The Most Obvious Tell of the Market Can Save You Thousands

By Jason Bodner, contributor, Palm Beach Research Group

No one can time the exact moment of a market crash…But there are signs before one happens. PBRG contributor Jason Bodner says institutional selling is one giant red flag. He explains how to spot this sign below…


Market crashes, like anything, have two sides of the coin.

They can be nightmares for many, and opportunities for the few who are prepared. I’ll get into specifics in a moment, but first let’s discuss what typically happens during a crash.

First of all, crashes are often sudden, and especially now with the “flash-crash” moniker fresh on the minds of investors, sudden crashes are expected to be the new norm by many pundits.

The truth is, there is a tale of the tape that—if read properly beforehand—can save investors a lot of frustration, anxiety, and money.

The most obvious tell is when the market fails to break through to new highs, especially after several attempts.

On the surface, everything may seem fine, but there are often stressors under the surface that are hard to spot at the time. Think dot-com in 2000 and real estate in 2008.

Generally, these cracks begin to occur when investor consensus is very bullish on the market. When bullishness reaches extreme levels, eventually the market reaches its “uncle point” and a rush for the exit occurs.

The good news is that there are often hints in the market that can forewarn a potential crash.

The “smart money” is usually first in line to realize something is amiss in the market. The retail investor is rarely the first out. As big institutions with sizeable positions in stocks get internal signals of what they deem to be the top of the market, they try and prepare to sell stocks while the market is strong.

This naturally begins pushing stocks lower. Now, it doesn’t happen all at once, and to the untrained eye, these sell-offs represent a chance to scoop shares up in hopes of the rally resuming.

But when big institutions start dumping stocks, they try not to impact the market so they can get the best prices. They are professional money managers who get paid based on performance, so they are likely not going to announce to the world that they’re exiting stocks until they already have.

But what is the average investor to do?

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The key is to keep a sound head. Allowing emotions to take over your decision-making ability is a recipe for disaster. The usual cycle is witnessing price destruction, doing nothing, allowing fear and anxiety to build, and ultimately crying uncle at the worst possible time. It’s classic human behavior and it happens time and time again.

The real question is, “how do I know when to begin reducing risk, taking profits, raising cash, and be prepared to swoop in when the market bottoms out?”

The simple answer from my perspective is to let the institutional investment community tell you.

Think about it: they move in large packs, and their investment actions become a self-fulfilling prophecy. If the exit signs have illuminated for the biggest investors out there, then their moves will spell the top by way of their actions only.

When the dust settles after everyday investors have liquidated their portfolios because they can’t stand losing any more money, is when institutions come in and start buying back. This cycle has happened countless times.

Wouldn’t you rather be on their side of the trade?

My whole focus is to monitor what the “big boys” are doing in an effort to try and understand where they see the opportunities and risks.

Here’s how we look at the market: If signs point to heavy institutional selling, while indices power higher or remain flat, this is a key divergence that sounds alarm bells and makes us take notice.

These are the times to reassess the market situation and have a game plan ready, should equities appear as though they are about to reach a tipping point. When signals of selling are occurring across the board with specific sectors leading the stress, we feel it is prudent to cut that risk out of our portfolio and use that cash when opportunity strikes.

Opportunity can come in many forms, but in the case of a crash—having dry powder ready to take a position when others are selling recklessly is the ultimate goal.

Remember what legendary investor Warren Buffett always says: “Be fearful when others are greedy and greedy when others are fearful.” This is great advice, but buying when there’s blood in the streets is only possible if you have money available to buy with.

In my opinion, picking the ultimate top and bottom is impossible and out of our control. I’ll leave that game for others to play. Keeping a sound head, however, is imperative to being able to make the best out of a scary situation. Part of keeping calm is having a fine-tuned eye on what the market is really telling us, even when it seems like it’s merely a whisper.

Again, we look to big institutional buying and selling activity to tell us when markets are about to power higher or when they are about to get pounded lower.

The current environment supports continued strong stock performance, but being able to realize when things go afoul allows us to position ourselves with a “risk management and opportunity” frame of mind as opposed to one dominated by “fear and dread.”

Because it is counter-intuitive, many might find it easier to buy into an aging bull market and difficult to buy into a painful sell-off. The fact is that all major crashes have preceded long bull markets with higher highs.

It is only possible to take advantage of a crash as an opportunity if you are ready.

We all instinctively know what to do, but the hard part is knowing when to do it.

You can take the guesswork out of it by letting the unusual institutional activity tell us when it’s time.

A Stealth Bear Market Is Forming – Here’s How to Protect Yourself

By Nick Rokke, analyst, The Palm Beach Daily


We’re in the late innings of the second-longest bull market in history.

There’s a lot of money to be made over the next couple years during this “melt up” phase.

But not every sector will benefit…

In fact, one sector deemed “safe” by most analysts is about to plummet.

In today’s essay, I’ll tell you what this sector is… explain the two reasons why things will only get worse from here… and show you why history says it’s time to avoid it at all costs.

