Are We Headed For A Market Crash?
I recently wrote “Most readers have felt … for some time, … things are just not right, yet so far, nothing horrible has happened.”
Ron Paul’s recent article, Is The ‘Mother of all Bubbles’ about to Pop?, reinforces those fears:
“When the New York Federal Reserve began pumping billions of dollars a day into the repurchasing (repo) markets in September, they said this would only be necessary for a few weeks. Yet, … almost two months after the Fed’s initial intervention, the New York Federal Reserve pumped 62.5 billion dollars into the repo market.
…. President Trump and Congress have no interest in cutting spending, especially in an election year. …. None of the leading Democratic candidates are even pretending to care about the deficit … they are proposing increasing spending by trillions on new government programs.
According to Michael Pento, the Fed is panicking in an effort to prevent economic trouble much worse than occurred in 2008. “It’s not just QE, it’s QE on steroids because everybody knows that this QE is permanent just like any banana republic would do, or has done in the past.” (Emphasis mine)
Every time we have a record budget deficit we are warned about the ‘Mother of all Bubbles’. Investors who sat on the sideline waiting for the bubble to burst see the stock market continually set new highs.
Chuck Butler recently reported:
“Did you hear the news from the Fed NY who told reporters that it will be 2 years before they know who has needed the help in the repo markets…. Where’s the truth and transparency that the Fed promised us?”
Remember the Troubled Asset Relief Program? The Fed told us it was a one-time event; our economy and interest rates would soon be back to
normal. The Fed’s promises are as hollow as Big Bertha.
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No one knows what will happen, or when. Friend Tim Plaehn’s monthly edition of the Dividend Hunter caught my eye when he began:
“I find it intriguing that so much of the financial news and financial predictions seem to be certain of a soon to be here economic recession and an associated stock market bear market.
It seems that everyone believes a recession is on the doorstep, yet the real financial data continues to point towards slow and steady economic growth.”
Tim agreed to elaborate for our readers.
DENNIS: Tim, on behalf of our readers, thank you for taking your time for our education. Let’s get to it.
You really grabbed my attention. I’m sure I’m not the only investor who has looked back since the first bank bailout and wished I had paid less attention to those who predicted an imminent crash. Might I be falling into the same trap again?
The first bailout bill was passed October 3, 2008. Yahoo Finance tells us the Dow closed at $8,451.19 on October 5th. On November 4, 2019, it closed at $27,681.24, more than triple what it was when the Fed started printing money. The crash never happened!
Tim, with the current budget deficit hitting an all-time high, and the Fed once again ramping up QE, can you share your perspective and investment implications?
TIM: Thank you for inviting me. To start, it seems like there has been a group of financial prognosticators predicting financial crisis for one reason or another for my entire adult life, which is 40 years plus.
The U.S. budget deficit is an issue, it has been 20 years since the Federal government ran a surplus. I doubt the political class has the guts to make the hard choices that would be needed to reduce deficit spending.
My goal is to develop and recommend investment strategies that will help my subscribers obtain acceptable returns in the current financial environment and to successfully navigate future downturns.
While I don’t think a recession is imminent, I would not be surprised if the investing world talks itself into a bear market. The goal is to own the right companies that will continue to produce solid income during good times and bad.
DENNIS: I know you look at your individual holdings from the perspective of profits, cash flow and their ability to pay dividends. Have you seen any significant changes which might be a caution sign?
TIM: I stay focused on individual company results. In general, for the types of income stocks I follow, companies are doing very well. Balance sheets are as solid as I have seen since the financial crisis and there are plenty of opportunities for these companies to make profitable investments.
I am concerned about the disruptions next year’s elections may cause in the financial markets. I have been recommending to my subscribers to work to increase their holdings in fixed-income investments such as preferred stocks, investment-grade bonds, and money market funds.
In these fixed income asset classes, I have dug out some unique opportunities that let investors generate reasonable income returns with a high level of safety.
DENNIS: I know a lot of good dividend payers own rental properties like shopping malls, medical centers, etc. We are seeing a lot of stores closing in our area. Are you seeing a shift away from those type of investments?
