Stock market volatility is going to continue, but unless you’ve got a crystal ball, the only way to make money in this market is to trade only for the day and be on the right side most of the time. Otherwise, you could possibly identify a number of key defensive stocks, hang in there for the long haul and hope for the best. But those who think this market collapse is over should probably buy some Disney stock and consider it rent for living in Fantasyland. This week’s earnings reports are going to begin shedding some light on the truly devastated economy that we are just beginning to deal with. Once we hit the bottom, recovery is probably going to be an eight to ten year process, unless Ray Dalio is correct and it’s closer to twenty. I’m not a pessimist, I’m a realist. About a year ago, I said the market was geared to collapse between 40% – 60%. I also said that it was inevitable and that you could plug in any excuse when it happened, whether a trade war, dollar devaluation, sudden inflation, geo-political unrest, whatever. But the coronavirus and our Neanderthal response to it has provided a greater opportunity for economic calamity than even I imagined. Anyone who believes we’ve made the turn and are now on the road to recovery, or that the DJIA is going to march past 30,000 from here is most probably delusional.
I understand the feeling of desperation from many investors. I understand the “buy the dip” logic. But someone needs to get a grip, face the facts and realize that this market was a house of cards to begin with. The 40% drop we saw was inevitable, but nothing at all has been done to change the lack of foundation it was built on in the first place. It’s trying to build back on the same mid-level sand pile it started on. The initial losses that took the DJIA under 19,000 cancelled out the insipid company stock buyback frenzy that lined the pockets of corporate executives for the past two years and made investors feel good for a while watching their electronic balance. But paper profits are nothing more than a temporary good feeling unless you’re able to cash in. And like I said before, this is not going to be a protracted collapse. It may have large gyrations, but when it’s over we’ll probably have bottomed out closer to 70%, with a number of precipitous free falls. Lucky gamblers will be successful, but the average investor will most probably be spindled, folded and mutilated.
Bank of America Global Research recently projected a 29% drop in 2020 for the S&P 500, while Goldman Sachs anticipates a 33% decline. SPDR, the largest S&P 500 ETF is already down 13.56% for the year, while the S&P itself is a little worse off at 13.65%. FactSet projected an 11% 1Q loss and 21% 2Q loss for the S&P 500. Like I’ve been trying to get investors to realize, Emily Roland, co-chief investment strategist at John Hancock Investment Management, was quoted in the Wall Street Journal today saying, “It’s been remarkable to watch markets just climb higher and higher. We haven’t really seen markets reflect the full extent of the damage that coronavirus is having to corporate profitability.”
When the ether wears off, many investors are going to be well-positioned to be crushed, again. The one glaring fact of the matter is that the “typically” suggested 5% physical precious metal portfolio ownership tranche is probably far less than is needed for protection from the current economic scenario. Gold is still well below its previous high and silver’s current price is absurdly low. Yes, silver is going to suffer more from the recession than gold, because of its extensive industrial uses, but then again, its demand grew dramatically over the past two years, but the price did not respond. Further, because of the depressed price, mining production has been dramatically cut back. Call the experts at American Bullion for assistance now, at (800) 653-GOLD (4653).