If you didn’t believe the hype, you had better start believing it now. The largest financial bomb since the 2008 crash which has been dangerously positioned beneath the global stock markets since the start of the year, has, as of last week, been officially detonated. I knew it was coming sooner or later but it turns out that it was sooner than even I had imagined.
Never miss an issue of Master Investor Magazine – sign-up now for free!
However, what didn’t shock me was that the initial spark which led to the bomb exploding, was caused by our American friends across the pond. As the strongest, largest and most powerful economic and political force in the world, it is no wonder that when the US sneezes, the rest of us catch a cold. In this instance it wasn’t so much as a sneeze that has rocked the markets, as a slightly less subtle two-finger salute to the Chinese with regards to their trade relations.
Whilst it will come to nobody’s surprise that ‘political correctness’ and ‘diplomacy’ are not words which sit comfortably within President Trump’s set of vocabulary, the speed with which our ferret-wigged friend has been able to destabilise the longest bull market run in history has nonetheless been alarming.
Last Thursday the Dow Jones plummeted by nearly 800 points at its lowest point, and although rebounding sharply, it came tumbling back down with another ferocious 600 point downward move the following day. This means that the US is now actually in negative territory over the year which for a statistic is all the more incredible due to the fact that the Dow was up by nearly 9% just a few months ago. And the Nasdaq Composite which includes the super large-tech giants including Facebook, Apple, Amazon and Alphabet (Google), fared no better with significant falls in each of their respective share prices.
‘Hallelujah!’ I heard myself cry – finally, the outrageous price-earnings valuations were being questioned and coming under scrutiny. Not before time.
If this was an action film, it would be the equivalent of investors now sitting on the brink of the apocalypse, except this isn’t a film, it’s real-life. And yet for some investors and despite my cries of concern, somehow it still doesn’t feel that way.
Is it the case that we have all become so engrossed with domestic affairs here in the UK, and specifically the shambles that we call Brexit, that we are missing the global meltdown before our eyes? Or have we just simply chosen to ignore what we are witnessing in the blind and the feeble hope that it might just get better by itself?
And which is worse? Is it worse to know that the end is nigh and choose to do nothing about it, or is it more shameful to be oblivious to the real-world and consciously or otherwise, live in a dream-state existence devoid of any truth? The choice to be either stupid or ignorant isn’t a particularly appealing one but regrettably that is the choice facing many uninformed investors today.
But it shouldn’t be this way because one only has to see the value of their own investment portfolios disintegrating to know that something is badly awry.
Even if you missed last week’s arrest and possible extradition of Meng Wanzhou, the chief financial officer of one of the world’s largest tech companies, you would have surely felt the negative impact on your shares. Clearly President Trump seems hell-bent on waging war and his recent actions will have done little to loosen the ultra-tense relations that already exist between China and the US. If as many analysts predict, the trade war is only going to worsen, it could mean that it cascades into something far more serious than even I can contemplate.
After all, the US holds a trade deficit of $375 billion with China, which is more than 50% of its total trade deficit, and so if this relationship sours, it will have far reaching ramifications for us all. With a ‘hard deadline’ as described by US Trade Representative Robert Lighthizer, set to be March 1stfor things to be resolved, we are now on course for a head on collision which will almost certainly collapse global share prices further.
And if the fundamentals are to be feared, the technical indicators emerging from the chart patterns are enough to scare the hell out of even the most optimistic/deluded investor. There is a reason that the ‘death cross’ is called what it is. It’s the critical moment which every long-playing technician hopes never to see, where the 50-day moving average of the index crosses below the 200-day moving average. Well guess what folks. On Friday we got ourselves a death cross.
But it wasn’t just on any old index – it was on the mother of all indices, the S&P500. Whilst we had already seen it on the American’s small cap-index, Russell 2000, which is the equivalent of our AIM, there was a glimmer of hope that this wouldn’t spread to the bigger indices. That glimmer has just been extinguished.
Fixed Income Squeeze
It’s not just equities feeling the relentless squeeze. Bonds have also suffered at the hands of the market pullback making it the worst joint year for both equity and fixed income investment since 1972; this is the last time where we saw neither asset class offer a return of at least 5%. This is highly unusual, as when equity investing becomes volatile we would typically expect to see a flight to safety into bonds; that hasn’t happened this time.