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History Tells Us to Stay Away From These Stocks

To see what I’m talking about, we need to take a look at what’s happened at the end of previous bull markets.

Here’s a chart of one company from this sector versus the S&P 500 over the past 22 years.

As you can see, this company fell about one year before the S&P did in 2000.

It fell in stride with the S&P in the financial crisis of 2008. And again, it signaled the 19% market correction in 2015 as interest rates began rising.

The name of the company may surprise you. When people think of safe stocks, this one is normally at the top of the list.

It’s Proctor & Gamble.

P&G makes things we all need and use every day… like Charmin toilet paper, Dawn dishwashing detergent, Crest toothpaste, and more…

Analysts call P&G safe because it makes things we’ll always use no matter what the economy does. Wall Street calls companies in this sector “consumer staples.”

And consumer staples just tanked. Over the past month, P&G fell 13%. And other stocks in this sector like Colgate, Kimberly-Clark, and PepsiCo have also fallen double digits.

Many investors just lost a lot of money in these supposedly safe stocks.

As I mentioned above, there are two reasons why things aren’t going to get any better for investors in these companies.

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The Income Extermination Is Here

The first reason why these companies are falling is because of an event we’ve called “The Income Extermination.”

Over the last 35 years, interest rates have generally gone down. The 10-year Treasury yield went from 15.7% in 1981 to 1.6% in 2016.

That’s important because the 10-year Treasury is commonly called the “risk-free rate of return.” It’s what you can earn without taking any risk—Treasuries always make the interest payments and return the principal.

New investors had to settle for lower and lower yields on risk-free assets. Eventually the yield became so low, investors began looking elsewhere for income.

This brought investors into stocks that pay high dividends. Some call these “bond replacements.” And consumer staples stocks fit the bill… P&G issues a 3.4% dividend. Colgate’s is 2.3%. And Kimberly-Clark and PepsiCo’s dividends are 3.6% and 3.0%, respectively.

Now that interest rates are going back up, investors are dumping their “bond replacements” to go back to the safety of bonds.

That’s not the only reason these types of stocks will continue to fall…

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Consumer Staples Go Down First

At the end of every major cycle, these “safe” high-dividend stocks tend to go down before the overall market does.

I showed you this earlier with Proctor & Gamble. This company fell well before the overall market did in the last three market peaks.

And shares of this consumer staples company fell 53% in the dot-com boom and 39% at the end of the housing boom in 2007. And it had another large fall—27%—during the 2015 correction.

But P&G isn’t the only consumer staples company that falls at the end of bull markets. Colgate, Kimberly-Clark, Johnson & Johnson, and PepsiCo all have similar chart patterns.

And these stocks didn’t just fall a little bit. They took an average fall of 30% in the recent market pullbacks.

This happens because investors forget about safety and value at the end of bull markets. They start chasing the hot investments. In 2000, it was internet companies. In 2007, it was housing companies and Chinese stocks.

Now people are paying more attention to cryptocurrencies and marijuana stocks. The reason is simple—the gains in these sectors are enormous.

Euphoria takes hold and boring companies get forgotten at the end of bull markets.

These Companies Will Continue to Get Crushed

Right now, we’re seeing interest rates rise like in 1999 and 2007. And we’re in the late innings of a massive bull market.

These two conditions mean consumer staples will fall further. If these companies fall as they did during the end of the last three bull markets, they still have another 20% to go.

P&G has already fallen 13%. If it falls a similar amount as the last three market peaks, it will fall from $80 today to $60 in the next couple years.

Now is not the time to be buying consumer staples stocks.

I’ll let you know when a good buying opportunity opens up, but for now, stay on the sidelines.

Why the Crypto Market Crashed

By Jeff Brown, Editor, The Near Future Report

It’s not just stocks that have been having a volatile few weeks. The cryptocurrency market plummeted in early 2018, too.
Below, Jeff reveals what’s behind the crypto crash, and how you can profit securely from a rebound.


I’ll be the first to say it. The run-up in many cryptocurrencies last year was nothing short of spectacular.

The entire cryptocurrency market cap shot up 3,224% in 2017.

Chart

2017 was good for crypto investors. But in the last few months, we’ve experienced a serious pullback.

Take a look at the cryptocurrency market cap through today.

Chart

After climbing to $836 billion in early January, the entire cryptocurrency market cap plummeted 47% to around $450 billion in under two months.

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The Cause of the Correction

Much of the gains last year were a result of more than 100 different crypto hedge funds launching in 2016 and 2017. At the end of last year, many of these funds were sitting on significant returns on their invested capital.

They’re well incentivized to take a certain portion of those profits off the table. So they took the opportunity to book returns for their investors and for their limited partners.

These realized gains are also directly tied to the bonuses they receive.

As a result, you saw quite a bit of profit-taking in late December. That’s when we saw pullbacks of 40% and more in the price of many cryptos.

