Here are the markets and sectors to focus on in trying times, writes Mike Larson.
The year 2020 is one for the record books. Even the most macabre author of dystopian fiction would have been hard-pressed to conjure up the events we’ve seen so far — and the year isn’t even half over.
A global pandemic that has claimed more than 375,000 lives worldwide; American cities burning amid the most widespread social unrest since the 1960s and one of the sharpest, most severe economic downturns in modern history, coupled with the highest unemployment since the 1930s.
These are truly the times that try our souls. You don’t know what you’re going to hear or read about next when you turn on the television in the morning.
I’m not a doctor. I’m not a politician. I don’t work in law enforcement. So, I can’t speak as an expert about the medical, social, political or other issues we face. What I can do is help you navigate the markets. I’ll help you both defend and build your wealth as an investor. That’s my primary role here, and I take it very seriously.
With that in mind, let me share some observations about the current environment and my expectations about what’s coming next.
First, there has never been a more important time to focus on “Safe Money” strategies and approaches. I covered what those are last week. But they remain extremely relevant and appropriate.
Second, many investors still seem to be positioning for a powerful, V-shaped recovery. One in which consumer and business spending go back to “normal” quickly. One where we don’t experience lingering problems in the economy. But that seems extraordinarily optimistic to me, for reasons I’ve covered before. If you don’t want to take my word for it, you may want to consider what the nonpartisan Congressional Budget Office (CBO) just had to say.
The agency said the Coronavirus and the recession will slash U.S. GDP for years by several trillion dollars. It estimates cumulative output from 2020 to 2030 will be a whopping $7.9 trillion lower than it was forecasting. GDP won’t fully catch up to where it would’ve been until 2029.
Third, upwards of $6 trillion in bailouts and other aid from Congress and the Federal Reserve have helped support the economy in the short term.
If you look at the month of April, for instance, personal spending imploded by 13.6% as wages and salary collapsed. That was the biggest decline in 61 years of record-keeping.
But overall personal income rose 10.5% because of massive government support in the form of unemployment and stimulus payouts. That prevented a severe collapse from being even worse.
Unless more and continual aid is made available, that shorter-term “bridge” financing will run out. In the meantime, more and more companies and individuals are likely to throw in the towel and look for a fresh start.
Case in point: The Chamber of Commerce recently estimated that four in 10 of the nation’s 30 million small businesses could fail just in the next six months. Chapter 11 bankruptcy filings by businesses surged 26% year-over-year in April alone.
Bottom line?
Even after the recent, stimulus-fueled rally, the S&P 500 has essentially gone nowhere since early 2018. That was 29 months ago and counting (see chart).
Meanwhile, defensive, Safe Money assets like gold, Treasuries and recession-resistant stocks have crushed the averages.
This isn’t accidental and it isn’t coincidental; it’s exactly what you’d expect to see if there had been substantial economic and credit-based challenges facing our economy for a while. And then new challenges continually being layered on top of them.
I’ll leave the extreme risk-taking and cavalier attitude toward markets to others. Instead, I’ll continue to focus on helping you manage your wealth prudently in these extraordinarily trying times. I trust you have seen and continue to see the value and rationality of that approach.
Thursday, June 11, I’ll be hosting a presentation for one of my favorite ‘Safe Money’ asset — gold. In this eye-opening presentation, I'll explain the four powerful forces driving gold, silver and mining shares higher, why they're trouncing stocks on multiple timeframes, how long this move can continue and which investments you should target for maximum profit! Click here to register now. You can Subscribe to Safe Money Report here…