Never miss an issue of Master Investor Magazine – sign-up now for free!
This in turn poses a fearful and precarious situation whilst also simultaneously offering a very interesting and highly lucrative investment opportunity. That’s because on the rare occasions where we do see a ‘double’ sell off as we have seen this year, we also tend to see an uncharacteristically large recovery after the market crash. For example, in 1995 following a 20% decline in the US dollar, investors enjoyed a massive 39% increase in the S&P500 and a staggering 18% increase in the US bond market.
As my daughters might say to me, O-M-G!
So, what is the solution to all of this, how do we stop ourselves from losing money and how do we position ourselves to make money – in essence what needs to be done, right now?
Well, there are two parts.
The first part of the solution is to recognise that there is a problem – hopefully you don’t need me to tell you this but just in case you do – yes, we’re in trouble, big trouble. If you haven’t worked that out yet, either from reading my articles over the past few weeks or simply by watching the news, then I will have a pint of whatever you’re drinking.
For everybody else who has worked out that there is a problem then the second part is to sort out this mess and that means making one all important decision – in order to take significant preventative action to protect against a full-blown market crash you have no choice but to restructure your portfolio. Right now.
And yes, this will mean that you are going to have finally let go of those oh-so-precious funds and shares that you have held for so many years and that have served you so well. Remember that in 6 to 12 months’ time they will be the very same funds that will drag you into the depths of financial despair if you allow them to. It’s time to use your head and not your heart; it’s time to let go.
The ‘Perfect Portfolio’ is within your grasp
Alas, that isn’t enough and there is more to do. There are other steps to take when you are rebalancing your portfolio and this means looking at fixed income products, a hedging strategy to make money in a falling market, having a carefully considered cash element and of course ensuring that you have a ‘risk-off’ portfolio. It’s not overly complex but it does take a little care and consideration. That’s because the new portfolio that you create must also be one which is capable of adapting to uncertainty and change as new market developments occur.
Last week I held a webinar on ‘How to Protect your investments in a falling market’and I’m glad to say that despite presenting with a croaky voice after recovering from a nasty flu, nearly everybody who watched the webinar scored it with a 5 out of 5. Thank you! – it’s nice to know that my work is appreciated.
If you couldn’t make it, don’t worry, my IT team has now put together a 60-minute recording of that webinar which is yours free of charge. Just email firstname.lastname@example.org.
But as explained, protecting your portfolio against a crash is only one part of the equation.
What investors really want to know is not the theory but the real nuts and bolts – the whole deal. I realised this after receiving overwhelming feedback from webinar attendees asking the same question over and over again – ‘what specific changes do I need to make to my portfolio right now to protect it from a crash but still make money?’
To be honest, and as generous as I think that I am with my time and information, I thought that this was far too much to ask of me.
After all this information is my Intellectual Property. It’s how I make a living and it’s what I charge my clients thousands of pounds to implement. So how could I possibly justify giving away such critical information for free when others have paid and continue to pay so much for it? Remember that whilst I don’t mind helping but I also have a business to run, and three little mouths to feed (not to mention my own).
A 2018 Xmas gift to my readers
So after very careful thought and consideration, I could think of only one reason to justify such a reckless action – it’s Christmas.
So, there you go.
If you want to know exactly how I would restructure your portfolio from what it is today or build one from scratch, into a stronger, safer, balanced and more robust portfolio, one that will give you added protection from the downside and greater opportunity from the potential upside, then register for my next webinar.
As always, I will include my risk disclaimer to tell you that there are no guarantees and I’m not offering any investment advice but I will show you what works for me and my clients, and how you can make it work for you.
This will not only be the last webinar of 2018 but it will also be the most valuable. I’m not holding anything back and you will see it in my winning investor template laid out in front of you. It may be financial suicide for me but it definitely won’t be for you.
So, I hope that’s put a smile on your face. That’s my Christmas Present to you. As always there are limited spaces so reserve your spot now.
Email email@example.com the words ‘Tis the season to spread goodwill’ or ‘Are you out of your mind?and I look forward to seeing you in a few days.
Santa’s Little Helper & Investment Manager
London Stone Securities