Then, in January, rumors started to swirl that the Chinese government would order a domestic shutdown of bitcoin mining activities. That didn’t help.

The so-called miners are participants on the bitcoin network that verify transactions and are rewarded for their efforts with new bitcoins.

Most people don’t know this, but more than half of the “hash power” – the computing power dedicated to mining bitcoin – is controlled by just three miners. And all three are based in mainland China.

If the Chinese government were to take offline more than half of the computing power that keeps the bitcoin network up and running, it would slow down the network to the point of making it unusable.

The network would eventually adjust, as miners move to more crypto-friendly jurisdictions. But that would take some time.

In addition, we had reports that the South Korean government would ban crypto trading.

As it turns out, the restrictions are going to be limited to anonymous trading. Seoul, reasonably enough, doesn’t want crypto trading to facilitate money laundering.

Going through these sorts of pullbacks can be painful. You might be tempted to cash out of the crypto market altogether.

But I’m here to tell you that that would be a mistake.

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A Long Way to Run

Looking at the drop earlier this year, you may be thinking that the run is over. But as I’ve been telling readers of my technology trends investment letter, The Near Future Report, it’s not. Not even close.

Although we’ve seen some serious pullbacks and higher-than-normal levels of volatility, the long-term direction for cryptos is higher… much higher.

That’s because the technology that cryptos are built around – the blockchain – will revolutionize the world in the same way the internet has done over the last 20 years.

[Editor’s Note: Blockchains are distributed ledgers. Instead of there just being one copy of the transactions in a ledger, there are complete copies across a network.]

Blockchain technology – the technology that bitcoin is based on – is valuable because it is cryptographically secure, which enables secure transactions. It is also impossible to duplicate or forge records on a blockchain once they’ve been added.

Once a transaction has been added to a blockchain, it is permanent… as though it were a 100-million-year-old insect preserved in amber.

And because blockchain networks are, by definition, decentralized, there is no single point of failure or need for any trusted third party to vouch for the veracity of the records.

This technology is being used to solve real-world problems. Not virtual problems.

Real-world problems such as reducing the cost of financial transactions… accelerating the time it takes to send remittances overseas… eliminating middlemen and rent-seekers.

These things provide immense utility for businesses and consumers. And that’s why blockchain technology – and the crypto assets associated with it – is not going anywhere. That’s also why the best projects are going to continue to appreciate.

Learning From History

Last December, I wrote to you about the soaring crypto market. At the time, I compared the action in cryptocurrencies to the run-up in internet companies during the late ’90s.

I warned that we would “undoubtedly experience some pullbacks” along the way.

And that’s what we’ve seen. Bitcoin fell by nearly 50% from its record high of $20,036 in December. And the total value of all crypto assets is down by about 50% since its peak at the start of this year.

In the late 1990s, runaway optimism for internet technology created a bubble. And of course, that bubble burst at the end of the decade.

But despite all these ups and downs, the internet ended up revolutionizing the way we communicate, conduct business, work, transact, and shop – just as the early web evangelists said it would.

The dot-coms that did not prove to be useful over time disappeared. But those that solved real-world problems – like how to find buyers for secondhand goods (eBay)… or how to download and read books instantly and get same-day online delivery of groceries and other items (Amazon) – thrived.

Folks who stuck with dot-coms that solved real-world problems did extraordinarily well. Amazon is up more than 78,000% since June 1997. And eBay is up more than 4,900% since October 1998.

I recommend taking the time to educate yourself and invest in cryptocurrencies that are solving real-world problems. These will be your safest way to profit from the blockchain revolution.

By focusing on assets that provide invaluable utility, you’ll position yourself to profit as blockchain technology transforms entire industries.

[Ed.note: If you’re new to the bitcoin craze and you’re thinking about investing, the first thing you have to do is figure out what it is. If you can’t explain what bitcoin is to your mom or your neighbor and why you’re investing in it and why you think it’s a good investment, then it’s too soon for you to put your money in.

But with an investment like bitcoin, no one really knows where it’s going to go. It could go to $150,000. But it could also go to zero.

The Palm Beach Confidential review has more in-depth information about investing into cryptocurrencies.

To find out more about your options check out the review of Teeka Tiwari Palm Beach Confidential Newsletter.]

How to Turn the Market’s Next Crash Into Cash

By William Mikula, analyst, Palm Beach Income

Below, Palm Beach Income analyst William Mikula shows you his strategy for generating thick streams of income from jittery markets…


It’s inevitable. At some point in the future, there will be another market correction. Perhaps even a crash.

While I can’t tell you the exact timing of the next crash, I’m here to tell you one thing: how to profit from it.

You see, at Palm Beach Income, we look at the market a bit differently from your average investor.

We don’t rely on capital gains (stock price appreciation) for our returns. Instead, we offer investors a form of “insurance” with our low-ball offers.

Using a unique aspect of the options market—in exchange for an upfront cash payout—we agree to buy investors’ shares for a certain price and for a certain length of time.

