Early Warning: The "Pearl Harbor" Threat to America's Middle Class

His name was Truman Landon.

He was a U.S. Army Air Corps bomber pilot at the start of World War II.

And he inadvertently played a pivotal role in America’s biggest nightmare of the war — the Dec. 7, 1941 attack on Pearl Harbor that caught U.S. forces flat-footed and vaulted the country into history’s second global war.

It’s a story with lessons for Wealth Builders like us — the kind of market intelligence military folks would categorize as “need to know.”

And you need to know.

Landon was a West Point graduate who earned his wings in 1930. And in the peacetime Air Corps (still part of the U.S. Army), he was an achiever. By 1939, he was commander of the 38th Reconnaissance Squadron.

And on Dec. 7, 1941, then-Maj. Landon was leading a dozen B-17 Flying Fortress bombers on a flight from Hamilton Field, Calif., to the Philippine Islands — with a stopover at Hawaii’s Hickam Field, adjacent to Pearl Harbor.

America’s peacetime military was still getting its footing with long, massed flights of big bombers like these. And this flight would be made at night — a 14-hour trip with the bombers arriving in Hawaii shortly after dawn. Because of the distance — to boost the flying range of the thirsty, four-engined B-17 – the planes were stripped of all guns and ammunition … and were filled to the gills with fuel.

Maj. Landon’s flight inadvertently played into the “Day of Infamy” — magnifying the blunders that had been made from Washington to Hawaii and escalating the Japanese surprise.

Everyone knew the bombers were coming in. So when privates Joseph Lockard and George Elliott – operating the new and still-wonky radar station at Opana on Oahu – spotted a giant flight of airplanes headed for Pearl Harbor, the sighting was dismissed as probably the B-17s. (One staffer, told of the radar sighting, famously said “don’t worry about it.”)

The spaced-out bombers started arriving over Hawaii as all hell was breaking loose. The crews saw smoke, explosions and then were fired upon by Japanese fighters.

At the end of a 2,400-mile flight, all were low on fuel. One plane landed on the Kahuku Golf Course. Another had its landing gear sheared after it turned off the runway. One started to burn in the air when bullets ignited its emergency flares — but got down before burning in half.

Looking out the windscreen, Maj. Landon reportedly said: “It’s a hell of a way to fly into a war — unarmed and out of gas,” a scene captured in the 1970 war flick Tora! Tora! Tora!.

I know you’re thinking: “Okay, Bill – with U.S. stocks at record highs, inflation not a problem and the path now clearly paved for central bank rate cuts that could kick share prices even higher, why are you telling me this story?”

I’m glad you asked.

Clearly not today, probably not tomorrow and perhaps not for the foreseeable future, the bullish market and economy trends aren’t going to change.

But they will. At some point. When you least expect it. From a “wild card” none of the “experts” are talking about. And probably sooner than you think.

And when all hell breaks out, as it will, I want to make sure you’re not “flying into a war — unarmed and out of gas.”

The cracks are already appearing.

Preparing now — when stocks are strong, the economy still has steam and things are generally good — will serve you well when the bad times come.

That’s especially true for the once-vaunted (and now endangered) American Middle Class. By remaining unprepared, this crucial group could end up facing a Pearl Harbor-esque event.

Not everyone is Truman Landon, who got his plane and crew down safely, who won the Silver Star for his “skill, coolness and daring under fire,” who eventually made general, and who gave us a classic line that we’re turning into wisdom for Wealth Builders.

Here’s how you can avoid the stock-market surprise attack that’ll come … someday — and maybe soon.

If You’re Not Worried, You Should Be

Let me start with a key point: No one can tell you when the next stock-market correction/bear market/or crash is coming. Not with certainty.

And anyone who says so is:

• Lucky (it happens).

• A liar (lots of those).

• A self-promoter.

• Or a scam artist (make sure their hand’s not in your pocket).

I don’t make “this will happen on this date” type of predictions.

But we don’t need to. We just need to work our strategy … and to be proactive.

