The Stock Market collapsed today – Here is what I should do next.

Members,
Over the last several weeks we have seen a total disconnect between “Main Street” and “Wall Street”.   With the huge surge of bankruptcies, we will see in the coming months a massive GDP nosedive and it made no sense why stocks continued to move up with some “bonehead” analysts even calling for the stock market to hit new highs.
The last few days we are starting to see a sell off and other than specific stocks that would prosper during the covid crisis it remains most prudent to retain a huge position in cash and 5% to 10% of your portfolio in gold.
As members are very aware, I have advocated increasing your position in gold especially since this crisis has begun.   In fact, gold has been the best performing asset class and even on a day like today where the Dow is down over 500 points, gold is up.   In fact, all sectors are down and the only “green” on the screen is gold and some gold stocks.   For those of you who increased your position in gold, congratulations – you have done well and for those members who have not, it is still a prudent investment as a hedge to protect your portfolio.
I remain more convinced than ever in gold as an investment due to the fact the government and Fed will provide more stimulus to support an economy battered by the virus.    The Fed, in fact, announced it is buying bond exchange traded funds for the first time ever and so – with more stimulus members should own more gold. Today the US central bank started purchasing shares of ETFs that invest in bonds. The Fed is doing this to improve market functioning due to the pandemic.
Again, as a reminder – gold benefits from all these stimuli because it is considered a hedge against inflation and currency debasement.  As we talk more about a 2ndwave of global infections this will show strong support for gold.  Gold is up from approx. $1500 an ounce to over  $1700 an ounce since the beginning of the year.   If we see a market catastrophe, I see the price moving much higher which is exactly why all members must own it.
There is a large selection of ETFs with a focus on gold and large gold companies to select from.  Stay away from exploration companies as there are many gold producing companies that, in my opinion, are undervalued and exploration companies are not a risk you have to take.

Here are the key indicators that I am watching closely to see what happens in the coming months:

  1. A vaccine for Covid 19:  Lots of players are spending billions chasing the cure.   Likely not to see success until late 2021. Even when a vaccine is found it will take a few years to vaccinate a global community.
  2. Fed stimulus:  This is always the most difficult market condition as it is artificially created and prevents me from knowing what will happen.  If the Fed throws unlimited stimulus at the stock market and the economy then “yes’ we will likely see stocks continue to sustain value but please realize this is artificial demand and why, again, I believe gold is the safe haven.  However, when stocks move up investors tend to show less interest in gold, and this is always a major problem that gold has – with skyrocketing upwards.   I believe the Central Bankers hate to see gold prices rise quickly as it means less confidence in the overall economy.
  3. Oil Prices: I believe oil remains a good bet because the major companies cannot make money at these prices – even after the large percentage move up in oil prices over the last few weeks.   If we see success in reopening the economy then oil prices will move much higher; however, you know my new favorite word is “boneheads” and I hear these idiots saying, with confidence, that in the next year oil to be back above $100 a barrel.  The odds of this happening are remote, and the possibility of a 2ndresurgence of the virus will continue to keep downward pressure on oil.    (Billionaire Naguib Sawiris from Egypt, is calling for oil to hit $100 in 18 months or less)
  4. US China Tensions:  Phase 1 trade negotiations between China and America have had to adjust due to the virus.  This has caused concern that US-China bilateral relations would deteriorate. Another trade war will see huge downward pressure on stock prices.   Trump in his typically unpredictable manner (and possibly after a bad night of sleep) could decide to wage trade war with more tariffs on China – which would see stock markets fall quickly.
  5. Many retailers will go bankrupt.   A further wave of bankruptcies in airlines, oil, hotels, travel and tourism will result in significant job losses and debt defaults.  This will impact consumer spending – which is the largest part of the US economy.
  6. A (likely) 2ndWave of Covid: As we listen to Covid experts every day almost all are saying there is a (almost) certainty – of a 2ndwave in the Fall after the hot summer months.   I believe if this occurs that, this time, we will have to keep the economy open – but people will continue to change their personal behavior and buying habits which will gravely impact the economy with the major impact being on lower income people in retail, hospitality etc.

Given all these “headwind” forces at play, I stick by my guidance over the last few months:

  1. Own Gold.  Up to 10% of your total portfolio.
  2. Maintain a very large position in cash.  Over 50% of your portfolio and consider higher.
  3. A small position in oil that will likely continue to rise to higher levels.  This is a trading position in which to take profits on gains.
  4. At the club we will be looking at Real Estate opportunities in the coming months; however, the big caveat will be – if the Fed stimulus is able to prevent deflation and an asset blow up.  If so then the Real Estate opportunity may not be what we hope for – but current owners of properties will be happy.    I see commercial real estate property values collapsing and this might be an area we look at.