Now, to be clear… this strategy works well in a complacent, low-volatility market like the one we had last year.

In fact, in 2017, we closed 26 trades. All closed for a profit, and we averaged 17.6% annualized returns.

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But here’s the thing…

I expect at least double those returns when the market turns over. Here’s why…

The one thing my team and I check every day is the market’s fear gauge—the Volatility Index (VIX). The VIX measures the expected volatility of the S&P 500 over the next 30 days. And it’s important for us because it influences how much cash we earn for our low-ball offers.

A low VIX reading (below 20) means that investors are calm and complacent. They aren’t willing to pay much for the “insurance” we provide.

A higher VIX reading (20 or above) implies that investors are nervous and fearful. This means they’re willing to pay up for “insurance.”

Now, last year, the VIX hovered around a reading of 10–12 most of the year.

For comparison, during the Financial Crisis of 2008–2009, the VIX spiked as high as 80. That’s more than six times higher than what we saw in 2017.

While I don’t expect to earn six times those returns in the event of a crisis, we could easily double our cash payouts. All we would need is the VIX to average around 24 (twice the range we saw in 2017).

This means I would expect us to easily double our annualized returns in this scenario from 17.7% to around 35%.

And we might be at the beginning stages of a resurgence in volatility…

On February 5, the Dow Jones Industrial Average fell 1,175 points—the worst single-day point drop in history. Stocks across the board—and in every market sector—suffered.

As you can imagine, this market route led to fear and panic… and a massive 115% spike in the VIX. This represented the largest single-day VIX increase in history:

Stocks were bleeding red, and investors were in full-blown panic mode.

But here’s the thing: Readers of my elite Palm Beach Income trading service were smiling as they rang the cash register. You see, I sent out a trade alert on Tuesday, February 6, detailing how to cash in on this mini-crisis.

My subscribers banked hundreds, thousands, even tens of thousands of dollars in upfront cash, depending on the size of their portfolio.

And today, I’ll tell you the strategy they used to cash in. I’ll also give you a “Crash Income Playbook” to leverage the next spike in volatility.

And as I mentioned at the outset, while I can’t guarantee the exact time and day it will happen, I can guarantee that volatility will once again strike in the future.

The time to prepare is now.

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To generate thick streams of income, we sell cash-secured put options. We call these trades “low-ball offers.” Reason being: We offer to buy elite, trophy stocks at a discount to their current prices. In exchange, we receive cash up front, and the investor that pays us for our low-ball offer gets peace of mind.

Palm Beach Research Group co-founder Tom Dyson equates our strategy to making offers on beachfront property. First, we find the best real estate on the best beaches. We then offer to buy these properties if they ever go on sale—to a level we decide beforehand.

The beachfront property owner likes this deal because he doesn’t have to sell us his trophy property unless it drops in value. But he knows that in a worse-case scenario, he has someone ready and willing to buy. That’s why he’s willing to pay us up front.

In the same way, our low-ball offers allow us to earn cash up front offering to buy trophy stocks in the market.

It’s simply the best way to wring cash from the market, no matter what the market conditions are.

(If you are a member of Palm Beach Income, or an Infinity member, you already enjoy access to our in-depth training series on options, as well as my specific option trades. You can access this material here. If you are not a current subscriber, Investopedia has some good content on the ins and outs of options. Be sure to research “cash-secured put options,” as that is the strategy I’m writing about today.)

Your Crash Income Playbook

Okay, now that we’re on the same page with what a low-ball offer is, my strategy for you is simple… and it will be incredibly profitable if you can follow along.

(Now, if you’re dead set against using options, you could always buy the stocks I’ll mention below when they hit their target prices… You just won’t benefit from the instant income and larger cushion of safety our strategy offers.)

Watch the stocks in my list below. When they hit the target price I’ve lined up for you, make a low-ball offer on or around the price I’m suggesting. Doing so will give you an instant cash payout and set you up to buy these dominant stocks at a discount to what is already a great price.

Then, if the market accepts your offer, you’ll buy shares. Once you take ownership of the shares, start selling covered calls. You’ll also collect any applicable dividends during your holding period.

If the market does not accept your offer—and the share price is at or only around 5–10% higher than my price below—then make another low-ball offer.

Keep repeating this process until the stock reaches the “cut-off” point I’ve provided. At this level, shares won’t be cheap anymore, and it might make sense to look for other opportunities.

(Of course, this is a generalization. If earnings continue to rise with the share price, then a stock can stay “cheap” as it rises higher. This rule is merely meant to make you think before making a trade, rather than blindly making low-ball offer after low-ball offer into perpetuity.)

It’s as simple as that. If the stocks below decline to my price targets, that will almost certainly correspond with an elevated VIX… and thick streams of cash flowing into your pocket.

