I’m a born-and-raised South Floridian, and I’ve always been a weather buff. One thing that always fascinates me is the shift from the dry season to the rainy season.
One day in May, things just change overnight. Bluer skies, lower humidity, and cool front-driven weather morphs into an environment marked by almost-daily afternoon thunderstorms, high humidity, and tropical conditions. You can basically repeat the same forecast every day until October — even though our local weathermen and women try their best to come up with new ways of saying the same old thing!
We just experienced the 2016 shift this week, and there is literally no way you can fight the change. You just have to crank up the A/C, drink a heck of a lot more water when you exercise, get your hurricane plan and supplies ready, and accept it’s going to happen year in and year out.
I actually see a lot of parallels to today’s markets. When the credit and economic cycles turn, there’s nothing investors can (or should) do to fight that shift. They just have to adapt. That’s why I’ve been advocating all of the following strategies for months:
Dump cyclicals and buy recession-resistant stocks …
Unload risky bonds and shift funds into high-quality ones …
Hedge against downside risks with inverse ETFs …
Target vulnerable names in sectors like retail, financials, technology, and materials for potentially huge downside profits, just like I’ve been doing in my All Weather Trader service.
How has that worked out? Well, I shifted to a much more conservative stance early last summer. We’ve had two major swoons since then, including last August’s meltdown. Based on my reading of the economic and fundamental backdrop, we could see another one very soon. So my advice hasn’t changed one bit.
Of course, policymakers are having a hard time accepting this cyclical shift. When you’re a politician or a Treasury secretary or a monetary policymaker, you can’t come out and say you’re impotent … and you can’t just sit there doing nothing. You have to try to keep the illusion of control going, and you keep churning out the happy talk. That’s true even if it won’t accomplish anything.
|How many times have we seen the Bank of Japan launch yet another round of QE, or NIRP, or asset purchases?|
I mean, how many times have we seen European Central Bank President Mario Draghi claim his policies are working … then be forced to unveil yet another policy a few months later when inflation and growth don’t live up to the expectations he himself laid out?
How many times have we seen the Bank of Japan launch yet another round of QE, or NIRP, or asset purchases … because the last round utterly failed to meet its goals?
How many times have the Chinese said how fundamentally strong their economy is … only to turn around and launch yet another stimulus program, even if doing so just keeps igniting rolling bubbles in stocks, property, and most recently, commodity futures?
My advice? Don’t waste your time trying to fight what you can’t fight. Change and adapt to the inevitable, just like I do every time we flip from the dry to wet season here in Florida. That strategy will help you preserve and build profits as the “Everything Bubble” bursts, and this down cycle in credit worsens.
Until next time,
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