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