Rumors of a breakthrough on U.S.-China trade talks continue buoy the market, but have little basis in fact—best to ignore them, writes Mike Larson.
“All hat, no cattle.”
That’s a phrase they use in Texas. It refers to someone who likes to talk a big game, but who lacks the power or the guts to back up his words with action. I was thinking of that expression for a couple reasons.
First, I will be speaking at the MoneyShow Dallas this weekend and have Texas on the brain (more on this below). And second, because that’s where all these leaks and stories about so-called “imminent trade deals” with China seem to be coming from. Sources who are all hat, no cattle!
It happened again on Monday. The stock market began miraculously levitating in the early afternoon due to an alleged easing of the trade and tariff battle. But just a few hours later, the rally began to fade. Overnight, stock futures got smacked again after the U.S. expanded its list of Chinese companies subject to an export “blacklist.”
The sell-off further intensified after Bloomberg reported that U.S. officials are considering ways to limit capital flows into Chinese corporations.
For instance, retirement funds that invest on behalf of U.S. government workers might be restricted from buying shares of Chinese companies that are included in indices tracking foreign markets. Or Chinese companies that are dual listed here in the U.S. could be kicked off our domestic exchanges.
Then Wednesday morning? You guessed it. Another rally in stock futures off “reports” that China still wanted to make a deal.
You can’t make this stuff up, folks. I feel like Bill Murray in the movie Groundhog Day, waking up over and over again to the sounds of “I Got You Babe” coming from the clock radio as I’m forced to relive the same day repeatedly.
My take? Buying index ETFs or risky stocks on the never-ending series of China rumors is a sure-fire way to lose your hard-earned capital.
The better option is to focus on investments that “win” in an environment of:
- Extremely low or falling global interest rates
- Rising geopolitical uncertainty
- Increased volatility and wild market swings, and
- Heightened recession risk
A favorite investment that checks all those boxes. Gold! Also silver and mining companies.
I’ve been pounding the table on precious metals since last year. After breaking out of a multi-year base this summer, gold is consolidating its gains around $1,500 an ounce. I expect it to challenge the old highs up around $1,900 before too long.
Defensive, dividend-focused, recession-resistant “Safe Money” stocks are another big winner here. Think utilities, consumer staples, less economically sensitive REITs, and so on.
In this era of plunging manufacturing activity, slower growth overseas and signs that even the service sector at home is now getting squeezed, these companies are crushing it.
The more boring a stock is, the more I like it — and the more it’s outperforming. Sprinkle in some medium-term Treasuries or ETFs that invest in them on your behalf and hold lots of cash, and you have the perfect investment formula for success in this much more troubled, volatile market.
And the next time you hear one of those China rumors? Do yourself a favor. Throw in your earbuds and listen to your favorite song instead – even if it’s I Got You Babe. It should save you some serious dough!
Join me at the MoneyShow Dallas to talk markets and catch my presentations. Here is my full schedule and registration information. If you can’t make it to Big D, two of my events will also be livestreamed online.
