Guest Post: "8 Reasons Why Your Portfolio Needs Crisis Insurance", by Olivier Garret of Hard Assets Alliance

Here's some more helpful information from our friends at Hard Assets Alliance. Please be sure to keep them in mind for all of your precious metal needs.

8 Reasons Why Your Portfolio Needs Crisis Insurance

By Olivier Garret, Founder and CEO of Hard Assets Alliance

We’ve recently witnessed what I consider to be a turning point for the stock market.

Just when many predicted another growth year for the markets, on Monday, February 5, the Dow plunged by 1,600 points—its greatest point drop in history.

https://images.hardassetsalliance.com/images/Image_1_20180219_HAA_OG.jpg
Source: Money.CNN

The sudden decline shook investors’ bullishness to the core. Many belatedly remembered that markets do not always go up and that even the “New Economy” isn’t indestructible.

I have no doubt that the stock market bulls will find excellent excuses for this correction. Fundamentals are still strong for the economy and the markets. Maybe February 5 was just a fluke, and we can move confidently into the future!

I happen to think otherwise. I believe that what we experienced was only the foreshock before the “Big One” hits... and history is on my side.

History Repeats Itself

The vast majority of corrections and crashes follow initial warning signals.

Very often, market tops are followed by a few setbacks, followed by new highs, until the ultimate correction occurs.

The 2000 dot-com collapse is a perfect example.

https://images.hardassetsalliance.com/images/Image_2_20180219_HAA_OG.jpg
Source: Wikimedia

The initial correction started on March 11, 2000, but the index didn’t bottom until October 2002 after losing 78% of its pre-crash value.

Similarly, the Financial Crisis of 2008 and the collapse of Lehman Brothers were preceded by the 90% share price drop and subsequent bankruptcy of New Century Financial in March and April of 2007.

https://images.hardassetsalliance.com/images/Image_3_20180219_HAA_OG.jpg
Source: StockCharts.com

The market actually peaked on October 9, 2007—a full six months after the initial shock. Then another five months later, Bear Stearns crumbled, followed by IndyMac in July 2008.

Bubbles rarely blow all at once.

The Question You Should Ask Yourself

The question investors should ask themselves is: Which part of the cycle are we in today? Are we closer to a top or to a bottom?

If we are closer to a top and we start seeing early signs of a correction, it’s important to adopt a defensive investment strategy before a more serious crash occurs.

The market may still reach new highs, but the risks are mounting. Personally, I’d rather sacrifice a bit of performance to protect the downside.

The reasons why we want downturn insurance in place now are:

  1. Stocks still have rich valuations today, especially the FAANGs. P/Es are high compared to historical averages.

  1. Over the last several years, corporations have used leverage for financial engineering rather than boosting productivity. US corporate debt levels are at an all-time high (above $6 trillion or about 31% of GDP). This excess leverage is fine when interest rates are low, but it can be deadly in a recession. In addition, stock repurchases don’t have the same impact on profits than capital investments.

  1. Interest rates are expected to increase as a result of the Fed’s tightening policies. Treasury issuances will likely increase over the next few years. Unfortunately, this may coincide with lower demand for US debt from both international and domestic buyers.

  1. Higher interest rates will put pressure on demand for consumer goods and real estate. These are two critical drivers of economic activity in the US.

  1. Many asset categories are currently in bubble territory and prone to downward adjustments: growth stocks, bonds, real estate in many markets, arts, collectibles, and luxury goods, and cryptocurrencies.

  1. Geopolitical risks are not insignificant (North Korea, Iran).

  1. Political gridlock in the US could lead to paralysis after the mid-term elections.

  1. Heightened risks of protectionism and trade wars.

There are some positive indicators that could prolong the current expansion—such as high employment rates and robust economic activity in all the developed economies.

The Trump administration’s tax reform could also boost the economy, although most of the benefits are likely to be delayed.

As far as I am concerned, starting in 2017, I have started adjusting my portfolio to get ready for a sizeable correction. I haven’t sold all my stocks and bonds, of course, but I have rebalanced the asset allocation considerably.

For example, I’ve sold overvalued positions and added a lot of cash to redeploy once the correction hits. And I have purchased a significant amount of gold during the last 12 months—both as insurance and because it is a non-correlated asset class that also happens to be quite inexpensive right now. In fact, the current gold price is a good entry point.

If you don’t know where to start, first learn the difference of gold ETFs vs. physical gold and how to open a gold IRA, which is one of the best ways to buy gold.

Then you’ll have to decide on what type of gold you want to purchase. I recommend sovereign coins such as Gold American Eagles, Canadian Maple Leafs or Gold Buffaloes, which are some of the most liquid coins in the market.

