What Should You Do With Your Money Right Now?
Our editors gather in central Florida... 'I bought stocks. And I bought a lot of them.'... What should you do with your money right now?... Did the Fed join the coronavirus panic?... Four short-term indicators to watch... The importance of risk management and portfolio insurance...
Most of our Stansberry Research editors and close business contacts are currently gathered in Florida...
We collectively braved the "coronavirus crisis" and hopped on planes and in cars to convene for our 17th annual Spring Editors' Conference. This year, we're at the Streamsong Resort – a 16,000-acre golf and spa resort on the site of a former phosphate mine in central Florida.
But we haven't traveled here to prove a point about resiliency...
It's just a coincidence that this year's meeting was planned for the week after virus fears sparked the worst one-week U.S. stock market performance since the 2008 financial crisis.
As a result, through our first day of meetings and presentations, "crisis preparation" has dominated the narrative...
This morning, our colleague Dan Ferris explained how he has successfully invested in a crisis. He plans to share all the details with Extreme Value subscribers later this month.
Gold Stock Analyst editor John Doody reminded the 50 or so people in the conference room that gold – which we've long touted as a "safe haven" asset – has outperformed the benchmark S&P 500 Index over the past 50 years. As he explained to the crowd...
People ask me, "John, is all your money still in gold?" I say, yes. Why change? It's a hated asset. But it works.
And in his presentation, TradeSmith's Keith Kaplan preached that "investors get stuck in their own emotions." That's an idea we've mentioned here in the Digest over the past week.
But these examples are just a glimpse into what we hope to achieve at meetings like this... Over the years, discussions at these editorial gatherings have led to some of our company's most successful recommendations and most popular new services.
I (Corey McLaughlin) am here at Streamsong for the first time. And today and tomorrow, I'm looking forward to sharing what I can from the meetings. Here's a photo, for starters, taken last night by our friend and Empire Financial Research founder Whitney Tilson...
Moving on, we want to address an important question that we know is on the minds of a lot of Digest readers right now after what happened in the markets last week...
What should you do with your money right now?
After all, the volatility continued today... The major U.S. indexes all gave back more than half the gains they made yesterday.
Portfolio Manager Austin Root addressed this question directly in today's issue of Stansberry Portfolio Solutions, which we sent to subscribers earlier this evening. He started by saying...
I cannot provide you with specific individual investment advice. But I can tell you what I did on Friday afternoon in my personal investment accounts. At about 3:30 p.m., I bought stocks. And I bought a lot of them.
In the issue, Austin detailed four factors he considered when making his decision...
- His time horizon (what are your investing goals?)
- The coronavirus
- The outcome of November's presidential election
- The concept of "portfolio protection"
The last factor is fundamental to his approach. And as he explained, the way you view these four factors should tell you what to do with your own money right now.
At Stansberry Research, we're in this game for the long term. But as Austin wrote...
If you're a trader or short-term investor, if you're bearish on the market, if you believe [Bernie] Sanders will beat President Donald Trump in November, or if your portfolio is not properly hedged... you should not buy more stocks right now.
The point is that the answer to this question is different for everyone. In Austin's case, he's buying right now. In fact, he also believes this is a great time to take a look at some of the potentially life-changing, long-term investments in his American Moonshots portfolio.
More specifically, he is particularly bullish about one of these companies right now...
Austin believes a big announcement could soon send this stock soaring 70% or more almost overnight. He recently put together a special presentation with all the details. Get started right here.
In the short term, as usual, there's more uncertainty to consider...
Concerns and questions over how much harm the coronavirus will cause stocks and the economy has weighed on the major indexes.
Just today, the Federal Reserve acknowledged that fact when it announced it was cutting the target federal-funds rate by 0.5%, or 50 basis points, to a range of 1% to 1.25%.
Normally, the Fed waits for regularly scheduled meetings to make moves like these... So its surprise announcement shows the seriousness of the situation. "My colleagues and I took this action to help the U.S. economy keep strong in the face of new risks to the economic outlook," Fed Chair Jerome Powell said at a press conference this morning.
