that we’d ever seen before in history. More expensive than 1929. More expensive than 2000. In fact, you had to go all the way back to 1844 (during the first railroad boom) to find a time in American history where stocks were this expensive.

While it’s true that most of this overvaluation has been centered on the Magnificent 7 – the giant tech companies – there are plenty of stocks trading at levels that don’t make any sense.

Just one quick example – McDonald’s (MCD) is trading at 27x earnings. It’s a great business and I’d love to own it, but buying at the current price just doesn’t make much sense. Using Ben Graham’s measure of intrinsic value (8.5 + earnings growth rate %) (earnings per share) gives you a share price of (8.5 + 5.6) (12.3) = $173. McDonald’s is trading today at over $300 per share, or nearly twice intrinsic value.

What I’ve seen in my own 30+ years of investing and what I know from financial history has taught me that bubbles seek out pins. Lots of people are going to blame President Trump for this decline in share prices, but such declines were inevitable. Stock prices have been wildly, historically, inflated. They were bound to correct.

Now… about Trump’s tariffs.