Stock

Ticker

Wait for price to drop to…

Make a Low-Ball Offer to buy shares at…

*This will give you a “cushion” of…

^And target an annualized return of…

Stop making low-ball offers when the price hits…

American Express

AXP

$73.85

$65

12%

37.5%

$100

Apple

AAPL

$130.75

$120

8.2%

35.5%

$180

Coca-Cola

KO

$34.55

$32

7.4%

29.5%

$50

Home Depot

HD

$131.25

$115

12.4%

35%

$190

Johnson & Johnson

JNJ

$105.85

$95

10.3%

30%

$145

McDonald’s

MCD

$129.10

$115

10.9%

34%

$175

Microsoft

MSFT

$64.25

$57

10%

35%

$90

Procter & Gamble

PG

$68.65

$60

12.6%

32%

$92.50

UPS

UPS

$88.75

$80

9.9%

32.5%

$120

Walmart

WMT

$74

$67.50

8.9%

27.5%

$100

*Cushion is the difference between the current stock price, and your low-ball offer strike price.

^Annualized Return Formula: (Total Income Received/Put Strike Price)/(Expiration Date – Open Date) x 365 days x 100

Print out this report and keep it in a safe place. When the next market crash comes, you’ll be ready to cash in.

Seven Proven Ways to Survive the Next Market Crash

By Chris Wood, analyst, Palm Beach Confidential

Below, Palm Beach Confidential analyst Chris Wood shows you the steps you need to take to be ready when the next market crash hits…


The most important thing to remember about a stock market crash is that it will happen.

No one knows when. It could be next month. It could be two years from now. But I would bet that it happens within that time frame.

Big downturns in the stock market occur about once a decade on average. And we’re about nine years removed from the financial crisis of 2007–2008 that knocked the market down more than 50%.

It goes without saying… it’s important to have a plan in place and be prepared.


RELATED

Announcement: “I’m Giving My Money Away”

In the weird video clip, you’ll see here, ex-hedge fund manager James Altucher is seen literally giving his money away… about $1,000 cash total… to perfect strangers on the streets of New York City.

And he makes every one of them an incredible proposition… one I GUARANTEE you’ve never heard before. Click to see.


So, here are some key ways to prepare for the next big crash.

1. Diversify.

It’s important to diversify your investments as much as possible. And you don’t just need to diversify your stock portfolio. You should diversify across different asset classes and regions as well.

How you allocate your investment portfolio will depend on your risk tolerance, time horizon, and goals. But careful diversification gives you a good chance of weathering the storm relatively unscathed.

2. Invest for the long term.

Stock markets rise over the long term. But they’re often interrupted by short-term downturns. The short term is more about investor sentiment and confidence (or lack thereof), while the long term is about real wealth creation as companies generate free cash flow and pay down debt.

An often-cited rule of thumb is that stock markets rise one-third of the time, fall one-third of the time, and recover one-third of the time. So the more your portfolio is focused on the long term, the better off you’ll be.

Of course, that doesn’t mean all your trades, investments, or speculations need to look 20 or 30 years into the future. But your short-term plays should only make up a small portion of your overall investment portfolio.

3. Take emotion out of the game.

It’s important to have a plan that you stick to when things go south. This takes emotion and fear out of the game. Even the smartest investors do stupid things when they get scared.

For example, if you had sold all your stocks during the last market crash and only held cash since then, you would have missed out on the huge gains we’ve seen these past several years. (The S&P 500 is up 300% since March 9, 2009.)

It’s important to have rules in place, like…

  • Hard stops and trailing stops, which automatically cut your losses (and lock in profits) when things go south.
  • Strict position sizing and portfolio sizing, which ensure that you’re never too heavily invested in one sector—or in general.
  • Rebalancing, which involves buying or selling assets as they become over- or undervalued, and then reallocating them so that your portfolio doesn’t get out of whack with your original investment goals.

These all help mitigate risk and take emotion out of the equation.

4. Have as little debt as possible.

If you’re in debt before a market crash, things don’t get any easier during one. Make sure that you aren’t too stretched out on margin (funds that are borrowed to invest with) in the first place. But if you are, taking profits to reduce some of that debt isn’t a bad move.

5. Have cash on hand.

It’s important to have cash on hand for two reasons.

Let’s say things get really bad and you lose your job, for example. You’ll need cash on hand to pay your bills and buy food. Having a year’s worth of cash is a good start. Two years is better. Three is outstanding, and should be more than enough.

It’s also important to have cash on hand to take advantage of a market crash. As legendary speculator Doug Casey likes to point out, the Chinese symbol for “crisis” is a combination of the symbols for “danger” and “opportunity.” Here’s Doug…

The danger is what everybody sees; the opportunity is never quite so obvious as the danger, but it’s always there. Speculating in crisis markets is the ultimate way to be a contrarian, which means buying when nobody else wants to buy.

The opportunity during a crash is simple: Good stocks get taken down with bad ones when the market tanks. So if you have cash on hand, you can pick up those good stocks for a bargain.

As Warren Buffett says, “Be greedy when others are fearful.”

