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GUTTED: Prepare For A Devastating DIP!
The markets are so close to falling below support that the possibility of another excruciating 10% correction must be considered and braced for.
Last week, I showed you how to build the watch list, in case this correction becomes a sharp one and published a list of stocks that I’ll personally be investing in, if the prices I bid for are met. Of course, the bigger the sell-off, the more opportunities arise, so as this plays out, the list will get more varied.
The fact is that bulls are not falling for Trump’s solution-focused tweets anymore. Hope for a China-U.S. deal has turned into cynicism. Investors want handshakes, not statements.
In other words, sentiment has altered from bullish to bearish in drastic fashion. Hedge funds are experiencing major client outflows (people asking for their money back), but not only that, managers themselves are pulling money out.
Fear has sowed its seeds deep into the psyche of the investment world. Most investors are worried about a bear market or about the troubles in Europe, but very few are actually concerned about systemic risks.
Put differently, if you survey the average investor, he will tell you that he is concerned that his stocks portfolio won’t allow him to retire comfortably, but he will not express any major uneasiness or agitation regarding the notion of a complete financial reset.
What we ought to be doing is to take a step back. Looking at the global economy with a 15-year perspective, we’ll notice that we live in unprecedented times. We’re a long way from home.
Warren Buffett, who has more investing experience and know-how than any other person, dead or alive, has admitted that operating in this environment of artificially-low interest rates is the most challenging undertaking he has ever had to adapt to.
He should know, as Buffett has a strong bias against gold, which has risen 5-fold in price since the beginning of the century.
You’re not Warren, so you must think differently than he does, because, in all likelihood, a major crash will impact not only your net worth, but your place of business.
For Berkshire Hathaway, if U.S. markets plummet by 25%-30%, which they most certainly might, it would be akin to a party at the Playboy mansion because BRK has over $100B in cash right now to deploy and they’re not finding very many businesses to invest in, after 10 years of rising prices.
For the average Baby Boomer, though, seeing his retirement portfolio falling by that much, with only a few years to go before he actually needs the funds for living expenses, is like being taxed on hid portfolio.
Therefore, while Buffett and Munger can capitalize on dramatic reset periods, the individual faces an altogether different predicament.
Courtesy: U.S. Global Investors
The chart above should be front-page news everywhere. We live in a world, where a government, the biggest one on the planet, is running a $1T annual deficit.
November just broke the record for the largest deficit ever.
No American politician is even raising the point, which is that other governments might start to feel more inclined to loan money to the Chinese government or to the Indian government over lending it to Washington, feeling that the risks involved with these Asian powerhouses aren’t much greater than giving money to Uncle Sam.
The global economy, for the first time since the economic crash of 2008, isn’t synchronized at all.
You can easily see that in the way central banks are behaving in the various jurisdictions.
In the U.S., they are toying with the option of four additional hikes, which will bring the FED Funds Rate to a 3.00%-3.25% target level, above current inflation numbers, while in Europe and Japan, they’re not even thinking about this sort of policy, since their economies are so slow and not growing.
Courtesy: U.S. Global Investors
The bottom line is that while a broad market crash could be the greatest buying opportunity for utilizing cash since 2008 or 2000 or 1987, or any major sell-off we’ve seen, it really depends upon your age, circumstances and experience level, if you will exploit this or suffer from it.
The answer to this will shape how much diversification you will need in your portfolio to shelter your net worth.
The system we are all a part of, with central banks, with government debt holes that are the depth of the Grand Canyon, with corruption rampant at the highest levels and with no one in our corner, is reason enough to be extra defensive.
2008 proved that governments favor corporations over individuals, and I expect the next crisis to surprise us even further concerning the lack of empathy towards people who are struggling and, in general, towards tax-payers.
Think for yourself because your policy-makers, decision-makers, and financial institutions do not care about the average person, but only want to preserve the positions of power they hold.
Governments Have Amassed ungodly Debt Piles and Have Promised Retirees Unreasonable Amounts of Entitlements, Not In Line with Income Tax Collections. The House of Cards Is Set To Be Worse than 2008! Rising Interest Rates Can Topple The Fiat Monetary Structure, Leaving Investors with Less Than Half of Their Equity Intact!