The super-rich say it's time to batten down the hatches... But what are they really doing with their money?... How to get the most out of the bull market and not get hurt... Doc Eifrig: 'Don't Time. Tilt'...
The world's richest families say they're running for the hills...
Earlier this week, Swiss investment bank UBS and researchers at Campden Research published their annual report on the world of family offices. The headline statistic from this year's report was that more than half (55%) of the offices surveyed are preparing for an imminent recession.
If you're not familiar with the term... a family office is essentially a private wealth management office that handles investments and finances for super-rich individuals and families. This year's report surveyed 360 family offices. On average, those families had $1.2 billion in wealth... and the family offices had an average of $917 million in assets under management.
It's an interesting read because, in theory, these folks have access to the most sophisticated market knowledge and an unlimited range of options for protecting and growing their capital.
According to the report, the family offices are adjusting their investment strategies to limit risk... increasing cash reserves... and "preparing to capitalize on opportunistic events." (At what point, we wonder, do they invest in deleterious events?)
"Our view is that there is a potential recession within the next two, two-and-a-half years. I personally see it coming even sooner, and I think things are going to turn ugly," said one portfolio manager interviewed by UBS.
The portfolio manager reported cutting clients' stock allocations for several months. "If the client, for example, wanted to have between 15% and 40% in equities, we are now lowering it to half of that, to the middle of where they would like to be."
Word that the world's wealthiest families are preparing for the worst triggered a stream of breathless headlines in the financial media...
"Family offices expect a recession next year – and many are hoarding cash to prepare" – Business Insider
"World's Richest Families Stockpiling Cash" – Bloomberg
"If the Rich Think a Recession Is Coming... " – Chief Investment Officer magazine
To read the articles, you would believe the high-end investors are abandoning the market. But...
When you look at where they're putting their capital, the story is far less dramatic...
Despite the anxiety of survey respondents, stocks remain the single-largest allocation in most of their portfolios. Equities make up nearly a third (32%) of the average portfolio – roughly the same as last year.
Meanwhile, cash comprises 7.6% of the typical portfolio... up all of 0.7% from 2018.
These investors like private equity (about 19% of the average portfolio), which is not an option for most individual investors. They like real estate (about 17% of the average portfolio)... which True Wealth editor Steve Sjuggerud would tell everyone to consider.
And they're keeping some capital in bonds. About 16% of the average portfolio is in fixed income.
And it's worth noting, investment banks seem to be sending a different message to their institutional clients...
The report on the family offices also notes that a lot of the investors' worries focused on the trade standoff between the U.S. and China... and the potential for it to undercut the global economy. Hence the discussion of lightening up on stocks and increasing cash. The suggestion seems to be that the world's wealthiest people are raising cash, so maybe you should, too...
But Stansberry NewsWire editor Scott Garliss noted in a private e-mail to us earlier today that UBS and other investment banks are telling a different story to their institution clients.
UBS is, of course, one of the largest wealth managers in the world... so it can monitor the activity and holdings of a huge number of investors. That's valuable data for anyone who wants to make a contrarian call and go against the "herd mentality."
Scott came to Stansberry with 20 years' experience as a Wall Street sales trader. He dealt with some of the largest hedge funds and mutual funds in the world. And Scott says his contacts in the institutional community have said the big banks are telling their clients right now that fears of a global slowdown are overblown. Overall, investors are holding too much cash already and should be increasing their allocations to stocks, the banks say.
The reality is, with stocks in a 10-year bull market, everyone is wondering when the good times will end...
Whether you're responsible for a vast, generational fortune or nursing a modest 401(k) account, the questions are the same. How do I make sure I get the most out of what's left of the bull market? And how do I know when the good times are going to end?
But Income Intelligence editor Dr. David "Doc" Eifrig would tell you those are the wrong questions. As he said in his October 2018 issue, "Don't time. Tilt." From the issue...
Many investors think of the stock market like a rocket that they ride higher and higher. A rocket, of course, goes up... until it doesn't. They think if only they could release right as the rocket peaks, they could float in orbit – the world of the wealthy – and watch the rocket plummet back to Earth...
