This time last year, chances are good you were sitting on a loss in your portfolio. By itself, last December was the worst month for the stock market in nearly ninety years. The S&P was down 14% and the DJIA was down 15%. Since we closed out last year, we’ve managed the melt-up everyone was hoping for. The S&P is up nearly 30% and the DJIA more than 22%. Today, the S&P, DJIA, and NASDAQ all closed at record highs. The NASDAQ notched its 10th straight record close and above the 9,000 point mark for the first time in its history. The continuing rally was attributed to easing trade tensions with China and a robust online Christmas buying season. The economic goodwill may carry into the coming year and many are excited about that.
The Federal Reserve’s interest rate cuts, economic data above low expectations, and corporate profits combined to lift stocks this year, along with a year-ending Phase 1 trade agreement with China. All of this was hoped for and much was anticipated, but as we progress into the New Year there will most certainly be an accompanying hangover. A melt-up before a meltdown is very typical. But it’s important to realize, that where most investors get hurt is by trying to “time” the market. In other words, trying to predict the end of the melt-up and beginning of the downturn. As we have discussed previously, dangerous ingredients for the coming meltdown are present in an even greater concentration today, than they were in 2008. Due to many things, particularly the prolific abuse of derivatives, banks are in a far more dangerous position this time around. But instead of taxpayers being on the hook, it’s going to be unlucky depositors at banks hardest hit.
When the top of a melt-up is achieved, it doesn’t “feel” like a top and hope springs eternal. Unfortunately, investor funds do not and when it’s actually time to sell (easily confirmed by hindsight), choosing to pull the trigger goes against every basic investor instinct. And once it starts to fall, there’s always hope of an immediate recovery or quick turnaround, but as we’ve discussed previously multiple factors, heavier concentrations, and a longer unadjusted run have made the current stock market scenario potentially more dangerous, sudden and precipitous than many before in history. Better to cut profits short than to push a bad position. Proper stock diversification and defensive stock inclusion helps to mitigate the potential danger. But make no mistake, inflation is coming and the Fed has nothing left in their quiver to offset the onslaught.
As has been the case throughout history, gold, silver, and other physical precious metals offer one of the best defenses against falling stocks, a devalued dollar, and rising inflation. Banks, brokerage firms, and newspapers don’t agree often, but when it comes to the safety, security and time-tested protection of precious metals during turbulent economic times, the consensus tends to be unanimous. Enjoy the melt-up and appreciate the gains, but don’t leave profits on the table for too long, so you can protect and enjoy them in the long term. Like life, investment profitability is a lifetime journey, not just a one-time goal. Call the experts at American Bullion, at (800) 653-GOLD (4653). Happy Holidays!!!
Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.