What an ugly day for the markets. A sea of red everywhere (except for volatility):
The major indices lost 3% pretty much across the board.
We’ve been tracking the drivers underlying the market meltdown here on the site pretty much hourly. And you can be sure we’ll do so as long as things remain fluid.
But I want to deliver an important message, because time demands it.
We’ve been writing for months — and with increasing intensity over the past several weeks — that the risk of a major market correction had become unacceptably high.
We’ve urged readers to get defensive. To move to cash (specifically, into short-term T-bills which pay a much better return than banks). To deploy hedging positions against a market downturn. To consider increasing your portfolio exposure to gold and silver. To stop expecting the era of capital gains to continue, and instead seek dependable income streams.
We’ve been loud advocates of taking these steps while working with a professional financial advisor who understands and appreciates the risks that are in play. There aren’t many out there who do, but their assistance in helping you make well-informed decisions can be extremely valuable.
And my main point here is that time to take these steps is fast running out. Market sentiment is shifting rapidly from euphoria & complacency to fear.
As we’ve often reminded readers, market tops are processes. They occur over a long time.
But market corrections are events. They tend to happen suddenly and violently. If you’re not positioned for them in advance, there’s usually no time to react once they’re underway.
So the message here is: if you’ve been thinking about adjusting your portfolio allocation or following an expert’s advice, but just haven’t gotten around to it yet; this is your wake up call. Time looks very short.
As Chris famously says, when it comes to preparing for a crisis (financial or otherwise), “it’s better to be a year early than a day late.” And given how shaky both the technical and fundamental data look right now, we may have a lot less time to act than most folks currently realize.
To give some perspective, I asked the managing partners at New Harbor Financial, the financial advisory firm endorsed by Peak Prosperity, how their general portfolio has performed since the S&P 500 peaked on July 26th.
Here’s what they report:
For the period July 26 – Aug 14, 2019:
- New Harbor Financial portfolio return: +0.75%
- S&P 500: -5.4%
THAT’S the kind of protective shield that defensive positioning and hedging can offer your money.
Now, it’s important to note that I’ve picked a very specific time window here to compare, and past results are no guarantee of future performance (* read New Harbor disclaimer below). But this is exactly the type of downside protection a good financial advisor skilled in risk management can provide.
While millions of conventionally-positioned investors are licking their wounds from the past few weeks’ market turmoil, the average New Harbor client is actually up.
Speaking for myself, it is hugely validating (and relieving!) to watch my own personal portfolio buck the trend and sustain & grow through tumultuous periods like we’re in now.
I also asked the partners to share their latest outlook. Here’s what they have to say:
Stock markets in the US have basically gone nowhere since the beginning of 2018. During that time, there has been plenty of volatility with sudden drops of over 10%, followed by furious rallies back to new highs. We think this action is typical for a late-stage topping market, particularly one that is likely to be in hindsight one of the biggest investment bubbles in our lifetimes. Market tops have a way of lulling participants to sleep because of the way that they roll along, slowly peaking over a long period of time. This one has been no exception.
Our portfolio at New Harbor is essentially flat the stock market, with over half the portfolio in Treasury Bills and cash equivalents, and modest exposure to gold and precious metal mining stocks. We are optimistic that there will be opportunities in the future to invest and earn fair returns in the US stock market, but that will almost certainly be at lower prices. At current levels, we think that the S&P 500 is likely to lose more than half of its value from its high by the time this market cycle is over.
While timing the exact turn in markets is impossible, given current prices the risk to the downside is large. We would urge investors to evaluate risk in their portfolios, and consider reducing exposure to stocks, particularly if they are not prepared to potentially ride out many years of drawdowns in these assets.
So if you have similar goals for your money — if, like me, you place a higher priority on return OF capital vs return ON capital during these risky times — then I sure hope you’ve already positioned your portfolio wisely for the future you see coming.
If not — and I know from the emails we receive that many of you still have not — it’s not too late. But it may be very soon. Time looks to be getting very, very short.
Put your plan into action. If you don’t have your plan finalized yet, meet with a good professional advisor asap. And if you’re having trouble finding a good one, consider scheduling a portfolio review with the folks at New Harbor (it’s completely free)
Just don’t delay. Sentiment is finally breaking. Once it breaks fully, the ride downward will likely be very sharp, quick and brutal for everyone caught unprepared.
*Important Disclosure: New Harbor Financial Group, LLC registered as an investment adviser directly with the SEC in January 2011. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Information presented is not an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned. The content of this text does not involve the rendering of personalized investment advice. No current or prospective client should assume that the future performance of any specific investment or strategy will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Changes in investment strategies, contributions or withdrawals, and economic conditions may materially alter the performance of your portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for a client’s investment portfolio. Historical performance results for investment-management fee, the incurrence of which would have the effect of decreasing historical performance results. There can be no assurances that a portfolio will match or outperform any particular benchmark. The results portrayed reflect the reinvestment of dividends and capital gains. Performance is shown for a composite of accounts managed by New Harbor with balances of $250,000 or greater.