Finally, I just don’t understand where some so-called experts get their information from.   I have never been a fan of Goldman Sachs for many reasons, but they are expecting US gross domestic product growth of 4% in 2021 – and are very bullish on a market recovery.  Whenever, Goldman says this to the masses I am suspect behind the scenes they doing the opposite.  Remember – they were telling people, in the last financial crisis, to buy subprime debt while they were selling it out the back door.    Goldman Sachs is probably the best politically connected company in the United States with countless Washington insiders.  I would love to be a fly on the wall during some of their high level executive meetings.
P.S. There is one good thing about COVID-19 and that is the fact that “ambulance chasers’ (personal injury lawyers) have cut down on their advertising due to the fact the majority of Americans are driving much less.   However, I don’t see Ed Burnstein, Adam Kutner or Glenn Lerner in a food bank lineup…….yet.

Please forward this message on through your social media channels.

ICOA DON’T GO LONG IN THE STOCK MARKET, TRADE ONLY! ALSO SEE HOW TO MAKE MONEY NOW!


From the desk of Mike Lathigee
Sunday, April 19, 2020

Members,
We are seeing economic devastation not witnessed, to this degree, in our lifetime.  GDP has fallen off the cliff.  Although the Fed has flooded the market with liquidity to avoid deflation, I am very concerned that we will not see a vaccine any time soon.    The American stock market keeps moving up and is behaving like it is in a bubble separated from reality and not part of a global economic system (of economic pain).   Idiots on CNBC continue to say, “buy on dips” and “great buying opportunities”.   How can these money managers make so much money and be so completely clueless?

It is insane that the S&P 500 is now trading at 18.5x next year’s earnings.  That’s right – the market is not even considering 2020 earnings but trading on expectations of 2021.    SORRY I HAVE TO WRITE THESE WORDS, “I CANNOT BELIEVE THIS IS HAPPENING”.   Even if we were to recover, and that is a big “if”, there will still be massive bankruptcies and unemployment will not likely return to low levels for at least a few years.   The stock market is fully priced in a ‘recovery’ and there is no upside at all to invest at these levels unless you are a great stock picker – which few are (most investors cannot even read the complicated financial statements). RUN FOR THE HILLS AND TAKE ALL YOUR MONEY OUT OF THE STOCK MARKET!!!  THE RISK/REWARD IS TOO HEAVY ON THE SIDE OF RISK!!!

The only consideration for staying in the stock market is that the Fed keeps printing money and they may soon start to buy stock.  If this is the case then we could see higher stock prices but I would not want to take that gamble and I think Small Business America stimulus should take priority over the “Wall Street Crowd”.

The Fed might be successful due to the fact it has an unlimited budget to print money. Last week it was buying ETF’S with exposure to the Junk Bond Market.  That is right, the Fed was buying JUNK BONDS and once again bailing out the superrich while Small Business America (SBA) loans run out of money with only a fraction of the businesses getting funding.

Remember members I have been SCREAMING FOR 5 YEARS ABOUT THE SHARE BUY BACK SCAM!   I now only hear commentary, on a regular basis, about this self-dealing form of racketeering.   Very few people were talking about this situation for the last several years – but this was a common theme of the Investment Club of America.

Then in January I did the Annual Outlook Presentation at our monthly club meeting and I said GET OUT OF THE STOCK MARKET COMPLETELY.  It was a 90-minute presentation and I talked about 3 reasons why we could see a Recession. I said a Recession was unlikely – but more likely than anyone else around the world is talking about.  Further, I have been also SHOUTING BUY GOLD, BUY GOLD, BUY GOLD, and that has been the number one performing asset class over the same time frame since the club meeting in January.

Money managers are still making tens of millions, or more, even with poor results!   Bloody ridiculous system!  At the same time these bastards enriched themselves with share buybacks and used all the free cashflow of the companies they were running. Now they have their hands out for government bailouts.   Just look at the top 6 airlines using more than 98% of their free cash flow on share buybacks and then, when the pandemic hit, they have no money in their coffers and ask the American Tax Payer for $60 billion (to start and more later).  I say “let them fail” and the American Tax Payer should receive equity at today’s valuation for any money given to these companies.   You will be sickened if you look at the massive bonuses (in the hundreds of millions) these executives, at the major airlines, took over the last 10 years and of course none of that will be liquidated for their irresponsible management decisions.

The probability of a stock market collapse is higher than it has ever been.   As I said in a blog sent last week – you can “trade” this market but being “long” you will have a high probability of being wiped out – with the exception of gold.

If the virus is not contained and the economy is reopened – only to be shut down again – the Fed will have no tools left in its arsenal AND WE WILL SEE A DEPRESSION that will be the GREATEST DEPRESSION EVER!    Again, own 10% precious metals in your portfolio and hope that it does not move up too quickly as that will likely mean a collapse of almost every other asset class.