We look at storylines. We use data. We understand the impact of investor emotion — which turns most folks into Wealth Killers. And we know that America’s “Wealth Gap” is turning into a “Wealth Chasm” — and that the U.S. Middle Class is decidedly “at risk.”

The data tells us that “cracks” are appearing in the bullish façade.

Things like:

Consumer confidence is slipping: Consumer spending drives 70% of the American economy. The University of Michigan Consumer Sentiment Survey skidded a hefty 5.7% in August from July and was down more than 14% year over year. Inflation fears were a key trigger. A subsequent report said inflation had improved. But I make the rounds: Regular folks aren’t feeling sanguine about their personal futures.

A Yucky Job Outlook: Yes, I said “yucky.” It’s a real-people term, not financial jargon. The Labor Department said Tuesday that the economy added 911,000 fewer jobs than previously reported for the 12-month stretch that ended in March. As a follow-on to the previous point, a New York Fed survey released last week found record-low sentiment among workers who believe they could land another job if they lose the one they have now. (Indeed, recent studies say it takes as long as six months for folks who lose their jobs to find a new one.) And an early-September report said that — for the first time since April 2021 — the number of jobless Americans is bigger than the number of available job openings. U.S. Navy Federal Credit Union Chief Economist Heather Long called it a “frozen job market” and told CBS News this is “a turning point for the labor market … it’s yet another crack.” Hmmm … my words exactly.

Tick, tick, tick (I): Household debt hit a record $18.4 trillion in the second quarter, with credit card balances rising and delinquencies surging for student loans, mortgages and home-equity loans. But that’s misleading. Recent ICE Mortgage Technology data says a growing number of consumers are using their homes as (let’s term it) “virtual ATMs.” In the second quarter, 59% of consumers who refinanced their houses pulled cash out of the deal — adding to their debt load. In the past, 44% to 67% say they’re using the cash to pay off debt — but who knows? California UMortgage loan officer Matt Gouge told Yahoo! Finance that inflation is hitting home, stating that “more and more people [see] their cash flow is running negative, and you can’t do that forever, so you look at your home.” I’ve seen this before: It often turns out ugly.

Tick, tick, tick (II): It first looked like Washington was going to tackle America’s debt addiction. But that can was kicked down the road — again. The U.S. national debt has surpassed $37 trillion, and forecasts show it could reach 118% of GDP by 2035 and 156% by 2055. Frequent SPC guest Mark Higgins, author of Investing in U.S. Financial History, has repeatedly told us that the U.S. debt bomb is one of the biggest threats to America’s long-term future. And the resulting uncertainty is already having an impact, as we see because …

Gold and silver have surged (as we told you they would):Yesterday (Thursday), gold surpassed its inflation-adjusted peak set back in 1980. Silver recently eclipsed the $40 level for the first time in 14 years. Declining confidence in the greenback is a “trigger.” So is central bank hoarding and the already mentioned debt and sentiment issues that have folks scrambling for safe havens. And if the U.S. Federal Reserve cuts interest rates — which pundits are saying is a “sure thing” next week — expect gold to surge higher. And let’s not forget that …

The “Middle Class Squeeze” is definitely getting worse: I focused on that specifically at the outset, so I want to focus on it again here. Middle Class families continue to be hammered by rising costs, stagnant wages, and limited financial flexibility. We already talked about debt. And negative cash flow. The NFCC Financial Stress Forecast rose to 6.6 out of 10, a sign that debt “is no longer a background concern but a daily struggle for many families,” NFCC CEO Mike Croxson said last month. (It was 3.2 in the second quarter of 2021.) Inflation has chugged along at a 3% to 4% rate in recent years (and spiked to 9% in June 2022). And those inflation numbers are deceiving. Home prices have surged by a quarter in many markets — and are no longer affordable. Rents have surged: Modest apartments in locales like Florida are running at $2,500 a month. Healthcare grows more expensive. And “digital services” (anyone say “cable” or “Netflix?”) have soared in cost (see chart) — something that hits middle-income folks harder than the wealthy.

