Post-Dorian, We're in the Eye of a Different Storm

Sometimes, you just have to stop and appreciate how fortunate you really are.

That’s how I feel here in South Florida. Hurricane Dorian was poised to deliver a knockout blow to our homes and offices here. But the storm turned away at the last minute, helping us avoid significant damage.

I wish the same could be said for the residents of the northern Bahamas. They took the brunt of this one, and the islands will be dealing with catastrophic flooding and devastating damage for a long time to come.

If you can donate supplies or money to the various groups that will be helping with relief efforts and rebuilding, I urge you to do so.

Here in the U.S., when I survey the market action of the past few months, I’m reminded of W.B. Yeats’ poem “The Second Coming.” Perhaps you remember these lines from a literature or English class ...

“Turning and turning in the widening gyre;
The falcon cannot hear the falconer;
Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world.”

Yeats wasn’t referring to stocks or bonds. But his words clearly apply today. We’ve seen ever-more volatile market moves lately, with stray presidential tweets and increasingly glum economic reports spurring significant swings of hundreds and hundreds of Dow points, both up and down.

The latest example of this came on Tuesday. The Institute for Supply Management released its August data on the manufacturing sector and the figures were ugly across the board.

Most notable: The ISM headline index slumped to 49.1. Not only was that the lowest reading in more than three years, but it signaled the manufacturing sector of the economy is actually starting to contract. A separate index published by a different research group sank to its lowest since September 2009.

This follows other recent reports suggesting a cooldown in private construction spending and industrial production, as well as a nascent downturn in job creation. All of these signs tell me I’m on the right track with my forecast of a 2020 U.S. recession.

They also continue to underscore the need for a “Safe Money” investment strategy. By that, I mean:

1) Owning/buying U.S. Treasuries or ETFs and mutual funds that hold them on your behalf.

2) Owning/buying gold, silver and precious metals miners.

3) Carrying much higher levels of cash than you did from 2009 through Q1 2018.

As for any money you have dedicated to stocks, dump the junk! Money-losing tech IPOs. Offensive, cyclical stocks. Banks and other financials. “Yesterday’s winners” like the once-dominant “FAANG” names.

That stuff is NOT what you should be focusing on.

Instead, zero in on higher-rated, anti-recession, defensive, dividend-focused stocks. It’s no coincidence that multiple stocks in those sectors (including several I’ve been recommending in my Safe Money Report) either surged to fresh all-time highs or came within a whisker of doing so after that lousy economic data hit on Tuesday.

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Finally, I would continue to urge you to play defense in your portfolio. I’m increasingly worried about the potential for “anarchy” and greater volatility in the markets over the next couple months.

These defensive plays will help protect you from the fallout if I’m right.

Until next time,

Mike Larson