Yes, let me write it again, I am saying – buy gold – but hope it does not go up too quickly as that means all other assets have collapsed.  Remember it is an insurance hedge for your portfolio and now you need that more than ever!!

A few weeks ago, I suggested an oil trade that did very well and then in a subsequent blog I guided members to take profits and move on.  I am watching oil closely as no energy companies can exist with oil prices this low. There will be many bankruptcies and in 2 or 3 years I believe those who invested in the best oil stocks will see triple digit gains.

Investments in oil at these prices are attractive – but individual stocks are still too risky.  Eventually oil prices will rise, and the best capitalized, best run companies will reward investors.

My most important guidance however, besides OWNING GOLD is to “hoard cash”.   There is going to be tremendous opportunities in many asset classes especially Real Estate as the Asset Bubble has blown up.   So, Hoard Cash!!!

I am also closely watching Insider Buying and Insider Selling Reports.   This is not the only tool that should be used when trading, but it is very important. When I see a CEO “buy” or “sell” a massive stock position it gets my attention to do some research.
I am writing more than ever in the history of the club because we cannot have club meetings.  This is the way I am staying connected to “MY TRIBE”.   I care about the membership and know I am doing all I can with all we are involved in to ensure we get through this.  I believe we are much better positioned than the vast majority of small businesses.

P.S. Members if you find this info useful please post it to all your social media platforms.  We think our message is important and the proper guidance that investors need.

Please see link below for easy posting?

Finally, I just do not see how we are able to completely get out of this catastrophic situation – with so many other countries around the world unable to control the virus.  Brazil, Indonesia, Thailand, Nicaragua, and many countries in Africa to name just a few.  Will the United States have to close its borders until there is a vaccine because visitors from these countries will not have proper safeguards in place?  We shall see – but in our hometown of Vegas we are unlikely to see many international visitors for at least a year and I believe Nevada may see a set back that hits us harder than the ‘Great Recession’ of 10 years ago.

ICOA – Sad news: Investment Club loses one of its own. GUIDANCE ON WHAT TO DO NOW!


Members
I start this update with sad news.  Freedom fighter, Marcus Mumford, who spoke at a club meeting, a little more than a year ago, has died suddenly (yesterday) at the age of 48.    Marcus fought successfully against the unlimited resources of the Federal Government.  He defended clients in three cases in a row against the Federal Government – and won.   The Federal Government wins 98.6% of all its cases and it was statistically less than 1 in one million that Marcus could accomplish such a feat.    Marcus had an uncontrollable stutter which made such an accomplishment even more impressive.
After Marcus’s success, the Federal Government worked hard to have Marcus disbarred from practicing law, on unfounded accusations, and were successful against him in a few States.  He died an American hero standing up to the tyranny of the injustice that exists in our judicial system.
REST IN PEACE MY FRIEND – YOU WERE A GREAT AMERICAN!!!


Today, I spoke to a club member who, like many of you, is also a friend.   He said, “During this pandemic, in the real world – people are dying, in the real world – there are unprecedented bankruptcies. It makes no sense that the stock market continues to move up – disconnected from reality”

He is right!   The stock market continues its almost daily rally as if the coronavirus will quickly pass and the economy will recover in short order.

There are too many unknowns that investors are not factoring into stock investing at this time.    The market has retraced approximately 50% from its lows.    Earnings season is fast approaching and the results will be catastrophic.    Today Apple led the stock rally – yet there seems to be no consideration for a consumer that has been gravely hurt or is unlikely to pull out his wallet to buy the latest version iphone.  Do you think Apple will sell many iphones to India – which has been completely on lockdown for a few weeks?   Yet I hear “money managers” say that now is a good time to buy Apple.  Complete Idiots!!

Day trading and swing trading make sense to me and I believe there is a lot of money to be made.  Most people are not trained in these skill sets so this is not a strategy I recommend to members unless you have experience.   Investing for the long term at this point could work but only because the Fed has moved its 2009 philosophy from “Too Big to Fail” to its 2020 philosophy of “Nothing will Fail”.  In other words, the Fed has decided to flood the economy and force feed as many dollars into the market as is necessary.


Today I watched on CNBC (sorry to admit that sometimes I watch this station …. long explanation and members have often heard me voice concerns). The CEO of Cheesecake Junior Restaurant in NYC received $5.5m in PPP Government Loans.   The CEO was asked if he was going to pay his staff as per guidelines of the loan and he said “no”.   He said he would use the money for necessary steps to reopen the restaurants and would only start using it for payroll purposes once the restaurant was not only opened, but guests were returning at previous levels.     In other words, “ I will do what I want with the money and not what the government tells me to do” This was a tell tale sign that the government is handing out money with guidelines that a large number of businesses will ignore and I am sure the comments of this CEO unintentionally convened fraud.


