If I told you that a flower bloom in a dark room, would you
trust it? ~ Kendrick Lamar
You ever get that feeling of Déjà
vu? Well I did and I did not like what I
was seeing. That was the rationale back on March 2nd when I first started
posting on COVID-19 and the risks it posed to our health, economy, and wealth.
I beat the drum beat of quarantine, lockdown, or as they are now calling it ---
stringent social distancing because as a risk manager you want to prevent the
worst possible outcome. I do that on a daily basis for corporations and it is
much better getting yelled at by clients for being overly protective and
concerned than witnessing them painfully recover from the depths of something
that could have been better mitigated. For
example, I once had a banking client down in the Florida Keys. The Keys is a
great location --- think conch fritters, fresh oysters, beautiful water and sites.
But I also had a job to do --- what natural disaster quite common in Florida
and the Keys: Hurricanes. My job was to ensure not only was their cybersecurity
posture adequate --- but for a client in the Florida Keys I paid very close
attention to their disaster recovery planning and insurance policies. When I
completed my assessment, I wanted to provide some level of confidence is they
were adequately prepared. Yes, a large
aspect of my blog is about financial empowerment but more importantly you need
to be able to sleep at night knowing you did everything in your power to plan
for health, economic, and financial success. And your plan has to be resilient
to get you through black swan events just like my client who vigilantly prepares
for that next hurricane.
Does History Repeat Itself
Undoubtedly it does. I think it
was Will Smith (don’t quote me) who said anything you can think of has already
been done and is somewhere written in a book --- you just have to find it.
Maybe not exactly like that but you get my point. So if navigating through a
crisis is a class, guys like my big homie Ray Dalio are the excellent teachers
to keep up with. He runs the world’s largest hedge fund but ironically often sounds
the alarm of the true inequities of people today and having a plan to address
then because history will eventually give us a black swan moment that will send
us reeling. If I lost you I apologize,
but the point I am trying to make here is I am concerned about the tools our
government has to get us out of a crisis may have already been exhausted. I’ve
heard Ray and a few other people that I follow echo the same sentiment. I’ll break it down like this because I write about it
often here, when times are good for a family or a country the excess wealth it
takes in must be saved for a rainy day. We
did not do that as a nation and it’s not going to make RECOVERING from the
economic crisis that ballooned out of the COVID-19 pandemic that much harder.
My other example is: When times get bad, a retail
store may resort to providing discounts to get customers in the door to spend
and give the business a boost. A federal government uses interest rates similar
to how a store uses discounts or coupons. If you reduce the interest rates,
money is discounted and people come running through the door. BUT WHAT HAPPENS WHEN INTEREST RATES ARE ZERO
--- OR BETTER SAID WOULD YOU KEEP BUYING IF THE STORE KEPT GIVING YOU
EVERYTHING FOR FREE??
If you recall, I posted very
little in 2017 and 2018 but when I did I highlighted that I had changed my investment
strategy to trading stock option contracts. Again not to overcomplicate things: I simply had a very hard time finding deals
in the stock market so I invoked my sandlot strategy --- I took my ball and went
home. I wasn’t buying any stocks but
taught myself how to trade options because I wanted short term-investments that
didn’t leave me hanging out to dry when the eventual was to come --- a
Recession. We were already in our 10+ year of an economic expansion, one of the
longest on record. My biggest concern is
the COVID-19 pandemic lit the fuse for a big drop in market I already thought
was running too hot. If you’re lazy here
is a snippet: “I explored options for the first time in portfolio and it was a big
reason for my investing success this year. I have been
studying it for months, used a fake portfolio of money to test trading
strategies out, and implemented BASIC trades that have complimented my
LONG-TERM VALUE oriented approach. I repeat, I was
afraid and had never traded an option contract in my life. This year I’ve
executed over 80+ option contract trades in a way that I believe lowers my
investing risk, especially considering I’ve told people to be cautious because
we are in the 10th year of a
stock market rally. “ Feel free to read my comments here:
I want to wrap up here by saying
I’m very concerned. Ok yeah I worry a lot, but please put my logic together:
1) I traded my first option contract on May 30, 2017 and I spent
the first half of 2017 learning and practicing something I had no clue about
because THEN I thought the market was overvalued.
2) Debt Levels are very high because our government did NOT save for a
rainy day when times were great (10+ years of economic expansion). This does not help thing when in a debt crisis.
3) Unfortunately President Trump constantly spent the last few
years criticizing the Federal Reserve into lowering interest rates. You traditionally raise
rates when times are good (we had over 10+ years of good times). Rates are now at ZERO and that means we have
NO MORE TOOLS left to fight an economic battle.
It is the main reason, I recommended going to cash in my Individual
Retirement Accounts just a few posts ago.
My next post will break down what
happens in a Recession and why I’ve learned from the 2008 crisis --- When I
sounded the alarm it was the only other time I’ve ever moved my IRA to cash. Like
then, do not try to be a hero in these markets. After 10% down days you may get
itchy to buy the dips but prepare to be nimble and get out the next day. Don’t
panic, but brace yourself for a bumpy ride down --- and hey if I guess it will
be a little Poetic Justice.
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