6. Look for stocks that will hold up better than others during a downturn.

There are some types of stocks that tend to do better in a downturn than others, so look for stocks with that kind of profile. You also might want to make strategic trades in areas like small-cap biotech, which is news-driven and can actually do well even in a down market.

So what types of companies are we looking for here?

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Consumer Staples: Traditionally, consumer staples are products such as food, soft drinks, alcoholic beverages, tobacco, personal care products, and household products. Companies that make and sell these products, such as Procter & Gamble, comprise the “consumer staples” economic sector.

But the tech and biotech sectors also market products that meet the broad definition of a staple.

These are products that remain in demand, regardless of economic conditions, because people are unable or unwilling to cut them from their budgets. Pharmaceuticals and medical devices are examples.

And some consumer electronics, such as smartphones and PCs, have become so integral to modern-day life that they, too, have become staples.

Consider this: 47% of U.S. consumers said they wouldn’t last a day without their smartphone. And those aged 18–24 say a smartphone is more important than deodorant and even a toothbrush, according to a 2014 survey by Bank of America.

Pricing Power: Pricing power refers to a company’s ability to maintain sales prices—and therefore margins—despite falling price levels in the economy at large.

Companies with pricing power have few competitors, a strong brand, favored and patent-protected products, and an established network effect.

Also, consider that pricing power is really an ability to maintain margins. If a company is buying most of its supplies and labor overseas, but selling at home, then a strong dollar can drive down costs. So, a company only needs enough pricing power to keep consumer prices from falling faster than supply costs.

Strong balance sheets, long-term contracts, revenue profile, and growth catalysts should also be considered.

7. Have multiple income streams.

Side projects generate cash for you while you’re doing your everyday job. When it comes to this side of things, do something you know that could be easy and fun.

In addition to finance and economics, I have a background in real estate, so I do some real estate investing on the side. I also love cars, so I recently bought a beat-up, quasi-classic sports car—one that’s highly in demand—and am restoring it to its original glory. I’m looking at putting $10,000 into it total, and easily selling it for $20,000-plus. That’s a 100% return on a project that, for me, is more play than work.

The more streams of income you can develop, the better off you’re going to be in a downturn.

Following these seven steps will help you survive (and thrive) during the next market crash.


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The Dollar Faces Its Most Important Test Since 2002

By Nick Rokke, analyst, The Palm Beach Daily

The dollar is facing its biggest test in 16 years.

As you can see below, right now the dollar is barely hanging onto its seven-year uptrend line. The U.S. Dollar Index is only one point away from breaking the trend line at 88.20.

This is a critical level.

That’s because the dollar’s next move will have a serious effect on your wealth over the next year.

Fortunately, there are specific ways to profit from this important test.

As I’ll show you in today’s essay, we’ll be fully prepared to take advantage—no matter which direction the dollar moves from here.

But first, let me explain why we’re following the dollar in the first place…


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The Dollar Is the Price of Everything

It might sound like common sense, but the value of the dollar directly affects the price we pay for everything.

When the dollar weakens, we end up paying more for everything. Our dollars don’t go as far… from the groceries we eat, to the gas we put in our cars, to the stocks in our portfolio.

Despite that, many investors overlook the value of the dollar in their investing plans.

And worse, they don’t take into account how the dollar affects the profits of the companies they invest in.

In short, the dollar’s performance directly affects your portfolio—and ignoring it could cost you thousands.

Now, let’s take a closer look at the dollar’s test…

The Current Test

To understand why the dollar’s next move is so important, we need to go back to 2002.

This was the last time the dollar failed this test. And, well, just look at what happened…

As you can see, the dollar lost 40% of its value from peak to trough. A bear market that lasted almost nine years followed.

The signal that tipped off investors to the start of the dollar bear market was a broken uptrend. The uptrend had lasted seven years until it was swiftly cut through in mid-2002.

Now the dollar is in freefall again. We first pointed this out in August when the dollar was only down 10%. It’s fallen another 5% since.

And now, as I mentioned above, the dollar is only one point away from breaking this trend line.

Now, let’s look at the two different scenarios that could follow…

Scenario 1—The Dollar Breaks the Trend Line

Over the last few months, the dollar has continued to fall relative to other currencies. One reason is because the other currencies Wall Street uses to measure the value of the dollar are strengthening. Europe and Japan are both stopping their easy-money policies, which is bullish for their currencies. And China is making moves to strengthen the yuan.

And the federal deficit is projected to widen… As I told you yesterday, experts predict the deficit could grow by $1 trillion next year. That means a lot of money is getting printed… and is forcing the value of the dollar down.

If the dollar breaks the trend line, it will probably go down another 11%—a large move for a currency.

What to do: If the dollar breaks this trend, the play is to stick to what we told you in August. Buy international companies that get a lot of their profits from overseas. The SPDR S&P 500 ETF (SPY) is one way to do this. Companies in the S&P 500 get 47% of their profits from overseas.

