Stocks are under some pressure recently as the risk of a Greek default and the notion of higher interest rates take their toll on investor sentiment.
The question is: Is recent weakness seen in equities simply another pullback or is it indicative of more volatility and lower prices to come?
Like anything else in life, different investors will have different opinions on this. We do believe, however, that the stock bears do have a case.
Stocks are now in the seventh year of the rally higher. To put this into perspective, the average bull market lasts five years. Could equities continue higher? Sure. Anything is possible.
On the other hand, would it be possible for stocks to go lower from here? You betcha. In fact, we believe it is simply a matter of time before stocks crack. We are using the term “crack” loosely here, as we believe that equities could potentially see a 30-60 percent drop from current levels.
Think about that for a moment…How would you feel if you saw your portfolio take that kind of haircut? Not pleasant right?
There are numerous issues occurring right now that could be the potential catalyst for a large sell-off.
A GREEK DEFAULT- Our readers are already very familiar with this issue and it’s no secret to most others that Greece is out of cash. In fact, their finance minister made it clear that the nation would be out of cash within a couple weeks. While Greece has made two recent debt payments to the IMF, it is only the tip of the iceberg as the country has significant amounts coming due to the ECB this summer.
Ongoing negotiations between Greece and its creditors do not appear to have accomplished much. With the end of the country’s bailout extension approaching at the end of June, time is running out quickly for a deal. As tension mounts, Greece is continuing to pivot towards Russia and China. Many think that Greece could very well default and move east, away from the Eurozone.
Needless to say, a Greek default and exit from the EU could potentially send shock waves and panic through global financial markets.
HIGHER RATES- The markets are getting ready for the eventual rise of interest rates. This is significant for a few reasons:
The initial rate hike will signify the end of the free flowing money spigot. Not only have we been at 0% Fed funds rate for 6 years, but it has been 9 years since the last rate increase. As this period of free money comes to an end, so may the rally in stock. .
IF YOU DO NOT BELIEVE THIS RALLY IS ARTIFICIAL AND FED-DRIVEN, WAIT AND SEE WHAT HAPPENS ONCE THE PARTY IS OVER…
In addition to possible changes in investor sentiment, the fact is that as rates rise fixed rate investments such as CDs, money market, and even savings accounts become more attractive. Think about this for a moment: If you could park cash in ten year notes at a yield of say five percent, or stay fully invested in equities under current market conditions, what would you do?
That five percent yield starts looking a lot more attractive doesn’t it? Often, this is exactly what causes stock markets to get hammered down- the opportunity of getting yield with less risk elsewhere.
GLOBAL WEAKNESS REMAINS- Have you looked at data coming out of China recently? If not, let me enlighten you. The data has been soft.
In fact, the People’s Bank of China just lowered interest rates in an attempt to boost economic activity. While China is the world’s second largest economy, it is not the only area experiencing weakness. The EU, Canada, Australia and others are seeing economic output below desired levels as well.
Looking at the bigger picture, the U.S. is reluctant to hike rates because of concerns about the economy while many other countries are still providing needing liquidity for their economies.
A bit of a mixed message isn’t it?
While we could go on and on with reasons why the stock market may crash, the bottom line is this:
WOULD YOU RATHER TAKE ACTION BEFORE A CRASH OR AFTER?
We believe now is the time to be taking action. Act in avoidance of a disastrous loss in your portfolio as opposed to reacting after you’ve already suffered losses. If you have seen benefits from the multi-year rally, good. You should now be looking to protect those benefits. Sell high while you still have a chance!
This is where precious metals fit in…
Gold and silver have long been touted as reliable stores of value. They can be and are transacted all over the globe. They carry zero counter party risk and cannot default or go bankrupt.
These precious metals have the ability to not only preserve wealth and purchasing power, but can also potentially see significant increases in value during times of geopolitical or economic stress.
We contend that such economic stress is not far off. The time to prepare for it is now.
Once the great asset reallocation begins, gold and silver could stand to benefit significantly. Don’t wait until prices move higher or stocks erase significant value. Consider how precious metals may fit into your overall investment strategy now.
To learn more about precious metals and how they may benefit your portfolio, speak with an Advantage Gold specialist today. It has never been easier to invest in physical precious metals than it is today, and our specialists will guide you through the process step by step.Tags: economic stress, global weakness, higher rates, stock crash, stock market crash, volatile market