TIM: The neat thing about the REIT world is that every sector of the economy needs to have real estate for their business operations. Some like the healthcare and retail sectors require huge amounts of real estate. You can get pretty good diversification just from the REITs.
Out of that sector, I am staying away from healthcare REITs. Most of them own a lot of senior housing properties, a business that has trouble making enough money to pay the rent.
Remember that brick-and-mortar still accounts for 90% of all retail sales. The most aggressive forecasts have online retailing getting up to just 15% in the next decade. These days it’s mostly just Amazon stealing market share from other online retailers.
There is a tremendous range of quality and safety in the retail REIT group. The “retail Armageddon” fears have put the high-quality retail REITs on sale. Investors just need to figure out the good from the bad.
One that has been great for investors since I launched Dividend Hunter is EPR Properties (EPR). This triple net lease REIT owns entertainment-focused properties like megaplex theaters and TopGolf entertainment facilities. EPR pays monthly dividends and has been growing the dividend by 6% to 7% per year.
Of course, I want my subscribers to be more diversified than just REITs. I know you like Main Street Capital (MAIN), a business development company (BDC) that has been a great total return investment with monthly dividends. I recently added a new BDC, to the recommendations list. Owl Rock Capital Corp (ORCC) just launched with a July 2019 IPO.
DENNIS: What is your best piece of advice for investors worried about the market?
TIM: I take a very different approach to stock market success for my Dividend Hunter service. Since we are focused on high-yield stocks, I believe the success metric should be the amount of income generated.
I tell subscribers to set up their own income tracking system. As long as their quarterly dividend income is stable to growing, the strategy is working. Developing the Dividend Hunter mindset takes the worry out of what happens with stock prices.
As the chief Dividend Hunter, it is my job to monitor the recommended investments to make sure the income streams will not be affected by negative events such as dividend cuts.
It’s a different way of thinking and investing in the stock market. I have a lot of feedback from subscribers who bought into the strategy. When a market downturn occurs, they are excited because it creates terrific income opportunities. This mindset has made their lives much easier, and I dare say, happier.
DENNIS: Tim, once again, thank you for your time.
TIM: My pleasure Dennis.
Dennis here. After reading Tim’s monthly publication, and speaking with him, he reinforced the idea that there is a huge difference between a bear market and a full-blown recession.
To prepare, you want to own solid companies that will continue to thrive regardless of market fluctuations. If you bought stocks to garner some momentum trading income, you may want to trim back some of those holdings. Are your stocks likely to continue to produce profits and pay dividends if the economy slows down?
For those of us who use stop-losses, you want to set your stops to allow for some market dips, but protect you against a true market catastrophe.
I highly recommend the Dividend Hunter. Tim’s track record and unsolicited reader testimonials are impressive.
He shared one of his favorites from a subscriber named Mel. He said, “Since joining you in late 2016, we have done well with your recommendations. Our yearly dividends are currently $39,000.00+ and with a few covered call options, it is well over $40K. With this much extra income, life is good. (We are leaving on a 10-day Caribbean cruise today).” Click HERE to check it out.
As a reminder, we only accept affiliates that I am comfortable personally endorsing. I’ve followed Tim’s publication, invested in some of his recommendations and am very pleased. His approach is honest, different and I learn something with each month’s issue.
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On The Lighter Side
Jo and I are getting excited. We haven’t seen our two youngest grandsons since last Christmas. We are heading to Indiana earlier than we have in the past years. Today we shipped our heavy winter jackets, gloves, earmuffs, long socks, and heavy shoes, in case we encounter some real winter weather. I hope we don’t have to open the box and can just ship it back home after Christmas.
We have a Blackstone Griddle and love it. We watch a lot of YouTube videos about recipes and one of our favorites is a cool guy called Hungry Hussey. He recently published a neat recipe for a Thanksgiving burger. He prefers Thanksgiving over Christmas. Lots of “good groceries” and family fun without the hassle of presents. I like both and have fond childhood memories of all the wonderful family time.
Next Thursday is Thanksgiving and we will not be publishing. I hope everyone has a great Thanksgiving and have some positive memories that will last a lifetime.
And Finally…
We will close this week with my favorite Facebook Thanksgiving cartoon:
Until next time…
Dennis Miller
“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken
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