As Ghosts of 2008 Return, Here Are 5 Market Lessons to Keep in Mind ...

One of my most memorable experiences during the Great Financial Crisis occurred when I was flying to Boston for a wedding in September 2008.

Lehman Brothers had just gone broke. Stocks were reeling. And then, shares of Morgan Stanley (MS, Rated “C+”) and Goldman Sachs (GS, Rated “C”) began plummeting. Just between take off, connection and landing, policy developments came fast and furious — and so did the wild market swings.

The panic in the air that week was so thick, you could cut it with a knife. Even the “buy and hold” crowd was spooked, as the value of 401k plans whipsawed every day. The volatility was incredible.

I hadn’t seen that kind of action or felt like markets were facing those kinds of threats for years ...

Until these last two weeks.

That’s why on this past Friday, I sent an urgent Flash Alert to my Safe Money Report subscribers. They were given two more timely and prudent moves to make ... on top of many others they received in the preceding several days.

And those moves paid off on Monday when the S&P 500 plunged by almost 8%. That was its single worst day going all the way back to 2008. It extended its losses to 19% since mid-February.

Saudi Arabia triggered the move by slashing the price of its oil exports and announcing plans to boost production. In short, this effectively launched an “oil war” against competing nations.

Energy stocks suffered their worst rout in decades, with the SPDR S&P Oil & Gas Exploration & Production ETF (XOP, Rated “D”) dropping to its lowest level since inception in 2006.

Interest rates also careened lower, with the yield on the benchmark 10-year Treasury plummeting to around 40 basis points (0.4%) at its intraday low.

We’ve never seen rates this low in the history of the United States. The move puts “ZIRP-land” (Zero Interest Rate Policy) within a stone’s throw.

In light of all this, the burning question is, “Where do the markets go from here?”

I can’t predict the future. But I have seen a financial crisis or two. And I have five lessons from the 2007-2009 financial crisis you can use to help protect and grow your wealth today.

First, ignore the overhyped, fear-mongering news. All the media outlets are accomplishing is spreading fear from short-term events.

The coronavirus outbreak and Saudi oil announcement are just the CATALYSTS, not the underlying CAUSES, of this market carnage.

Just like in 2008, the foundation was already crumbling. Then, it was the housing bubble. Now, it’s the “Everything Bubble.” In both cases, all it took was a catalyst to make investors recognize and adjust to it.

That is why the “out-of-left-field” events of today are hitting markets so hard.

Second, remember that “late-cycle” defensive, higher-yielding stocks and sectors are the best bets for your portfolio. They were ALREADY outperforming since Q1 2018. The same is true of Treasuries and gold.

In fact, gold outperformed the S&P 500 back in the run up to the bursting of the Housing Bubble as well. It increased by 31.6% for the year in 2007, compared to the S&P 500’s measly gain of 3.6% for the same year.

What about now? Well, we’re in a bull market in gold and have been since mid-2018. These “safe haven” assets pick up steam as market foundations begin to tremble under pressure.

Third, hold on tight. You should expect both wild DECLINES and furious RALLIES as the impact of all this news works its ways through the markets. This increased volatility will likely last for weeks or months.

After all, the last major crisis didn’t get “fixed” in a short period of time. The markets experienced turmoil from late 2007 all the way through early 2009.

Fourth, USE that volatility to your advantage!

If you’re overloaded with risky stocks, sell some when the market surges due to the announcement of a short-term bailout program or other policy move.

If you’re completely unhedged and want to add downside protection on rallies, buy put options or inverse ETFs that go up in value when stocks resume their declines.

Or invest in those “safe haven” assets mentioned above: Plain vanilla Treasuries ... gold, silver and precious metal miners ... and higher-yielding defensive stocks. Pullbacks in any of these should be seen as an opportunity.

Fifth, stick with “Safe Money” investment strategies. They worked back in the late 2000s and started working for you back in early 2018. And they’re working best now.

They’re going to keep working best for the rest of 2020 and beyond if I’m right about the underlying risks in this market and economy BEYOND the virus and oil news.

You can get specific, actionable guidance like the profit-grabbing, hedge-adding Flash Alerts I’ve been firing off for two weeks in my Safe Money Report. All you have to do is click here or call my team at 1-877-934-7778 to get started.

Or if you’re not ready to take that step, at least follow the general guidelines I’ve given here and on Twitter (at @RealMikeLarson) about how “Safe Money” investing works.

These markets may not be exactly like 2008. But the similarities are strong enough. I think it’s well worth your time to play defense now, just as we did back then.

Until next time,

Mike Larson