The Gartman Letter may be over, but Dennis Gartman called the top of the market when his last letter told readers to sell. The end of 2019 marked a historic end to a tumultuous time. It also, unfortunately, marks the end of the daily publication of The Gartman Letter, a newsletter that has been going on daily for 30 years. The last newsletter was published on the last day of 2019 by the almost 70-year-old “world-renowned commodity guru” Dennis Gartman. The market analyst has decided to shift from waking up at 1 AM and talking about the changes (or lack thereof) in the market, and instead has decided to pivot “to a totally different and much less rigorous life… perhaps producing a biweekly commentary and a podcast or two each week as we deem it necessary.”
Before Dennis left, however, he had one piece of advice to leave, though it looks more like a warning than anything else. Dennis claims that many asset classes these days have disappointing long-term expected returns, and that stocks “[are] either overvalued or extremely overvalued right now.” Where does Gartman get this pessimism from? If you were to ask Mark Hulburt from Barron (who recently interviewed Gartman), this warning comes from a more base belief: that there is a lack of experience and a lack of fear among those participating in the market. Warning that such optimism is dangerous, and that severe market drawdowns haven’t happened in generations, Gartman claims the coming bear market will “do real and perhaps severe damage to portfolios everywhere.” A quote from the letter reads:
… we are quite certain that when this bull market ends it shall end very badly for such markets always do end badly. The buyers have enjoyed having the investment winds at their backs. But those winds will eventually shift course and when they do shift, they shall swamp everyone… the reckless neophytes as well as the conservative, sophisticated investors alike. When the next bear market comes… and IT WILL COME!… those who out-perform will be those who lose the least for when the market does fall 25-30% in some twelve-month period the manager who is down “only” 9% will be the hero of the age.
Thus these all-too-easily-made profits enjoyed so readily by the neophytes will evaporate with these inevitably changing investment winds just as the profits of 1999-2000 evaporated into the thinnest of air in 2001—2002 and just as the profits of 2005-2007 evaporated in the collapse of ’08-’09.
Gartman claims the current market is a “kids market,” a term originally coined in the 1960s in George Goodman’s book “The Money Game.” The phrase is used to describe a market in which the biggest traders are too young to have invested in the last bear market. Gartman describes these “kids” this way: “[They’re] young, brash, utterly naive, ill-educated, egregiously overconfident, neophyte-yet-fearless ‘investors’. And with the so-called kids gaining more and more presence, “market veterans” like Gartman are left on standby, “fearful yet envious” of the kids’ profits.
With all that said, this isn’t Gartman’s first “kids markets.” He points out that he’s been through multiple, and that they all have ended badly, and so this one is likely to do the same. And when that happens, the “all-too-easily-made profits [of today’s] kids” will evaporate,” which echoes a warning given out by experts during the early 2018 crypto market crashing, turning bitcoin billionaires into bitcoin busts. Gartman likens the current market to Dante’s Inferno, where a younger investor requires the guidance of a mentor figure to avoid the 9 circles of bad investment. “No amount of education can substitute for that experience,” Gartman says, and that’s why he doesn’t trust “a 26-year old who has just gotten his M.B.A. and has no experience.” His advice: “Don’t follow anyone who hasn’t been around for at least an entire cycle.”
Of course, this is all still speculation from Gartman. Currently, with the Fed artificially adding to the market, those untrained 26-year olds with a brand new M.B.A. are going to continue flourishing. Of course, Dennis didn’t get this far by being impatient, and he realizes that at the current rate, the stock market will continue to rise, at least for a time, before going from a bull market to a bear market. Of course, even if it does keep rising, Gartman still believes that any potential upsides are overshadowed by the potential downsides for agricultural commodities, which Gartman prefers over other asset classes, as he claims they are “unbelievably inexpensive right now.”
The only thing left to do is go through this new year of 2020 and see what happens. This past decade caught all of us off guard with how the markets seem to not make near as much sense as they should. If you would like to partake of Gartman’s wisdom, we’ve decided to republish his letter below, in hopes that some of his experience will reach you and allow you to make more informed decisions.