In addition, I have made a few long-term leveraged bets on a market correction.

I recommend you do the same.

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12 Comments

lnardozi's picture

goaled

In there!

If you don't hold it, you are an unsecured creditor, unless you're a big business with 1000 lawyers.

AngryCitizen's picture

SILVER!

As in BUY IT! "...ON THE F___ DIP"

(Mom won't let me say that word.)

RickshawETF's picture

Thurd

Is this the month that silver breaks free?  I think realistically, September is a more likely timeframe.

I hope I'm wrong . . .

I used to take solace in my cryptos (while biding time in the PMs).  Not any more!

Compwiz4u's picture

Bitcoin - Daily Chart

Speaking of crisis insurance, it would be a good idea to consider some Bitcoin or other Cryptocurrencies with solid fundamentals...when the bull market resumes.

Here's my latest take on Bitcoin which is showing some strength today. It is currently in a down trending Pitchfork & needs to break out of it on big volume to signal a move back towards the up trending Pitchfork & at least a test of the 200-Day Moving Average.

cyclemadman's picture

Preaching to the Choir

I don't think you are going to find a more informed group of people on market movements and consequences of those movements, than on Turd's site.

Somebody you really need to convince is Dave Ramsey. I like his get out of debt and live within your means advice but his investment advice isn't just unrealistic, it is down right dangerous. Putting you money into four different types of mutual funds is not diversifying your portfolio.

I brought up the subject of gold and silver as an option in our group discussion and everyone looked at me like I had two heads.

Angry Chef's picture

The Economics Behind The Skripal Poisoning

http://www.informationclearinghouse.info/49159.htm

Short clip with Michael Hudson. Gets really interesting towards the end.

AGXIIK's picture

Dave Ramsey and the zen art of yield fishing

Having all your money in 4 mutual funds is like having 4 fishing boats.  On a good day all boats are filled.  On an ok day, 3 come back full and 1 is skunked   On a really bad day all four get sunk in the hurricane

In the fishing business we call that Quatro Sinko

In the mutual fund business we call that caveat emptor

Blackwatersailor's picture

Shallow evil thoughts

So being in one of my more evil shallow moods.  I took a look at the political person and how to improve the quality of person therein.  

I came up with the following.  

1. To become a Politician one must serve at least 3 years in one of the following three - Military (No Reserve time), Red Cross overseas, Peace corps.

2.  Must also serve 90 days in gen pop of the nearest largest correctional facility at the members cost.  To be repeated every 7 years. 

3. must wear a video camera while working which is available to public access.  It can be turned off during personal time as long as no business is conducted during that time.  

This does two things.  Increases moral values.  Brings reality back to those that rule.  

Yes I understand complete fantasy but it gave me a smile typing it out.  

MrOnline's picture

RE:Shallow evil thoughts

Fantastic! I would add that people in order to keep their right to vote, must pass an exam. If you are completely apolitical, history ignorant and culturally ignorant, well than sorry mate it is just to dangerous to give you this awesome power of voting. The exam would be just purely facts where consensus would be made between political parties, liberal/conservative "wise men".

Here where I live in order to hunt big animals you have to pass a short shooting exam every year. I thing that is just reasonable. But in order to vote, and in that way run a country, no exam needed. Makes no sense to me what so ever.

Reason why women didn't have the right to vote before was because they couldn't be drafted to go to war. They didn't have any skin in the game so to say. Some places had that only men who could go to war and were landowners could vote. In other words, those who had the most to lose. Seeing the state of affairs we find our self in here in Europe and many other places in the world, I very much like that way of thinking. I am not saying we should remove women`s right to vote, but I am saying that all ignorant people should lose there right to vote. 

MoonShiv's picture

More shallow evil thoughts

To stand for any public office,

1. Must pass an exam on the US constitution with min. 80%

2. Must have served 3 yrs. in any military branch

3. Must have worked in private business of any kind, in anyposition for min.3 years

4. Has to wear logos of any business/PAC/group sponsoring him/her.

In addition, thete should be a way to recall/kick out elected politicians thar don't implement the top 10 campaign promises or does something unconstitutional.

Blackwatersailor's picture

Ha Great

Great ideas gents.  My whole purpose was to show that we need to put guidelines and restrictions on those who work in positions of power.  People respect positions where it is tough to meet the restrictions.  IE Military SFG's.  Politicians are universally despised.  When you know your hated you act in kind.  It's just the way we are.  If you make the position requirements tough only the really driven will apply.  This weeds out a very large portion of bad actors.  Something that is sorely needed in our times.  

lakedweller2's picture

Citizens United

Changes everything.  Corporations buy the candidates.

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