At this time anyone buying a “long position” in the stock market is gambling.   There is a good chance, due to the Feds nonstop running of the printing press, that it will “fool” investors into thinking that we are returning to the glory days of another secular bull market with low interest rates and companies using most of their free cash flow for share buybacks – but there is one consideration every investor must heed and that is – if we “reopen the economy” and the pandemic reoccurs with another shut down – the Fed will no longer have any tools left and all asset classes except gold will collapse.

For the last few years, I have been urging members to hold a position in gold.   The last few weeks I have been “pleading” with members to take a position in gold. Those who listened have now invested in the top performing asset class during this same time period.    I recommended members buy physical gold and silver in the past – unfortunately that is no longer possible as any dealer I have contacted is “sold out”.   So that means the best way to own gold now is through an ETF – as most investors are not equipped with the skill sets to analyze individual companies.   GDX and GLD are two options for ETFs.     For Canadian members the best option is CEF where you can actually take your position in physical gold and Sprott Assets Management is a company I respect in this industry.    I know I just said for members not to buy individual companies but Barrick (symbol GOLD) is the world’s largest gold producer and PanAmerican Silver (symbol PAAS) is one of the largest silver companies and I have confidence in both these companies.    I mentioned these companies only because I know members will ask me.
So members the guidance I have given to guide you through the last several weeks has been accurate.  I know that all that matters is results and my guidance has shown to provide the best results.
At the January meeting when no economist, financial analyst, media etc was discussing a possible Recession, I discussed for 90 minutes on stage at that meeting three ways a Recession could happen in 2020.   I told members to take gains and lessen stock market positions to a small position or completely liquidate.   Those who followed reached out and have said “thank you”.   Some did not and all I can do is deliver the message.  AGAIN, THERE WAS NOT A SINGLE ECONOMIST TALKING ABOUT THE PROBABILTY OF A RECESSION IN 2020 BUT AT THE INVESTMENT CLUB WE DISCUSSED THIS IN DETAIL AND TOLD MEMBERS TO PREPARE.
A few weeks ago I wrote in several articles to OWN GOLD, OWN GOLD, OWN GOLD.   Some listened and some did not.  Gold has been the top performing asset class and again I am saying OWN GOLD as insurance for your portfolio and bring the position to 10% of your net worth – up from my previous guidance of 5%.


Here is the outcome I see in the economy:

The Fed will take all steps to ensure we don’t see deflation.   The Fed has bought tens of billions in Municipal Bonds, Assets Backed Securities Etc.  If the Fed is successful, which has a high probability, then we will see a recovery in the stock and bond market but not based on true fundaments but rather massive liquidity injection.   God help every owner of assets if the economy reopens and then the coronavirus reoccurs without proper testing in place.  We will see a DEPRESSION and the Fed will have no tools left.
So it is likely the Fed will be successful and all assets classes will rise but if the Fed is not successful then all asset classes will fall and the lone survivors will be those who held gold.  As I have told members many times – if gold were to increase to $5000 plus per ounce that only means all your other assets have collapsed.  Real Estate, stocks, bonds etc.  Do you now understand why you must own Gold and to a lesser degree silver?
Members – What strategy am I am looking at for the club members to prosper in this environment?   For those who recall 3 years ago I debated with the CEO of Boyd Gaming, Keith Smith (who spoke at our club meeting) – stating that the economy in Las Vegas was not diversified enough and would again lead the collapse of all States as the economy in Nevada  is based on consumer discretionary spending.  He went on and on about how the economy was diversified and Nevada was now in a strong position and I held steady and respectfully said he was wrong.    Now all reports coming out are saying Las Vegas will be the hardest hit city in America with the highest percentage of unemployment claims etc.

So here is the opportunity as long as the economy does not shut down again.  EVERYONE HOARD YOUR CASH!  CASH IS KING!   Unless commercial and residential landlords are bailed out – by the Federal Government we are going to see very attractive cap rates again – similar to 2010.   There will be a glut of properties hitting the market.   We will consider a Real Estate Fund when the timing makes sense and see how things unfold but for right now HOARD CASH, HOARD CASH, HOARD CASH and get ready to mobilize funds for the coming opportunity.
Yes you can “trade” in the stock market but don’t take any “long positions” Don’t listen to money managers as they are always motivated by “money under management” and 99% of them have caused you massive damage by their “buy and hold strategy” in the last several weeks.   I have said too many times, “these people are the most overpaid, undertalented so called professionals in the World.”    I don’t know who I despise more – money managers who can make tens of millions while you lose money or lobbyists on Capitol Hill who act like sociopaths – with no consideration for the American people!
Members – there is no “sugar coating” I call it the way I see it!!