Another way to profit from a falling dollar is to buy commodities and building materials. If the dollar weakens, you’re really going to want to own the ETF I mentioned yesterday—the Materials Select Sector SPDR ETF (XLB). Companies in this fund will do well no matter what the dollar does, but will do that much better if the dollar tanks.

Now, here’s what to do if the dollar passes this test and stays above the trend line…


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Scenario 2—The Dollar Passes the Test

If the U.S. Dollar Index passes this test, it should bounce 5%–7% in the next year.

Now, there are lots of fundamental reasons for the dollar to go higher. The economy is growing very quickly—the Federal Reserve Bank of Atlanta predicts the economy will grow at an annualized rate of 5.4% this quarter.

That means a lot of people will be needing dollars.

And the Fed is raising interest rates. That makes holding dollars more profitable for investors.

Both of these factors are bullish for the dollar.

What to do: If it stays above the trend line, you’ll want to look for American-focused companies.

You could buy the PowerShares DB U.S. Dollar Bullish ETF (UUP). But this index doesn’t move much. It might go 7% higher this year, but it won’t do more than that.

A way to get more bang for your buck is to buy stocks in companies that benefit from a stronger dollar. The way to do that is to stick with the Russell 2000 companies. These are small-cap companies that only do 22% of their business internationally, compared to 47% for the S&P 500.

The one-click way to buy the Russell 2000 is with the iShares Russell 2000 ETF (IWM).

We’ll be watching this trend closely.

As I showed you, this is a major theme that will have a direct effect on your wealth over the next year.

The next move will be very telling… And now you’re prepared, no matter what happens.

What to Do With Your Money When Doom Awaits

Below Dan Denning (Coauthor, The Bill Bonner Letter) shares a strategy to protect your wealth from an uncertain future. Dan and Bill Bonner call it “the new permanent portfolio.”


Diversification and asset allocation can help you reduce your risk as an investor.

For your kids and grandkids, a depression could be just the tonic they need. In a world where real wage growth is stagnant and the robots are taking all of our jobs, your best chance to build a fortune is to buy assets when they’re cheap. You can only get them at that price after a crash.

Do you think it’s a coincidence that famed investor and economist Ben Graham wrote his investment classic, Security Analysis, in 1934, just five years after the Great Crash of 1929?

The Dow Jones Industrial Average fell by 89% between September 1929 and July 1932, dropping from 386 to 41. Stocks and bonds weren’t just cheap… they were destitute and unloved.

If you have any skill at reading a balance sheet and doing a bit of math, you stand a good chance of being able to buy future earnings at a deep discount. Most investors find that emotionally hard to do.

For most investors, expectations are high when prices are high, and expectations are low when prices are low.

If you teach one thing to your kids and grandkids – or if you hope to come out of this market with your wealth intact – remember that it should be the opposite: Your expectation of future returns should be low when prices are high, and high when prices are low.

This is another way of saying, “Be fearful when others are greedy, and greedy when others are fearful.”

By now, you’re probably wondering what the plan is. So let’s get on with it. I’ll take you through my proposed Permanent Portfolio asset class by asset class.

What I propose is below.

Cash: 25%

The cash allocation is 25%. Now, if you believe the market (or earnings) is going to go up, your cash is going to underperform (be very lazy). In a low-interest-rate world, your cash won’t be earning you any money.

True, it won’t be at risk in the market. But inflation won’t be kind to your purchasing power.

Still, the biggest benefit of cash is what’s called “optionality.” If you have it, you can trade it for something you want when that thing becomes cheap.

A 25% cash position assumes you’ll be able to put it to better use when assets become cheap. Your risk is that assets may stay expensive for a much longer time.

It may not naturally occur to you that you also have options about what kind of cash to own. I’m not just talking about whether you want to own hundred-dollar bills, fifty-dollar bills, or twenty-dollar bills. I’m talking about which cash?

The U.S. dollar? The Swiss franc? The Singapore dollar?

Everyone should own cash denominated in foreign currencies.

It’s not hard to do. You can exchange your dollars for euros or British pounds at major banks.

Obviously, you’ll want to do so when exchange rates are favorable. But it shouldn’t be too difficult to accumulate $5,000–$10,000 worth of cash in a foreign currency.

Bonds: 19%

Bill and I weren’t sure about this one. The widely held idea that government bonds are risk-free is one we fundamentally disagree with.

Don’t ever forget that, despite all their assurances, governments can and do default on their debts. And with huge unfunded liabilities to go along with their official debts and deficits, the situation is far more dangerous than the feds would have you believe.

That’s why the bond market is ground zero for the explosion in global debt since 2007. In an inflationary scenario, bonds will be consumed in a hellfire of wealth destruction.

So why own bonds at all if we think the world will inevitably enter another debt reckoning?

Well… we can’t entirely rule out the possibility that central banks will continue to purchase bonds for years.

