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Safe Money's Defensive Moves
12/05/2018 5:00 am EST
This stock market is flailing around like a fish out of water, with whipsaws increasing every week, cautions Mike Larson, editor of Safe Money Report.
It seems like we can't go more than a few days without the Dow swinging hundreds of points in either direction due to headlines about trade, interest rates, economic growth, corporate earnings and more.
For instance, stocks soared after Federal Reserve Chairman Jerome Powell gave a speech suggesting the rate-hiking path going forward is more nuanced. The Fed will likely hike in December, yes. But after that, they'll be more data-dependent.
Wall Street thinks that's bullish. Me? I've been following the rate markets closely for more than 20 years in a professional capacity, and I have extensively studied decades of rate history preceding that period.
Guess what? Over the last quarter-century, we've had three major Fed "pauses/halts" in interest rate hiking cycles. Only one of those — the 1995 pause — was bullish for markets longer term. The other two halts came in May 2000 and June 2006.
Now what do you remember about those time periods? Were they great times to jump headlong into stocks? Ummm … NO! The first came right around the peak of the Dot-Com Bubble while the second came right around the peak of the Housing Bubble.
Over the ensuing couple of years, tech stocks and real estate plunged in value, eventually taking the broader averages down with them.
Now I don't know with certainty how markets will close in coming days. But I argued back in the first quarter of this year that the blow-off move in January was likely the peak of this market cycle. Since then, I've seen more and more indicators that suggest a new bear market is likely taking hold. In response, I have recommended you:
A) Raise cash
B) Shift out of riskier stocks/sectors and into more defensive ones, and
C) Progressively add more inverse ETFs to hedge your remaining holdings.
We are making some additional defensive moves in our portfolio including increasing the size of our position in ProShares UltraShort QQQ (QID). This is a this leveraged, inverse ETF is designed to rise 2% for every 1% drop in the Nasdaq-100 Index.
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