Stock Market Wealth
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DAMN STRAIGHT: Next Crisis Will Chill Your BONES!
I’ve been writing extensively, over the past few months, about the way I view, both the opportunity and the risks of the stock market. On the one hand, I still see tremendous upside for certain stocks and specific segments, but on the flip side, the potential downturn, which will result from the tightening cycle of interest rates, is a subject I devote considerable thought to as well.
I would rather be too early, when it comes to taking profits than to be too late.
This is the reason I keep taking profits on all positions, which have enormous downside risk. In other words, if a certain stock has enjoyed the liquidity, the hype, and the optimism of investors for too long and is overvalued, I want to capture that equity right now, even if it means that I miss out on additional gains.
I still have plenty of upside exposure to this bull market through my other existing positions, so that I can afford to cash-up (by taking profits and remain on the sidelines with a greater portion of my portfolio.
In judging the risk/reward ratio, going forward, Wealth Research Group would like to introduce you to a concept, which I believe you won’t hear discussed by any other newsletter, but you now have the benefit of learning about it, before it unfolds.
Looking at the next crisis, the problem will certainly not be liquidity or excess in credit. Banks are extremely-well capitalized and corporations, by and large, have massive cash hoards, which they are having trouble finding what to do with, so CEOs continue buying back shares, even at elevated valuations, since other alternatives are not as attractive to them, at the moment.
No, the next crisis won’t be triggered by too much lending or by overly-indebted corporations, but by interest rates levels, which will not fit the business cycle.
We all know the Federal Reserve, along with other central banks, are liquidating their balance sheets, shrinking it back down to the new normal, and they are already raising interest rates or about to begin in the next year or so (ECB, for example).
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This process ALWAYS causes a recession, a contraction, but the extent of it remains unknown, until it actually unfolds.
I want to shed some light, then, on the problems that America faces, as the next recession gets closer by the day, which you must, therefore, calculate, when allocating capital in your portfolio.
When the next crisis hits, the political and social situation that policy-makers, regulators, politicians, and the general public will be operating in is MUCH more problematic than in 2008.
Said differently, imagine a family of three children, who haven’t spoken to each other for 10 years, all learn their father has died and left them a property, which has back taxes owed on it, but has plenty of equity, if fixed-up a bit and dealt with swiftly and efficiently.
Now, imagine another family of three children, who learn they’ve inherited 12 houses, all in dire shape, all with some equity, but with leases signed with lousy tenants and in need of much attention. The three children, though, are good friends and understand the task at hand. They’re not perfect people or the best businessmen, but they want to make this work.
Both families begin to deal with the tasks at hand. The second family, who had 12-times the trouble, fixes all their issues within weeks. The other family only agrees to start facing their trouble 12 weeks into it. Then, it takes the three children a month to stop cursing at each other, another two months to apologize, and an additional three months to deal with the one little issue at hand. All in all, it takes them nine months to fix one house.
A divided country, one in which people emphasize their differences, is like a broken family. To them, every little bump in the road is like climbing Everest, whereas to a unified bunch, there’s no challenge too big.
Trust is the most important element of building a nation. Without it, nothing works, except for martial law or a dictatorship.
After 2008, politicians, central bankers, and investment bankers, as well as the American people, who owe a record amount of credit card debt, auto loans, and rely on government subsidies like no other generation has before (50% receive some form of assistance), lost, pretty much, all sense of trust in their fellow countryman.
Politicians, for instance, are deemed to be colluding with Wall-Street banks, which in turn, are now viewed as a gang of criminal, greedy investment bankers, who sit at a round table and envision how to take down the global economy and usher in a global cashless society, with carbon-print taxes. The American people are viewed, on the flip side, as ignorant of what it took to save the system in 2008, as a mere herd of uneducated populous, who must be told what to do.
This is where we find ourselves today, and this is, outright, a dangerous place to be.
The next downturn could simply spiral out of control, which is why, this coming Thursday, I will lay out some potential scenarios and how to position in light of each.
Chaos could be avoided, or chaos could be ballooned, but until we see the storm approaching, the sky is blue, and profits are to be made in the markets.
This work is based on SEC filings, current events, interviews, corporate press releases and what we’ve learned as financial journalists. It may contain errors and you shouldn’t make any investment decision based solely on what you read here. It’s your money and your responsibility. Information contained in this profile was extracted from current documents filed with the SEC, the company web site and other publicly available sources deemed reliable. The information herein is not intended to be personal legal or investment advice and may not be appropriate or applicable for all readers. If personal advice is needed, the services of a qualified legal, investment or tax professional should be sought.