WHAT HAVE WE LEARNED: This being the final edition of The Gartman Letter as we drift off to a far less onerous schedule producing a bi-weekly written commentary and doing pod-casts on an as yet undecided upon schedule, we need to leave our friends/clients/readers around the world some thoughts on what we have learned about the markets and so we are today doing exactly that.
Firstly and perhaps most importantly we’ve learned that the single most import Rule of Trading is to never, ever, ever add to a losing trade. As our old friend, Paul Tudor Jones, says “Averaging losers is for losers.” If one buys a stock at $50/share and it goes to $45, why are you buying more when the market is telling you that your decision was the wrong on? You may simply be early but early in our business is the same as being wrong; or you may have the trade/investment thesis entirely wrong and the stock is headed toward much lower prices or even perhaps to bankruptcy. Enron was a highly touted stock at nearly $91/share; it was bankrupt two years later! Better it is to wait until the stock in question is profitable for then the market is telling you that you are right; that your thesis is the correct one; that the investment wind is at your back and that the investment coast is clear.
We have learned this the hardest of ways, by having broken the rule; having averaged down and having almost always suffered even greater losses than we had originally suffered. Indeed, the market’s gods are wily enough to entice you into averaging down once or twice and for that to have proven profitable, only to trap you into the third time when the market moves materially and seemingly relentlessly against you in a career ending collapse.
Secondly, we have indeed learned that as Lord J.M. Keynes and Dr. A. Gary Shilling told us, the markets can remain illogical far longer than we can remain solvent. Our investment corollary to that is that the market will return to rationality the moment you have been rendered insolvent and then shall turn on the proverbial dime and move in the other direction. It happens all the time. It will happen again; count on it!
Thirdly we have also learned that as Keynes said, “When the facts change, I change.” That is, when the market and/or the fundamentals as we had understood them turn against us it is best to admit that the facts of the investment in question have changed and that holding on is an illogical and almost always a very costly decision.
We have learned that markets move in very large cycles and that what is very popular now will inevitably become unpopular and that what is manifestly unpopular now shall become popular again. As Ecclesiastes tells us, “To everything there is a season” or as Caesar’s servant reminded him “Ubi sunt qui ante nos fuerunt?”… Where are they now? We have learned too that trying to anticipate the turn from popular to un-popular and from un-popular back to popular is a mug’s game for as noted above, illogic can obtain for a very, very long while.
We have learned to listen to those who have in the past been the wisest for wisdom is a God-given talent and rarely is lost. The Wise of years past will likely remain the Wise of coming years. The Keyneses, Shillings, Wesburys, Kasses, Perrys, Tudor Joneses, Grants, Williamses, Coxes, and Buffetts et al were wise in the past and will be wise in the years ahead because they have all been battle tested and have survived.
We have learned that bad things happen far more quickly than do good things and that bear markets are far more severe and swift and terrifying than are bull markets. As the late economist, Rudiger Dornbusch, once so wisely said, “In economics, things take longer to happen than you think they will and then they happen faster than you thought they could.” This is especially true in the transmission from bullish to bear markets and from economic expansion to recession.
We have learned that economic news doesn’t matter until it matters and then it matters… a lot.
We have learned again and again and yet again that markets that won’t go up on bullish news are not bullish markets or have finished their previous bullish run; conversely, markets that won’t go down on bearish news are not bearish or have finished their bearish run.
We have learned that friends mean a lot in the business of trading/investing… perhaps more than anything else and we acknowledge all of the men and women who’ve been friends over the years too many to mention but who shall not be forgotten [Ed. Note: Steve, you’re #1.].
Finally we have learned that we’ve been involved… and will remain involved… in the greatest of all businesses that allows us to match wits with geniuses on a daily basis. There is nothing quite like it, really. We count ourselves blessed and very, very lucky to have staked out a position in the capital markets and that we’ve perhaps even added a bit to the accumulated wisdom incumbent therein. And above all, we’ve been lucky to report to the greatest of all CEOs… our lovely bride of 30+ years, Margaret, who kept us focused when times were rough and even when times were great. We’ve been fortunate. Thanks to everyone! We mean that sincerely. THANKS TO EVERYONE!