This comes after officials from the Group of Seven ("G-7") – the world's largest economies – jointly announced earlier this morning that they would use "all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks."
Shortly after the news of the Fed's rate cut broke, Stansberry NewsWire editor C. Scott Garliss gave us an update from across the conference room here in Florida. He explained the short-term considerations...
Others are going to do the same but the Fed is the most important and will lead the rest of the world. They led during the financial crisis and are leading again now. The last thing they want to see is a consumer confidence crisis unfold, rippling through the economy.
Given yesterday's sharp rally, this could initially lead to some profit taking because people were looking for it. More important the Fed is sending the signal it will protect the U.S. credit markets and financial system.
Scott and the whole NewsWire team cover the markets for us in "real time"... It's a valuable – and free – tool for our readers when volatility ramps up, like it did over the past week.
On Friday, Scott pointed out big jumps in the Volatility Index – the market's "fear gauge" – as well as in the spread between U.S. Treasurys and "BBB-rated" bonds and so-called "junk" bonds (those rated "BB" or lower by the major credit-ratings agencies).
According to Scott, Wall Street hedge-fund managers were sending a message to the Fed... They needed a rate cut. And today, he told us: "We found out Jerome Powell was listening."
If you're not already signed up for the Stansberry NewsWire, you can do so right here.
Will the Fed's move help, or did the central bank join the panic and just make things worse?
Nobody knows for sure.
But as we noted in last Thursday's Digest, when looking for clarity on the market's direction – particularly in the short term – it can be helpful to use one type of analysis in particular...
We're talking about the technical, price-action levels and movement that our Ten Stock Trader editor Greg Diamond tracks every single day.
Last Thursday, Greg said that if the S&P 500 broke below 3,000, it could continue to head lower... And that proved to be a key level over the past few trading days.
Today, Greg continues to be concerned. But his analysis isn't entirely based on one number right now... In his Ten Stock Trader weekly outlook, published yesterday morning, Greg said he's looking at four different indicators as he weighs a bullish or bearish outlook.
As Greg explained, the Dow Jones Transportation Average... the Russell 2000 small-cap index... traditional leading indicator Caterpillar (CAT)... and the U.S. dollar/Japanese yen (USD/JPY) ratio will all need to break above their respective highs for him to "jump back into the bullish camp."
Greg is also watching the American banking sector closely to see if it repeats some of its pre-financial crisis behavior. As he wrote to his Ten Stock Trader subscribers...
The issue I'm most concerned with is banks... particularly the repo market. This part of the economy saw intense volatility late last year as short-term interest rates spiked, and then the Fed stepped in to help.
This scenario could happen again, except now the Fed's help may not matter. If banks decide to stop lending, repo rates will skyrocket and credit freezes up... The economy will come to a halt.
A contraction in credit and short-term interest rates that spike will confirm the bull market has ended with an even steeper decline to come. The virus has shaken the ground of investors... The repo market could be the earthquake.
After the Fed's announcement today, bank stocks notably out-tumbled the broader market. Around noon Eastern time today, Greg provided another update for his subscribers...
The Financial Select Sector SPDR Fund (XLF) is down 3%, Bank of America (BAC) down 4.5%, and JPMorgan Chase (JPM) is down 3.5%. This isn't the price action you'd expect from a confident group around a major cut from the Fed.
Even with this action, though, Greg still sees an opportunity. And in another update this afternoon, he came up with a game plan to trade the sector in the near term.
Related to all this, we've talked a good deal about the importance of proper 'risk management' recently...
In other words, you should always know the risks before putting your money into any investment... Your first step is to understand that certain assets are riskier than others.
"Risk" is not a bad thing in and of itself. As our colleague Mike Barrett wrote in yesterday's Digest, sometimes the biggest risk is the one you don't take. But as you consider whether to make an investment, you must weigh the risks involved against the potential rewards...