Caveat: Members, The current economic retraction will be the worst since the 1930s but the Fed is fighting hard.   Even with the force feeding of money by the Fed it is likely inflation will remain close to zero.  This is a fact that works against gold, but I remain bullish.   The main catalyst that will propel gold to much higher levels will be a much lower US dollar and again, because the majority of members hold all their assets in US dollars, gold has to be used as an insurance hedge for your portfolio.

Conclusion: Members, if you buy gold and it declines that is fine because it likely means the rest of your assets have maintained their value.  However, if gold increases by several hundred percentage points then it is likely all your assets have collapsed in value and this is exactly why you need to own it as insurance for your portfolio.  

ICOA Message from the desk of Mike Lathigee / Inflation is the likely occurrence & what members should do to protect themselves

Members,

I have come back from a long day of meetings having been updated on what is happening in the economy. I want to encourage members to increase their position in gold and silver to 10% from my previous guidance of 5%.
For those who followed this guidance – gold futures are at a multiyear high today and I am glad you followed this guidance.  For those who followed my guidance (from my writing of 2 weeks ago) by buying an oil ETF – you have outperformed the markets by a wide margin. At this stage it would be good to take the profits on this trade, which are significant, and move on – as the risk/reward is no longer worth holding the position.
Given the fact that it is hard to purchase physical gold and silver at this time, as all the mints are closed around the world and dealers have little physical coinage on hand, investors are left to buy “paper” in the markets.
As members are aware, I have always advocated possession of physical gold and silver but that is not possible at this time. Physical gold and silver are now trading at a large premium to the actual spot price – which is very bullish for gold and silver.  For example, an American 50 cent piece spot price is approximately $5.5; however, right now – dealers are selling it for $7 plus.

I believe the Fed, with its mammoth stimulus package, will “print all the dollars necessary” to save the stock market.
(I am sure Trump and Powell are best buddies now!)
The Fed Head, Powell, actually said in an interview today that “inflation is not a concern” and the Fed will buy all assets backed securities that require support.    As a result, the Fed has indirectly opened the flood gates to much higher gold and silver prices.

I believe with the unlimited printing of paper money that the stock market will now be “saved” but it will come at a price of less confidence in “fiat” currencies.
Every Federal Reserve Bank is following a similar path and it is inevitable that gold and silver move up.    Those who were buying prior to the Fed Head interview today and ‘gambling’ – frankly you gambled right – but you were speculating and it was not based on any economic data and it was at best a 50/50 crap shoot.
All I can say is if you were buying (the last 3 days) you were lucky that Fed Head “saved your ass” because there was no economic data to support going into the market, and taking a ‘long’ position, until FED HEAD, Powell’s update.

Today the Fed announced another 2.3 trillion dollars stimulus/lending program to support US states and cities ravaged by the coronavirus.   I just cannot see how this gargantuan force feeding of money into the market cannot cause inflation and in turn – higher precious metal prices.

Disclosure: I have no personal benefit by giving guidance to members.  I could be wrong!    I am writing this because I know to date a minority of members do not even have any position in gold and silver and I am following up to encourage members to use the catalyst of today’s FED announcement to take at least a position in gold and silver.   Talk to your financial advisor or you can buy an Exchange Traded Fund like SLV or GDX.    Individual stocks have more inherit risk but Barrick is the worlds largest gold producer and trades at only 8x earnings.     For silver stocks, Pan American Silver, is one of the largest silver producers in the world and has lots of cash in the bank, proven reserves and a world class management team.
Again, I have no personal benefit for any guidance given other than – this is the way I see it ….

In the past I have always told members that precious metals are simply a hedge in your portfolio in the event every other class falls due to a catastrophe – such as a collapse in the derivatives market.

However, it is very possible, with the Fed prepared to buy almost every type of security, and there is even talk of the Fed buying stocks, we could be in a very rare situation that all assets classes move up.  But gold and silver will out perform because gold and silver are priced in US dollars.

Don’t overdo it with silver and gold and again 10% is certainly overweighting which makes sense, at this time for your portfolio.  I know the vast majority of members, over the last 2 years, have bought gold and silver (through the many interactions I have had with them) but if you don’t have any gold and silver – this is definitely time to take a position to protect your portfolio.

Finally, members, the information I am sharing – is about trying to help “my tribe”.
I ask that you share this narrative on your social media in hopes of helping others.
Below is the link.

The club guidance has proven to be accurate.

Members,
The club guidance has proven to be accurate.

For example, the oil guidance has already proven to be a strong “win” for those who executed the trade.
But remember – this is a trading market and taking quick profits and getting back into cash is a prudent strategy.