It rarely works.
Fortunately, there's a better way to play the market's ups and downs. Don't try to time them with an "all or nothing" decision, simply tilt your allocations. It's that easy.
Don't ever decide that it's time to sell all your stocks... or to load every penny you have into them.
Like so many other investors, Doc was getting nervous about the market at the time. He was urging subscribers to move some capital to cash and cash-like investments.
But he cautioned: "We're not calling for a bear market now. If you think we should, you're missing the point... There's still a good chance the market can go higher."
Investors should have some money in the market to take advantage of the upside left in the bull market. And they should also "peel off" some of their equity investments to bolster their cash reserves because the potential downside is rising.
In that issue, Doc and his team recommended two defensive income-paying opportunities that would keep investors exposed to equities but "set you up to ride a potential downturn in the market more comfortably than anyone else you know."
With the benchmark S&P 500 Index up about 6% since then (including a big December swoon)... those two recommendations were up 20% and 47%, respectively, through Wednesday's close.
We believe Doc's Income Intelligence is a must-read for anyone looking to boost the income they generate from their investments.
We don't know of another service that provides as comprehensive a look at the breadth of cash-generating investments. Doc's data-driven approach helps subscribers know the best time to get into investments like dividend-paying stocks, bonds, real-estate investment trusts, and master limited partnerships.
To learn more about Doc's approach to income and how to sign up for Income Intelligence, click here.
The American Jubilee Watch:
There Should Be No Billionaires?
Oh, Bernie...
On Tuesday, Democratic presidential candidate and noted socialist Bernie Sanders proposed a tax up to 8% on "extreme wealth." It's part of his plan to pay for trillions of dollars' worth of new or expanded social programs if he were to win the White House next year.
"We are going to take on the billionaire class, substantially reduce wealth inequality in America, and stop our democracy from turning into a corrupt oligarchy," Sanders said.
It sure sounds like Sanders wants to stop capitalism from existing, too. How else could you interpret his unveiling of the plan on social media network Twitter that began with, "There should be no billionaires"?
Sanders' wealth tax would start at 1% for a married couple with a net worth above $32 million, go to 5% for those with more than $1 billion in assets, and reach as high as 8% on wealth above $10 billion.
This is Sanders' plan for paying for things like his "Medicare for All" proposal.
Forget for a moment whether such a plan is constitutional... As nice as they might sound to some folks, history shows "wealth taxes" hardly work. In the mid-1990s, as many as 14 of the world's 36 richest countries had wealth taxes in place. Now, just three do.
It's safe to say that isn't because they worked.
A report from the Organization for Economic Cooperation and Development last year noted several key criticisms of wealth taxes. The international economic organization said these types of taxes rarely raised as much money as proponents claimed. (Sanders says his tax will generate $4.5 trillion over a decade.) The group said the taxes can stunt entrepreneurship and harm innovation... and that the rich found ways to evade the tax anyway.
That means, of course, someone else would inevitably have to pay for universal health care... or the hundreds of billions of dollars' worth of student-loan debt that Sanders and other Democratic candidates also want to wipe out.
This is exactly the type of socialist-driven scenario and "massive redistribution of wealth" we've warned about in our book, The American Jubilee. In the end, there will be winners and losers... And you'll want to be on the right side when it all shakes out.
Find out how you can protect yourself – and even prosper – as this situation unfolds with the "unpublished chapter" of The American Jubilee. In it, you'll find all the details about three long-term investments you can make right now to protect and grow your assets. Learn more here.
New 52-week highs (as of 9/25/19): Axis Capital (AXS), iShares U.S. Home Construction Fund (ITB), and ProShares Ultra Utilities Fund (UPW).
A quiet day in the mailbag... What do you think about Bernie Sanders' plans? We'd love to hear your thoughts at feedback@stansberryresearch.com.
Regards,
Carli Flippen and Corey McLaughlin
Baltimore, Maryland
September 26, 2019