For instance, cash and cash equivalents, like U.S. Treasury bonds, are the least risky assets most people have heard of. These are usually extremely stable investments, but they come with low yields.
Generally speaking, stocks are one of the riskiest assets. They're more volatile... but also produce bigger gains. You could say something similar about speculative assets like cryptocurrencies.
However, many investors overlook an important point... They need to determine how much risk is right for them.
With that idea in mind after the recent market sell-off, we recalled this September 2018 essay in our free DailyWealth e-letter. It comes from our colleague Dr. David "Doc" Eifrig.
In this essay, Doc writes about how to start understanding your risk tolerance...
When considering how much to invest in each asset class, start with a few simple questions.
Write down your answers and keep them for reference whenever you make future investing decisions.
In fact, it's a good idea to review your plan and risk level each year.
The questions Doc suggests you ask yourself are...
- How close are you to retirement?
- What is your investing goal?
- How much are you willing to lose in a one-year period?
Knowing the answers to these questions can help you stay calm and sleep easier amid sell-offs like the one we endured over the past week. As we wrote in last Wednesday's Digest...
On Monday, while Warren Buffett – who is considered the greatest investor of his generation – was saying during an interview "don't buy or sell" on the coronavirus headlines, the major U.S. stock indexes were getting ready to have their worst day since February 2018.
"The real question is: 'Has the 10-year or 20-year outlook for American businesses changed in the last 24 or 48 hours?'" Buffett said.
... Of course, how you feel about Buffett's comments might... and should... depend on your time horizon, risk tolerance, and investing goals. Those are different for everyone.
It's also a great time to remind you that it's always smart to own some 'portfolio insurance'...
That's how our colleague Bill McGilton has described what he offers in his Stansberry's Big Trade service. Here's a prime example...
As almost every other asset in the market fell over the last week, one of Bill's positions headed toward big, triple-digit gains. And subscribers who followed his advice with this position could have bagged a 230% gain when he recommended closing it on Friday.
The trade, opened last May, was a bet against cruise-line operator Royal Caribbean (RCL)...
The company has taken a beating in recent months, given the gut-churning negative stories and sentiment about the cruise industry as it relates to the coronavirus.
We can't imagine many people are eager to sign up for a cruise – especially in Asia. In fact, while in the boarding line at Baltimore-Washington International Airport on the way to Florida for this week's event, we overheard a few people talking about that reluctance. They also discussed how the recent market performance was dinging their retirement accounts.
As Bill put it in a trade alert to subscribers on Friday, "Royal Caribbean is set to see customer traffic plummet as folks avoid travel until the outbreak is contained."
That would be good news for Bill's long-term trade thesis...
In May 2019, long before the current negative sentiment attached to the cruise industry, Bill noted that Royal Caribbean would be one of the first casualties of a recession. As he wrote in that month's Big Trade issue...
Despite taking a hit in the past two recessions, Royal Caribbean is repeating all of the mistakes it made before... It's increasing its fleet, piling on debt, and is willing to slash booking prices to unsustainable levels when the market turns south.
But sensing oversold conditions on the stock on Friday, Bill didn't want to wait if his subscribers could lock in triple-digit profits. Kudos to Bill on identifying this opportunity... And of course, congratulations to all of his Big Trade subscribers who cashed in, too.
We suspect it came at a much-needed time... just as insurance should.
Now, off to enjoy the warm weather and some delicious food...
We're off to dinner with the rest of the team here at Streamsong. Warm weather... delicious food... great drinks... and even better company. That sounds like the perfect remedy for a correction.
I'll be back with more from Florida in tomorrow's Digest. Stay tuned.
New 52-week highs (as of 3/2/20): JD.com (JD) and Vanguard Inflation-Protected Securities Fund (VIPSX).
The mailbag is quiet today. As always, if you have a question or comment, e-mail us at feedback@stansberryresearch.com. We can't offer individual investment advice, but we do read every e-mail.
All the best,
Corey McLaughlin
Bowling Green, Florida
March 3, 2020