And even if the Fed reduces its bond portfolio by $15 billion a month, it will take nearly 25 years for it to clear off the bonds it’s already purchased. That’s assuming that, in the next crisis, it doesn’t resume adding bonds (funding Washington’s ever-expanding deficits).

There is no theoretical limit to how big a central bank balance sheet can get. When you’re the one printing all the money, you cannot be insolvent. And the Fed isn’t a “going concern” anyway.

For that reason, we reluctantly suggest you keep some bonds in your portfolio. You should own some inflation-adjusted bonds or short-term bills and notes.

Those instruments are quickly and easily redeemable for cash but still have the perception of safety (and liquidity) for most investors. Hold your nose and buy.

Stocks: 25%

The worst advice I could give you is to sell everything now and go straight into cash.

Emotionally, it’s tempting. But we usually make our worst decisions when we invest emotionally. That’s why most investors tend to buy high and sell low. Even in bull markets, research shows that investors underperform the indices by trading too much.

Unlike bonds or cash, a stock is a claim on a for-profit enterprise. That enterprise can increase its earnings, even (or especially) in challenging circumstances.

Think, for example, of a company that sells generators during hurricane season. Wall Street is full of “factor investing” models today that aim to slice and dice the market by investing style (momentum or value), market cap (small or large), or volatility (beta, so-called “smart beta,” or alpha).

If you were going back to basics, you’d look for companies selling at less than one times book value. You can find them in the U.S. But many of them are financial stocks (like banks). Those are precisely the kind of investments we want to avoid in a financial crisis.

That means you have to be willing to buy foreign stocks or exchange-traded funds that give you access to foreign markets.

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Tangible Assets: 30%

What about other tangible assets? Gold is one possibility. What about oil? What about silver? What about real estate? Aren’t those tangible assets, too? And does buying a real estate investment trust (REIT) for income qualify as buying a tangible asset for the purposes of the portfolio?

That’s why we’ve broadened our version of the Permanent Portfolio…

And you can see that we recommend a 30% allocation. We believe tangible assets – a claim on something real – will be more valuable than purely financial assets (claims on future cash flows) as the stock market mean-reverts.

The bulk of this position will be made up of real estate which you either own and occupy or rent and generate an income from.

As real estate values are local and affordability depends on your income, interest rates, and the size of the mortgage, we don’t have anything specific to say about where to buy. That is up to you.

Of course, precious metals and collectibles are included here, too. And be creative.

For example, at Sharps Pixley in London, you’ll find some gold and silver gift items that are both valuable and beautiful. Made by Degussa, the silver bull and bear below on the left would look great on any desk. On the right is a 25-ounce replica of a 20mm bullet you can buy at fine bullion providers or on eBay.

image

What about art? Most people believe art is too expensive for the average investor to buy or store. But look at the lithographs below.

These became popular in Melbourne when I lived in Australia from 2005 to 2014. Why? For young professionals with their first taste of discretionary income, it was an easy way to buy art without having a lot of money to start with.

The Green Devil (pictured in the middle) I bought in 2013 sells on vintage poster auction sites for nearly twice what I paid for it. Variables like size, condition, rarity, and authenticity will account for different values for different prints. But they can get quite expensive.

Explore your options. You have them.

image

Cryptocurrencies: 1%

Perhaps controversially, we’ve added a fifth “asset class” to the plan: cryptocurrencies.

Neither Bill nor I are prepared to say we fully believe that cryptocurrencies are actually money. But then, the definition of what money is and who gets to produce it is one of the recurring subjects of the Diary.

Cryptos are a speculative position. But they’re one with potentially huge upside – several cryptos soared thousands, even tens of thousands, of percent last year – and are thus worth including.

And remember, no investment or allocation strategy can protect you from the worst type of financial calamity.

However, maintaining a diversified asset portfolio is one good way of reducing how much damage you sustain when the next calamity occurs.


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An unusual way to play the coming gold boom

If you want to get incredibly rich, just take these three simple steps…

Take out your calendar…

Circle March 31

And make this one simple move on gold, quickly.

By this precise date, the world’s #2 gold nation is scheduled to make a stunning announcement…

One that will send shockwaves through the gold market, virtually overnight.

And it has nothing to do with a dollar collapse, negative interest rates, or economic instability.

Instead, it involves a single catalyst that could send a TRILLION DOLLARS flooding into the yellow metal.

It could be the single most lucrative 24 hours in the history of the markets!

But we’re NOT recommending you buy bullion, coins, or ETFs.

In fact, we’ve found an unusual gold trade that will deliver 27 times more gold profits.

That means for every tiny jump in gold, you could see massive returns.

Already, the legendary investor Doug Casey – our firm’s founder – has multiplied his money 7 times over… and gold is only $1,300.

So, imagine the kind of fortunes up for grabs as gold surges to $10,000.

If we’re right, this trade could turn every $5,000 into a million-dollar nest egg. And that’s just for starters…

The profits could be life-changing.

We’ve got the full inside scoop for you here.