Stay Calm and Make Money
It’s been a busy couple of weeks for us here at Wealth Daily — for me in particular.
I’ve been getting my house ready for family to come visit, and that meant finishing two months of basement remodeling in just one. But it wasn’t just home renovations keeping my colleagues and me busy...
We’re called Wealth Daily and not Wealth When We Feel Like It because we get valuable wealth-building information to you every single day.
And that doesn’t stop just because there’s a holiday in the week. But we are all people. And we have friends and families, too. So we try to give everyone the time to go enjoy that. But that means everything has to be done ahead of time.
So, while you’re reading this on Saturday as you relax in a pile of leftovers, I’m writing it on Tuesday and Wednesday, dreaming of turning off my computer for a couple days to relax myself.
It’s a little tough to write financial stuff for the future. Things change quickly in the world of finance. So, instead of talking about a particular stock or a short-term trend you can profit from, today, I want to talk about the broad market and why you shouldn’t be afraid to keep putting your money to work...
“The Sky Is Falling!”
Whenever I hear the bear market analysts get on TV and talk about how we’re headed for a recession, I can’t help but think of Chicken Little. That and the Boy Who Cried Wolf...
These guys are permanently calling for a recession. And they always talk about all the times they’ve called corrections, recessions, or crashes in the past.
But the thing with predictions like that is, even if you’re wrong, eventually you’ll be right. And these guys don’t necessarily have skin in the game. So, they can make their predictions as long as it takes for a recession to hit.
And since the nature of markets is to rise, then correct, then keep rising, eventually, they’ll be right. They can just say they were early.
But if you’re as early as many of these bears are, while you protect yourself from losses, you also cut yourself out of a ton of gains.
What I’m saying is that, yes, there is a recession coming. There always is. But no, you shouldn’t just take your money and go home. Things always take longer than you expect.
And even though we’ve definitely seen weakness in the markets of late, it doesn’t mean we’re already starting a recession. In fact, we’ve already seen this pattern once in 2018 and a few times before.
This is a chart of the S&P 500 so far in 2018. The bear market analysts are talking about is at the end of the chart. The very similar pattern is at the start, around February.
The market dropped, got about halfway through a recovery bounce, and then dropped again. And analysts said the exact same things they’re saying now.
But after a little testing, the markets got their feet and started to run again. We’re looking at almost an identical chart now.
And while history may not repeat verbatim, it does rhyme. And just a few years ago, we saw almost the exact same thing happen:
A drop. A move back up. Another drop. But did we enter a recession then?
Nope. Markets are still up nearly 50% higher even after the recent dip.
So, should you be watching these dips? Of course. They’re giving you opportunities to buy things on the cheap. Should you be scared? Not until everyone else forgets the word “recession” exists.
Should I Be Throwing Shade or Wearing Shades?
You’ll also hear analysts talk about the terrible state of the U.S. economy. They’ll say that’s going to lead to a new recession. Some even say the recession from 2008 is still going on and was just paused by the Fed’s easy money policies.
But if the U.S. economy is doing so badly, why are corporate profits coming in at all-time highs and still growing?
“Long-term chart, Jay. Let me see the recent data. It’s probably dropping now. I mean, these guys on TV know what they’re talking about. They have to — they’re on TV.”
Well, here’s that short term. Growth slowed a little last quarter. But it’s still there. And we’re still adding hundreds of billions every three months...
“But what if companies are making money and people aren’t? That’ll surely lead to a recession, right?”
It would. If people weren’t doing great right now.
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Unemployment is lower than it’s been in the past decade. And the workforce is growing. People who’d given up on finding jobs are going back out and looking now.
So, sorry, permabears. You’re going to have to find another argument as to why we’re headed for disaster. The facts on this matter say something different.
Those Dastardly Interest Rates
“But what about interest rates, Jason? Those are bound to cause a crash if they keep going up.”
That’s partially true. Lots of people and companies borrowed lots of money when it was practically free. And those loans will come due.
Then we’ve got the decision to make: Do we refinance at a higher rate, or do we pay them off with the cash we’ve been hoarding or by selling off some of the stuff we bought? Likely it’ll be the latter. And that could lead to a recession.
But rates just aren’t that high. And the big argument I keep hearing has to do with people borrowing, not companies.
I’m told people stop borrowing money when rates get this high. But rates are still incredibly low historically speaking...
The fed funds rate is still nowhere near the pre-2008 peak. And that was nowhere near the actual peak. And yet, throughout this entire timeframe, people continued to borrow and spend.
Personal interest rates are even higher than the fed funds rate and historically always have been. But people still take personal loans to buy houses:
There was a point when folks considered a 9% rate on their mortgage cheap. Expensive is relative. Value is definite.
So, again, we’re going to need something else from the naysayers to get our blood pumping here.
“That’s it! Trade wars. That’s what’s going to sink the U.S. and global economy.”
That would be true. If global trade weren’t at all-time high levels and growing.
According to the WTO, merchandise trade grew by the strongest pace in six years last year...
Global tourism grew by every method available to travel, too. That doesn't sound like nationalism closing borders...
Literally every conceivable metric showed growth. That’s not the sign of a trade war bound to sink the global markets.
We’re growing as a global business better than ever before. And nearly every country in the world participates in the WTO.
But people want to scare you with talk of a trade war and growing nationalism disconnecting the world. And that data is pretty inconvenient to their argument.
Is a recession coming? Yes. A recession is always coming. That’s the nature of stock markets.
Should you sell everything and wait it out? NO! Never! You’ll miss out on some of the biggest profits that way.
Is it a good idea to have a stockpile of cash on the side? Of course. Always. You want to have funds to buy those bargains that come with corrections when they happen.
You need to keep an eye out for market weakness. And you need to protect yourself with some cash on the side. But you never want to be out of the markets entirely. The only reason I’d recommend that is if you’ve already got all the money you’ll ever need and you need access to it right now.
Keep some cash on the side. Take some profits from your high-flying positions. Sell some losers to reduce your tax burden this year.
But don’t listen to these guys and hide your head in the sand. The ostrich can outrun its predators. It can outfight some of them, too. I’m not saying you look like an awkward bird. I’m just saying you can do a lot more than just hide.
Everything takes longer to happen than you think it will. And data can be used to show whatever you want. Investing isn’t just math. It’s psychology, too. For every bear market argument, there’s data showing something else.
Are the permabears 100% wrong? I can’t really say that. I’m not in the business of timing markets. I’m in the business of helping you make money. Predicting crashes doesn’t help that.
Finding investments that’ll do well for you in any weather... that helps.
If you’re interested in learning about some of the investments I help the folks in my advisory community find, click here and you’ll be directed to more information about one of my favorite recommendations and a little more information about the strategy and track record.
I hope to see your name on my email list when I update everyone on our successes next week.
To your wealth,
After graduating Cum Laude in finance and economics, Jason analyzed complex projects and budgets for the U.S. Army. Then, at Morgan Stanley, he led the assistants' team for the North American repo sales desk, responsible for hundreds of multibillion-dollar trades every day. Jason is the assistant editor for The Wealth Advisory income stock newsletter. He also contributes regularly to Wealth Daily. To learn more about Jason, click here.
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