I wish that policymakers hadn’t behaved so recklessly in the past half-decade, flooding the world with epic amounts of easy money in order to “fix” two previous crashes caused, largely, by too much easy money.
I wish that high-risk auto lending hadn’t gotten as out of control recently as high-risk mortgage lending did a decade ago.
And I wish that corporations put all their cheap-and-easy money to better use — hiring more workers, building more factories, or heavily investing in R&D, rather than just buying each other and their own shares.
That way, I wouldn’t have had to issue all of the dire forecasts I did over the past year: On how junk bonds were signaling a stock meltdown … on how we would likely see an M&A and IPO bust … on how an auto sector disaster was looming and on how a new bear market was underway.
But apparently, I didn’t throw the right penny in the right pond, or rub the right genie’s lamp. I say that because none of those wishes came true. Instead, more and more developments suggest those forecasts are panning out.
Take the ongoing meltdown in high-yield bonds. The weakness that started there in late 2014 and early 2015 definitely foreshadowed weakness in stocks. And junk bonds remain in deeply depressed territory, with the SPDR Barclays High Yield Bond ETF (JNK) down more than 12% in the last year.
Or how about M&As and IPOs? FactSet Research just reported that U.S. M&A announcements fell more than 7% between December and January, while total deal volume plunged 40%. We didn’t see a single initial public offering in January, the first time that has happened in any month since September 2011 … and February isn’t looking much better.
As for autos, delinquency and default rates on subprime auto loans are surging to their highest levels since 2010. I blame ridiculously aggressive lending and a slowing economy, and I have every expectation that delinquencies, defaults, and lender losses will rise higher and higher in the next two years.
How about stocks? The Dow Jones Transportation Average is down 18.5% from its high, even after its recent bounce. The Russell 2000 Index is off 19.6%, and trading around its lowest level since summer 2013.
The Dow Industrials are down 3.7% and desperately trying to cling to support in the 15,500-16,500 area. Plus, key sectors like financials are trading as poorly as they have since the last major bear market. That sure makes last year’s stock warnings look prescient.
|The troubling trends I started highlighting almost a year ago haven’t gone away.|
I bring this all up for a simple reason: None of the troubling trends I first started highlighting almost a year ago have gone away. If anything, those trends are getting worse with time. So that means the cautious, prudent, protective steps I recommended back then in my Safe Money Report are even more important for you to follow now. Specifically …
- Maintain very high levels of cash. I have personally been recommending holding the highest cash levels since the last bear market.
- For your remaining equity exposure, invest almost entirely in stocks that have generous, trustworthy yields … relatively high Weiss Ratings … lower volatility … and that operate in non-economically sensitive businesses.
- Hedge your risk, or go for profits, with inverse ETFs or put options that rise in value as vulnerable stocks and sectors fall.
- Most importantly, make sure you receive each and every update I send to my Safe Money subscribers. Market trends and economic conditions are constantly evolving. The issues help keep subscribers one step ahead of those changes, and let them know when it’s time to get more aggressive or conservative with your investing strategies.
Take these steps, and I believe your portfolio will be stronger for it. Avoid them, and you could fall victim to the same kinds of bear market losses that have devastated portfolios twice since the turn of the century. At the very least, you should sleep easier knowing you have some portfolio protection in place against any more uncertainty and volatility that could be coming down the pike.
(Editor’s note: Click here — for more information on the Safe Money Report, including a special discount offer.)
Until next time,
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