In This Market, Don’t Buy Anything

Deep Value

Yesterday, I said I’d be back with more good news. If you’re content to take in the update that I might have created the best meatball recipe ever, then you’re my type of reader. However, if you’re not one for meatballs, then we are going to have an issue. I wanted to come back today with a rousing speech about the state of the market. How it’s vital to think about buying and holding stocks for the long term. But let me be honest. 

I’ve personally moved to about 90% cash. The only things that I’m holding right now are master-limited partnerships that I bought at much higher dividends at much lower prices and a few business development corporations paying income in the teens. 

Aside from that, momentum has been negative since Friday, and I’ve witnessed a pretty brutal progression in the last few days. Just 30% of stocks were trading under their 50-day moving average back in the first week of this month. And now, that figure is north of 50%. 

I’d like to suggest that Europe’s COVID-19 situation is driving this combined with inflation. So even though the U.S. dollar is rising, the reality about inflation is finally coming to light from the people whose opinions matter (read: the people who have been lying to us for months). 

Inflation will be pretty bad through the balance of next year, said Treasury Secretary Janet Yellen FINALLY this week. She said that she doesn’t expect inflation to get back to normal levels until the fourth quarter of next year.

Happy Holidays Everyone!

For anyone sane, this isn’t surprising news. The problem is that investors are panicking over where to put their money to hide from inflation. Therein lies the real problem. There honestly isn’t anywhere to hide right now that is entirely reliable. 

I’ve mentioned energy stocks, and I do see energy prices heading higher for longer. The problem is that the economy isn’t growing in the short term, demand isn’t as robust, and Europe is heading back into a lockdown.

What about gold? Oh, you mean the metal that is trading under where it was in 2011?

What about Bitcoin? It’s a great long-term play. But it’s been run-up due to rampant speculation, and I can think of a handful of institutions that will abandon their positions if we see a broad market selloff as people head to the exits from this recent market run…

Tech? Well, rising interest rates do tend to bang on tech, but there are plenty of reasonably cheap tech companies with high-profit margins that can continue to excel. But even Apple is subject to weak economic numbers.

I have witnessed the greatest euphoria in the stock market in my life over the last 18 months, and I don’t think anything in my history books compares. The Roaring 20s? That was child’s play. 

The South Sea Bubble? I mean, there wasn’t a central bank throwing money from the sky back then. Tulip Mania? They didn’t know what cryptocurrencies, NFTs, or meme stocks were.

What goes up will inevitably come down. It’s not a question of if but when. Every crisis in any book you choose has come after loosened credit standards, rampant speculation, and leverage (there’s usually a lot of speculation on assets like land as well). 

This time is not different. Repeat that: This time is not different. 

Of course, when the hangover starts, and it will, the natural response among government and central bank officials will be to gather more control – despite the fact they are responsible. Sometimes it’s best to do nothing. 

When Will It Happen?

I know that the question – the grand one – is when will this selloff happen. All I can tell you is that it will happen after my momentum measures go negative. 

They are negative now, but that doesn’t mean that a selloff is imminent. It simply means that I need to move to cash and wait. There might be a rebound. On the other hand, there might be much buying in the next few days, and momentum will turn positive. 

I’m out of the pool, for now, knowing that the sharks are in there. Last year, on February 23, momentum went negative, and I moved to cash. I missed the entire COVID crash as a result. And I’ve missed nearly every correction since 2014. 

So, all you need to do is follow Haven Investment Letter. I’ll tell you where momentum sits each day, and more importantly when cash is your best friend. Ah… there’s the good news you were seeking.

Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.
Garrett Baldwin
Garrett Baldwin
Garrett Baldwin joined Godesburg Financial Publishing as Chief U.S. Markets Analyst in early 2021. A Johns Hopkins-trained Economist, he’s worked with hedge funds, venture capital firms, angel investors, and economic advisors to the U.S. government. Baldwin specializes in market anomalies and alternative investments. He’s written extensively on momentum, value, insider buying, and other unique strategies that provide investors that elusive edge.

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