For the most part it does not yet make sense to sit “long term” in any position until we have more economic indicators.
Beyond comprehension is listening to money managers (the last few weeks) as they discuss buying stock positions on dips like Apple – when a huge part of the world economy is shut down!

As I have said many times before “Money Managers are the most overpaid, undertalented, “professionals” in the workforce and the vast majority of their guidance over the last several months would have left you reeling with heavy losses.

Remember at the club meeting in January the discussion was:
The market is overvalued.
No one was talking about a Recession then – but we discussed 3 ways a Recession could occur and the guidance that night (and the last 18 months) has been to have little (to no) exposure in the stock market.
We are not trying to “toot” our own horn but we are saying that the club presents guidance that, more often than not, is not available in the popular media .

One of our objectives is to grow the club and we ask that members consider forwarding a few posts (below)
– on social media & help the club get more exposure. 

http://investmentclubofamerica.com/a-risk-reward-investment-scenario-that-makes-sense/

http://investmentclubofamerica.com/here-is-some-clear-guidance-during-these-confusing-times/

http://investmentclubofamerica.com/the-economic-and-social-impact-of-the-corona-virus-and-special-action-steps-to-take/

http://investmentclubofamerica.com/why-will-not-have-a-great-depression-the-key-word-is-mutation/

http://investmentclubofamerica.com/market-guidance-during-this-crisis/

http://investmentclubofamerica.com/investment-club-of-america-icoa-unanimously-demands-congress-to-cease-bailouts/

http://investmentclubofamerica.com/you-can-bet-100-that-lobbyists-on-capital-hill-are-working-around-the-clock-to-ensure-their-needs-are-met/

http://investmentclubofamerica.com/one-of-our-club-members-brett-gordon-has-written-an-essay-about-the-coronavirus-to-share-with-members/

http://investmentclubofamerica.com/the-damage-of-share-buy-backs-and-what-i-have-said-would-happen-for-years-2/

http://investmentclubofamerica.com/the-damage-of-share-buy-backs-and-what-i-have-said-would-happen-for-years-1/

A RISK/REWARD INVESTMENT SCENARIO THAT MAKES SENSE.

March 31, 2020.
Members,
I received more feedback after yesterday’s narrative than any other one I have written.  There were many comments and the number one question was – Is there anything that can be done, in the market, to make money? – or another way of putting it – Does any trade make sense right now?

I am not a licensed advisor and I have no benefit personally from what I am writing – you could make or lose money
but here are my thoughts….
The Fed is flooding money into the market to save the economy.   There is no limit to the amount of money that will be printed to create liquidity and prevent deflation.  If they are successful the market will fully recover and the bull market run will continue.

The stock market is a future prediction of where the economy is heading (generally) in 6 months.  The market seems to be betting on recovery and I just don’t know.   If an investor bought a Dow or Nasdaq index fund it has already moved up considerably since its lows so the opportunity is missed.  However, if you want to “play” the market more conservatively then a good strategy is to buy an oil index fund that moves up as the price of oil moves up.   Oil is close to an 18 year low and it could certainly move lower but I believe the risk/reward scenario makes sense at this price.  Therefore, if you believe we will recover and wish to make a more conservative bet – then a bet on oil, I believe, has limited downside and if the economy improves in the coming months it is highly likely to see much higher oil prices – and your investment has done extremely well
(with, likely, large double digit gains).

Again the risk/reward scenario with oil makes sense to me because “the bad news is priced in” and it has not yet moved upward like the general stock market from its lows.

REMEMBER THERE IS ALWAYS RISK AND YOU COULD LOSE MONEY.
DON’T GIVE ME PRAISE IF YOU MAKE MONEY ON THIS – AND DON’T BLAME ME IF YOU LOSE MONEY ON THIS.
SET A 20% STOP LOSS OR WHATEVER YOU ARE PREPARED TO LOSE.

For full disclosure, for reasons members are well aware of – I don’t have a brokerage account and, although this certainly is a trade I would do, my personal situation does not allow me.

HERE IS SOME CLEAR GUIDANCE DURING THESE CONFUSING TIMES!

March 30, 2020.
“Confusion” that is the word that I am using to describe the stock market today.  Things are making no sense to me with the way people are investing right now.  It is apparent that the Coronavirus impact on the economy will be much more dire than anyone originally thought.  I am now hearing the impact could be 25% plus downward pressure on GDP.  Despite this the DOW soared 700 points today which is normally a forecast prediction of what is happening in the economy 6 months from now.  Obviously, there are large institutional players who believe we will see market recovery.   Or maybe the Fed is involved, behind the scenes, taking all the action it can to ensure stock buying happens?  I think we could start seeing, in short order, the Fed Reserve passing new regulations that allow it to buy ETFs – thereby supporting the stock market.  It is already buying asset back securities, at book value, where the asset is not worth nearly the amount the Fed is paying for it.    Who else would buy Municipal Bonds now except the Fed – at full paper value?  Of course, we as tax payers (as always) are on the hook.

