The #1 Way to Weather the Economic Storm
Today I’d like to simply write to you as a person trying to weather a national mess.
I do my absolute best to remain calm and patient during times like these. But like you, I’m human.
The fact that I’m an expert on the financial markets, investing, and the economy doesn’t give me any kind of superpower when it comes to dealing with stress, fear, or panic.
On that note, I can tell you that I’ve lost my stuff more than once in the last month. How could I not? The U.S. today is almost unrecognizable from how it was a month ago.
Consider the following:
- It is now illegal to attempt to go to church in some states.
- Social activities are closed down completely. Heck, even gatherings of more than 10 people are forbidden in some states.
- You’re not supposed to even leave your house except for trips to the grocery store, bank, or doctor. I believe in some areas, you are permitted to do one exercise-based activity outside of your home.
This doesn’t sound like America. This sounds like outright communism.
These are very disturbing times. What’s even more disturbing about it is the fact that Americans went along with a complete shredding of the Constitution in the name of a so-called pandemic that has killed less than 3,000 Americans to date.
So yes, this is scary stuff. And yes, I, like you, have found myself getting very angry, or very worried about this situation.
Now the question is… What do we do?
At times like these, it’s absolutely critical to take a step back and try to calm down. You don’t do yourself or your loved ones any good by being worked up.
The same goes for your investments.
Proceed with Caution
In terms of investing, now is the time to have your absolute strictest discipline in place.
Let me give you an example.
Yesterday, I saw numerous signals that would typically mean a big “risk-on” rally was about to begin.
Specifically, I noted that the Volatility Index (VIX) was breaking DOWN…
The Long-Term Treasury ETF (TLT) was breaking DOWN…
And Freeport-McMoRan (FCX) – the largest copper producer in the U.S. – was getting ready to break UP.
Here’s why this is significant.
The VIX measures investor sentiment. A breakdown in the VIX means investors are less concerned the markets.
The TLT is a safe-haven that rallies when investors are flocking to safety. So a breakdown here also means investors are less concerned the markets.
And finally, FCX produces copper, a commodity that is closely aligned with economic growth. So a break to the upside means the markets are beginning to predict greater economic growth.
Taken together, these three signals would typically mean “BACK UP THE TRUCK AND BUY STOCKS!”
However, I had EXPLICITLY stated to myself and my clients that I would NOT be buying stocks. Let me explain.
I noted that I would not be buying stocks unless the credit markets signaled the “all clear” by breaking ABOVE their resistance zones (the red zones in the chart below).
This was my discipline – not to buy stocks until credit, which typically leads stocks, indicates it’s safe to do so. And yesterday, this DID NOT happen.
Based on this discipline, I did not buy stocks yesterday, nor did I urge my clients to do so either. And this morning as the markets are a sea of red, you better believe I’m glad we didn’t!
Had I let my emotions get the better of me – particularly my excitement that stocks might be getting ready for a big rally as indicated by the VIX, TLT, and FCX – I would have gotten taken to the cleaners.
This is what I mean by staying calm and maintaining your discipline.
So with that in mind, my advice to you on investing and life in general right now is to stay calm.
If something gets you worked up (the news, social media, whatever) AVOID IT. And if something gives you a sense of calm or peace… DO IT MORE THAN USUAL.
This is the only way to get through this mess.
Editor, Money & Crisis