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 (with respect to the Federal Debt) 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:
- 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.
- Make sure gold and silver constitute 5% plus of your total portfolio – as an insurance hedge.
- 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!