I think this is possible … that the Fed could print money continuously at levels no one ever would have imagined in the coming weeks and months.   I think we could see $10 trillion or more in stimulus – and much of this is due to the Fed’s fear of deflation.  No politician will ever step in the way of government spending as they don’t get reelected and – like the Share Buy Back Program – everyone loves it until the unintended consequences happen.   The American day of reckoning will occur when interest rates rise and one day they will and almost all tax dollars are used to pay for the debt and there will be no money for healthcare, infrastructure, defense etc etc etc.

I am starting to think that a good strategy is to devalue the dollar by printing endlessly and therefore 30 trillion in debt is worth much less because the dollar is worth only a fraction of its previous value.   The US dollar is the Reserve Currency and the economic system would collapse if the US dollar collapsed; however, the Fed is fighting against Deflation at all costs and will print money in an unprecedented way to ensure the battle is won.   Also, there are too many stakeholders, around the world, that will ensure the US dollar does not collapse.

As Americans I am sure we should not hold all our money in US dollars – but, other than Gold and Silver, I am not sure where else to diversify at this point – but will keep you posted.  Other Fed Reserve Banks are always printing non stop to prevent a deflationary cycle but, all combined, not even close to the US Federal Reserve.

Although the Saudi Arabia/Russia oil negotiation breakdown had an effect on oil, it is not the sole cause for oil to be at under $20 a barrel today.  This is an 18-year low and the oil market is behaving more like what we would expect and that is the fact that – there will be a massive decline in oil demand due to a predicted Deep Recession by the oil market.     The oil market is behaving like we are going into a very deep Recession and the stock market is behaving like “this is a bad snow storm” – that will pass quickly.

Shockingly, despite all the bad news about the Corona Virus that includes nations around the world (that will not be able to mobilize to fight against it – because they have no budget to do so) or countries like Brazil where the President said, “People will die but we are not shutting down the economy”. We saw gold and silver show weakness today.  Again, this makes no sense – but I can tell you that the last thing the Federal Reserve Bankers around the world want to see is the price of gold skyrocketing as that would mean a total lack of confidence in Fiat Currencies and a possible total breakdown of the economic system.

So, what to do.  I stick by what I have been saying:

  1. Hold at least 25% in cash.  CASH IS KING RIGHT NOW!  The asset bubble is likely to blow up unless the fund keeps flooding unlimited dollars – which it intends to do.   Not sure what will happen but those buying Real Estate, stocks or any other asset right now are playing a high risk/reward game.
  2. Make sure gold and silver constitute 5% plus of your total portfolio – as an insurance hedge.
  3. Don’t jump into the stock market because there are few economic indicators available (and investors are buying blindly with no updated economic information) It is possible the stock market could continue to make gains as the Fed runs the printing press nonstop – but we could also see a massive sell off on the DOW again – of a few thousand plus points or more.   No one is saying it, but if the Fed does not win against Deflation, we could see a DOW under 15000.   I don’t like these odds of investing in the stock market right now – as there are not economic indicators. This is the reason investors should sit on the sidelines, in cash, until we have more information.

One other important point is the volatility index is over 30.  That is sky high and buying stocks today is a “crap shoot”.   At the very least if you are buying stock ensure you have stop losses in effect as things can turn very quickly.

So, waking up tomorrow we could just as easily see the DOW up 1000 points as down 1000 points.  I live in Vegas and even I don’t like those odds.   Govern yourself carefully!

WHY WE WILL NOT HAVE A GREAT DEPRESSION? THE KEY WORD IS MUTATION.

Members,
I believe the (most) material update over the last few days is the fact that the coronavirus is showing no signs of being able to mutate quickly.  My greatest fear was that – over the next year to 18 months a vaccine is created but the virus mutated to a point where that the vaccine does not assist us and we are back to step one again with a new pandemic and a much deadlier mutation.
All viruses evolve over time, mutating as they replicate (imperfectly) inside a host’s cell in tremendous numbers and then they spread through a population, with some of these mutations persisting through natural selection.  More good news is that the virus appears to be the same as when it started in China.     Therefore, it appears a developed vaccine would be a single vaccine, rather than a new vaccine every year like the flu vaccine.   However, we are (according to all scientists) at least a year – before a vaccine is developed.
It is likely the high number of deaths in Italy is because of situational factors, such as an older population, hospitals being overwhelmed, shortages of ventilators etc. rather than a mutation.   This is heartening news, especially given that other viruses can be quick to mutate – such as the common flu – which is why a new vaccine is required every year.

