Nowhere to Run, Nowhere to Hide!
Dear Wealth Watch Reader,
“Yes, we would all go down together.” — Billy Joel, “Goodnight Saigon.”
As 2018 closed (mercifully) Monday, it’s worth taking a moment to reflect on the year that was before we barrel into 2019.
2018 was anything but pretty for investors. But take heart, you aren’t the only one licking your wounds. Pretty much everyone else is too, and misery loves company.
And misery had plenty of company last year, CNBC noting: “Nothing worked for investors this year — nearly every major asset class is in the red for 2018.”
That’s the hard truth. In fact, I can’t remember another time, except for the darkest days of the 2008 financial crisis, when everything went down together like this.
And as CNBC analysts point out: “Even in the worst of times for financial markets, there’s usually a few ways to profit. Well, not this year.”
Nearly every asset class since 2008 has been tied at the hip with low interest rates and monetary easing by the Federal Reserve.
This just isn’t the case anymore.
The Fed has raised benchmark short-term rates nine times since 2015, to the point where the yield on short-term Treasury bills is now giving stock dividend yields a run for their money.
At the same time, the Fed has also turned from a policy of quantitative easing to quantitative tightening. They are now reducing their $4 billion balance sheet of Treasury and mortgage-backed securities. Of course, this helps push interest rates even higher and puts more pressure on financial markets.
It’s really no surprise that nothing worked in 2018 except for cash, as you can plainly see above. Cash was truly king this year, especially during the fourth quarter.
Currently, the S&P 500 is on track for a loss of 7% this year. Global corporate bonds fell an average of 3% in 2018. Foreign-developed market stocks were down nearly 13%, while emerging-market stocks lost 15%. Even commodities, which typically get a boost from higher interest rates, were done in by the strong dollar, falling 11.6% in 2018.
Nowhere to run, nowhere to hide!
But take heart, dear investor.
2019 is bound to be different, in one of two ways. Considering the high level of political, economic and monetary policy uncertainty in 2018, something’s got to give in the year ahead.
Either our worst fears will show themselves as overblown with 2019 delivering bigger gains than you can imagine…
Or we’re headed for a global recession and steeper bear market decline. In other words, 2019 is likely to be a binary outcome for financial markets. One way or the other, it’s winner take all.
Today, my money is betting with the bulls. I see huge upside potential in high-quality U.S. stocks, emerging-market stocks and select commodities, especially gold.
But either way, we will know soon enough which direction markets break in the new year.
Stay tuned, because…
“I’ve got to admit it’s getting better, a little better all the time (it can’t get no worse).”
— The Beatles, “Getting Better.”
Here’s to growing your wealth,
Chief Income Expert, Mike Burnick’s Wealth Watch
Editor’s note: The secret to beating today’s market and securing the retirement of your dreams can be found in 3 simple-to-follow steps.