Dollar Soaring, Stocks Falling, Credit Tightening – Just Like I Expected! Are You Prepared?

The market action is really heating up this week, with a trifecta of troubling tremors buffeting investors on all sides!

First, the Dow Industrials plunged more than 100 points on Monday. Then Dow futures imploded by almost 400 more points in the pre-market yesterday, before finishing off 287.

Second, the U.S. dollar ripped higher again. The Dollar Index (DXY) climbed as high as 95.26, its best level since July 2017.

Already hard-hit emerging market currencies got whacked again, with the South African rand falling to its lowest since December and the Singapore dollar dropping to its lowest since November. Some of the world’s most vulnerable currencies — like the Argentinean peso and Turkish lira — plunged to their worst levels in history!

Third, another bloodbath broke out in higher-risk bonds. The iShares JPMorgan USD Emerging Markets Bond ETF (EMB, Rated “C”) tanked to its lowest level since February 2016, while the ICE BofAML US Corporate BBB Option-Adjusted Spread rose to its highest level in just over a year.

That spread index measures the amount of credit stress and investor concern in the corporate bond market. The more it climbs, the more expensive it gets for companies to finance their operations — and to engage in all that financial engineering, like debt-financed stock buybacks, they’ve been doing!

Unprepared investors are running around like their hair is on fire as a result. But you should be cool, calm, and completely collected. That’s because I told you to expect these kinds of moves, and gave you a step-by-step roadmap for protecting your portfolio from them ...

  I warned about the surge in corporate debt and its likely consequences in this March article ...

  I told you I dramatically dialed back my own equity exposure in my 401(k) account in this piece later that month ...

  I also talked about the threats posed by the “Everything Bubble” in this one, then said you had to beat Wall Street to the punch and lighten up by selling stocks into rallies whenever we get them in this April article ...

  Finally, I told you the dollar surge would put tremendous pressure on many kinds of stocks in May here. And I said a few weeks ago that the draining of the ocean of central bank liquidity that flooded asset markets between 2009 and late 2017 would have a whole host of negative consequences.

Of course, I’ve also been giving even more concrete, actionable, protective recommendations to my Weiss Ratings’ Safe Money Report subscribers all year long. I’m sure you understand why I can’t share all those recommendations here (though you can gain access to them by clicking on this link to get started.)

But I will say that after being fully invested several months ago, the model portfolio now has a dramatically higher allocation to cash and cash-like holdings. I also recommended my subscribers dramatically increase the safety profile of their remaining investments.

Specifically, I told them to grab profits in somewhat riskier holdings in industries like technology and industrials. Then I recommended they rotate into stocks in safer sectors like select Real Estate Investment Trusts (REITs), consumer staples, and utilities.

So, what’s next? I’m expecting even more volatility overall, and more carnage in higher-risk investments. That only underscores what I’ve been saying for months now: This is NOT the same market we had from March 2009 through January 2018. You absolutely, positively must approach it differently if you want to preserve and grow your capital.

Until next time,

Mike Larson