This information was not available during the last economic guidance I released and therefore I would like to update:
– due to the fact that the virus will not mutate I am confident we will not enter into a Depression.  If the virus could mutate, I believe the economic system would shut down again and all the economic stimulus (by the Feds) would have been to no effect and we would have an economic collapse without the Feds in a position to assist. With no liquidity we would see a Depression that no one alive has experienced unless you are approximately 95 years old / plus. 
– I did say hold 50% in cash a few days ago and that is still a conservative approach but now with the confirmation that the virus is not mutating it is ok to lower the cash holding but at the very least I would hold 25% in cash and remember “US DOLLARS” are a prudent holding at this time.   I believe we are definitely going to see a Recession and the big question is how long will it last?
– I still believe members should hold 5% in gold and silver.   Physical gold and silver are very difficult to buy and I have now verified this with a few people in the industry – so you are stuck with buying stock. To keep it simple – buy sliver and gold ETFs.   Again, if the economy rebounds and we don’t see another business lockdown in the coming months it is likely gold and silver will “go nowhere” but at this point you are only buying it as an insurance hedge for your entire portfolio. 

I believe eventually we will see a positive turn around due to the fact that the Fed is throwing unlimited stimulus at the economy.   The big question will be the impact of massive unemployment and huge numbers of corporate bankruptcies.    For sure we will see a Recession even with all the Federal stimulus and if you did not capture the huge gains over the last 3 days be wary to jump in thinking we will quickly move up to the stock market highs of a month ago.    I think it was obvious that Boeing and the airlines would skyrocket with a bailout and told many people this; however, right now the risk reward scenario is too high to “jump in” without having more economic data.

Remember most of the economy is still shut down (India has 1.3 billion people under lockdown). All of this will have huge consequences on the earnings of large corporations especially those who have a large export segment to their revenue.

P.S. I am having difficulty understanding social distancing.  Today I drove to my local grocery store on Farm and Durango in Northwest Las Vegas. Along the way Loews was packed (more packed then I have ever seen it – is everyone doing home improvement projects?) and the daycare center which is exempted from lockdown had at least 30 young children playing outside with several adults watching them.   Then last night I went to the park with my son Conrad and the park was closed until further notice.   A park is an area where you CAN maintain social distancing.  Where is the logic to all of this?  You can’t go to an open air park but you can go to a packed Loews Home Improvement store?

P.P.S. As well – I am not sure how the virus will be contained in the months ahead when many poorer nations have still taken no steps to contain the virus and don’t have the financial resources to do so.   America, over the months ahead, will get control of the virus but how will they deal with international direct and indirect flights from countries where there are no safeguards in place.  Again I think it is far to early too think we are through this – but the stock market sure is behaving like the “party is back on”.

MARKET GUIDANCE DURING THIS CRISIS!

Members,
I want to guide members to be very careful in the markets.  The last few days are a result of optimism over the stimulus package that has been communicated by the White House and Fed as:
“We will throw everything at the economy to restart it” .

It is very possible we could return to another secular bull market that lasts for many more years and we could see new highs.  However, what happens if we throw all this stimulus into the market and in the Fall we have another breakout of the coronavirus and have to shut down parts of the economy again or shut down the economy entirely?  That means the stimulus was a waste of taxpayer money and the country will have a debt that we will never be able to pay our way out of. We go 100% into a Depression as the Fed has no more tools.  If they flood with more stimulus then we are starting to look like Venezuela and Zimbabwe.
This will become a whole new level of fiat currency.

My guidance to you is – it is ok to play/invest in the market but do it with a much smaller part of your portfolio.    The markets are not reacting in a manner that indicates the asset bubble has blown up; however, that may be the case.   Make sure to own, as an insurance for your portfolio, at least 5% in gold and silver and if possible own physical gold and silver. If not simply buy the ETFs of SLV and GLD.   As I said on the webinar last night I am getting reports investors are finding it very difficult to buy physical gold and silver.   If they can find physical gold and silver they are paying a premium over the spot price in the market.

If you really want to be conservative and be prepared for risk then own 50% of your portfolio in cash.    US dollars despite the nonstop printing by the Feds is still the best currency to remain invested in.

The battle in the market is the Bulls versus the Bears.  Over the last 2 days the Bulls are winning.   The Bulls believe unlimited funds flooded to buy all asset backed securities and municipal bonds, bailout out small and large businesses and throwing all levels of financial assistance to the American worker – will keep the party going.

I am siding a little bit more towards a Bearish outlook that the coronavirus is not going away any time soon and once earning reports hit, unemployment skyrockets to the millions and other countries are not buying American goods because they are in lockdown we will see another major sell off in the market.  I certainly could be wrong but don’t get too confident in the last 2 days of market euphoria.   Take some of your money off the table especially if you have made profit in the last 2 trading days.