Altucher: "Relax," We've Been Through Much Worse Than This

Posted May 28, 2010 09:35am EDT by Peter Gorenstein in Investing, Recession
Related: ^gspc, ^dji, spy, XLF, ^ixic, EEM, FXE
Europe’s sovereign debt crisis has wrecked havoc on the markets in the last few months. We’ve had a spike in the VIX, aka the fear index, the flash crash and many global markets are now back in bear market territory. In the U.S. were on track for the worst May in half a century.

The wild market action has many investors wondering: How will we get out of this mess?

"Everybody needs to just relax a little bit," says James Altucher, president of Formula Capital. "This is not Argentina, this is not Zimbabwe."

The market has been through much worse than this in the past 30 years and Altucher believes the economy and stocks will remain resilient.

When has it been worse?

--In 1982-83 Brazil, Mexico, Venezuela and most of Latin America all defaulted or, came close to defaulting. "The whole world was going bankrupt and we were coming out of the Volcker led recession from the early '80s where he was fighting inflation," he notes. Guess what? After a bailout – U.S. markets were up 49% those two years.
-- 1987’s Black Monday. Think the 'flash crash' was frightening? On October 19th, 1987, the Dow fell 22%. In a single day! Hong Kong markets fell 45% on that day, alone.
--1997’s Asian financial crisis lead to Russia debt default in the following year and the collapse of hedge fund Long Term Capital Management. Talk about contagion.
-- September 11th, 2001. "It seemed like the world was ending, it was the scariest thing that happened to me, at least, in my lifetime, and it was horrible for the country," Altucher recalls. "And, we were in the middle of a recession."
Bailouts and quantitative easing followed most of these previous crises. But our current predicament comes after we've already had the biggest bailout in history and rates can't go lower. Altucher has a retort to that concern too, noting half the stimulus package hasn't been spent yet. In fact, he's more concerned that using the rest of the funds will create another bubble and lead to higher inflation.

That's a problem the Fed might look forward to.


The debt crisis in Europe likely spells slower growth across the Atlantic. China is taking steps to put the brakes on its runaway economy and the U.S. housing market still looks weak. There's seemingly plenty of reasons to be a stock market bear, especially after the run we've had over the last year.

Nonsense, says James Altucher, president of Formula Capital. The economy and market will continue to surprise, he tells Aaron in this clip. In fact, he's calling for a 'checkmark'-shaped recovery, stronger than the ‘V’ we hear so much about. "The debate is over, it’s already been a V, now the question is, does it continue? I think it does," he says.

Why is he so confident?

-- The job market is improving. “We've seen temp workers go up for seven months in a row," the fastest pace since 2004. Average pay and hours worked are up and the U.S. added 290,000 jobs last month, the biggest jump in four years. Plus, he notes, “jobs in self-employed positions and start-up businesses have jumped by 1.9 million in the past four months."
-- Car sales are up by 25% in April compared to a year ago. “How did Toyota have 27% year over year car sales increase?"
-- Pending home sale are up 21% year over year.
Altucher is confident all this will translate into record profits and an all-time high on the S&P 500 by the end of next year. "I know people are going to laugh," but the proof is in the pudding, he says.

How do you make money on this?

"Play the triple play companies. The ones that beat earnings, beat on revenues and guided up," he says. At the top of his list are Intel, Starwood Hotels, Humana, Intel, EMC and IBM.