And those middle-income folks? Their wages have grown at less than half a percent a year.

Strategies For Winners

For now, “things” (stocks, finances and the economy) still look relatively good. And it’s easier to make moves when markets are strong than when they’re bad. Call it a “nice to make moves” versus “have to make moves.”

Better still, let’s translate that into the lexicon of Stock Picker’s Corner – something we detail in depth in our brand-new book Wealth Builder/Wealth Killer.

Wealth Builders act. Wealth Killers react.

Here are seven moves — a “Baker’s Half Dozen” — to make starting today:

Move No. 1: Cut Costs — Now: I mentioned the big surge in digital services. Here at Patalon Estates (I’m kidding), we love movies, TV shows and “binge-watching.” But a few years back, Robin looked at what we liked and were using, and what we weren’t. So we shifted back to basic cable — and saved a bundle. She’s an organic food aficionado: But she looked at which delivery services did a good job – and cut the disappointments. We’re looking at other things, too.

Move No. 2: Boost Your Savings: I know, I know … that’s Personal Finance 101. But how tough would it be to squeeze extra dollars from your paycheck? The Bureau of Economic Analysis said the personal savings rate dropped to 4.4% in July, down from 5% in April and 4.5% in May — and well below the pre-pandemic average of 6.37%. Boost it — just a bit. You won’t miss it. And you can start building an emergency fund and add to that “investing war chest.”

Move No. 3: Dump Your Junk: I know what you’re thinking: “So Bill … if you think stocks can keep climbing, why are we worrying about this?” It’s because stocks are climbing that I’m saying this: With markets at record highs, the fact that this “junk” you’re still holding hasn’t climbed in lockstep is striking. So there’s no better time than now to dump it; if we get to a phase where the general market (including “good” stocks) gets routed, you can bet the risky stuff (i.e. “the junk”) gets routed worse. Sell it now and stockpile the cash for another day. Better still …

Move No. 4: Be a “Next Bull Market” Investor: Wealth Builders like us are like “multi-level chess” players: We work our investments “today” — but we’re also “Next Bull Market Investors.” That’s why we want to have cash — “dry powder” in stock-market parlance.

Move No. 5: Be an Accumulator: I talked about “junk” being down. Well, good stocks can go down, too. Be honest, though: When you look at your brokerage statement, you know which “underwater” investments are “good” and have a future, and which ones are garbage that won’t come back.

Move No. 6: Be Ready for a Pullback: I love old maxims — like “when the going get tough, the tough get going.” There’s an SPC corollary: When stocks go down, Wealth Builders get interested. I know I do. I keep a “Watch List” of companies whose stocks I’d like to own on pullbacks. In fact, I did just that for myself and my son Joey after the historic two-day U.S. market rout in early April. And I shared that list with you in real time. In SPC Premium, we maintain a Farm Team list of companies we’re watching.

Move No. 7: Don’t Wait: I’m repeating myself here — on purpose. Act. Don’t react. If you go back and read the story of Pearl Harbor, you’ll see that American leaders and the American military had plenty of warnings — even the morning of the attack. (Besides the radar warning, the minesweeper USS Ward sank a mini sub at 6:50 a.m. — about 70 minutes before the attack began. The radar sight warning came 50 minutes before. But America was caught on the ground — inspiring the title of the 1982 Gordon Prange book At Dawn We Slept. As this other Tora! Tora! Tora! scene shows, the officials who waited for “confirmation” paid an especially wrenching price. Don’t wait for “confirmation” that the market’s gone wrong. It’ll be too late. Don’t come into a bear market “unarmed and out of gas.”

We’re here to help — always.

Like with Wealth Builder/Wealth Killer.

It’s already No. 6 in Amazon’s new releases in its Investing Basics section.

Already have a copy?

Consider buying one as a gift for a friend or family member to help them become a fellow Wealth Builder.

Do this while times are good. And fly into the next battle fully armed.

See you next time,