Bank of America says stocks are going up.
JPMorgan says stocks are going down.
And Goldman Sachs? Its forecast is bang in the middle of the other two (although it’s slightly more bullish than bearish).
What’s an investor to think?
It’s no wonder so many investors end up doing the wrong thing.
They either flip a coin and back one over the other – usually picking the wrong one!
Or the choices are so confusing that investors end up doing nothing. Yes, that may help them miss out on a few bad market days… but it also means they miss out on the good days when stocks roar higher.
And whether you like it or not, over the long-term, the trend for stocks is up… despite what the perma-bears would have you think.
So, what does this all mean? What should you do to prepare for the market in 2024?
We’ll share our take below. The good news is it’s not complicated. First, a quick trip around today’s market action…
The S&P 500 closed up 0.38% to end the day at 4,567.80… the Nasdaq fell 0.23%, to close at 14,226.22.
For individual stocks, Microsoft closed up 0.01% to $378.91… Apple ended higher by 0.31% at $189.95… and Tesla ended the day at $239.79, a 1.78% fall.
In commodities, West Texas Intermediate crude oil trades at $75.72, down $2.14 since this time yesterday… gold is $2,049.20 per troy ounce, a loss of $11.50… and bitcoin is lower by $95 at $37,731.10.
And now, back to our story…
It’s Never Enough
Before we go on, we should explain the term “perma-bear.”
You may have heard it before, but in case you’re not familiar with it, it’s a contraction of the words “permanent bear.” Meaning, someone who constantly believes markets are over-valued and are due to crash… at any moment.
There are plenty of them about. In general, the perma-bear is more of a philosopher than an investor.
They often make for interesting and entertaining reading, but you’ll rarely get useful investing advice from them.
Mostly because (we’ve lost count of the number of times we’ve bored our colleagues with this example) even if the perma-bear is right, and a crash happens, it’s never good enough for them.
If the market crashes 30%, they’ll tell you it needs to crash 50%. If it crashes 50%, they’ll tell you it’s still too expensive and needs to crash 70%.
And if it crashes 70%, it’s still too expensive and needs to crash 75%. And so on. It rarely ever ends.
The result is they’re still predicting the last crash when the market is already in a new bull market. Perhaps that sounds familiar.
Now, that said, it doesn’t mean you should ignore opposing opinions.
Among our Legacy Research experts and analysts, you’ll find many different views.
At any given time, some might be bullish on everything… some might be bullish on some things but not others… and some of our experts and analysts may say that it’s all downright dangerous and suggest investors should leave the markets well alone.
So while that may sound confusing and seem no clearer than the differing views of Bank of America and JPMorgan… there is a difference.
You see, if you look across our team of experts, you’ll see they tend to specialize in specific areas of the market or specific investment types.
Take, for instance, Teeka Tiwari. Teeka is our “asymmetric investments” expert. That means he and his team look for ways for investors to place small “bets” that have the chance to make big gains.
The best example of that is the work Teeka has put into studying, analyzing, researching, and recommending investments in cryptocurrencies.
He’s been on the ball with that since 2016 when he first recommended bitcoin and Ethereum to his subscribers.
Folks who followed that advice back then, and who continue to hold today, would be up 9,966% on bitcoin and 22,449% on Ether.
Those are just two examples. And Teeka is more than a crypto guy – although most folks associate him with that. He’s also looked at private investments, small-cap stocks, and even options trades.
What do those have in common? They give investors the chance to win big from small stakes.
The key is taking profits from those big wins to invest in big, safe, large-cap stocks… and then using the cash flow (such as dividends) from those stocks to invest in new asymmetric bets that emerge on the market over time.
It becomes a proverbial virtuous cycle of cash flow moving from one type of investment to another.
(By the way, Teeka is hot on another type of asymmetric bet, that fits neatly into that cycle. He’s making a special announcement on that next week, Wednesday, December 6, at 8 p.m. ET. You can go here to register now.)
Specialization is the Key
Then we have other experts such as Nomi Prins. Nomi focuses more on big-picture, macroeconomic, and geopolitical ideas.
With her Wall Street background having worked at Goldman Sachs and Bear Stearns – plus her connections in Washington, D.C. – Nomi’s strength is watching how money flows through the economy. And how governments are directing some of that flow.
Here’s the thing. Nomi’s take won’t necessarily align with Teeka’s take. At various times, they may take opposite views on the market overall.
But due to their specialization, it may still be possible to follow both sets of advice and profit.
As an example, over the past year, Nomi has focused mostly (but not entirely) on what she terms “new energy” ideas.
Meanwhile, Teeka has focused mostly (but not entirely) on tech-related investments – including AI.
Now, if you look at the following chart, comparing the two main tech and energy ETFs, it would be easy to think only one side of that trade is a winner:
In this instance, over the past year, tech stocks have performed better overall.
Despite energy’s downtrend this year, of Nomi’s 14 open “new energy” positions, 11 of them show gains. In other words, for a sector in decline, Nomi is up on 79% of her trades.
(For further disclosure, of the picks made this year, there are also three closed “new energy” plays. Two closed for an average loss of around 16%, and one closed for a gain of 25%.)
In other words, two different strategies focusing on two different sectors both have provided gains to investors.
That said, it wouldn’t be fair to put either Teeka or Nomi truly in the bearish camp right now. They both see plenty of bullish opportunities.
What about someone with a genuinely negative long-term outlook?
We can share that with you too, in the form of Mason Sexton, our friend over at New Paradigm Research…
Multiple Voices Without the Confusion
Mason has traded the markets for 50 years, joining Wall Street after graduating from Harvard in 1972.
Mason has a totally different way of looking at the markets… different from pretty much anything we’ve seen before. Here’s how he described his current view of the market to subscribers this week:
For our part, we survey our current landscape and grow more – not less – concerned. We are concerned by the narrow market breadth. We are concerned that investors are concocting increasingly dubious explanations to justify the increasingly dubious valuation multiples on the favored names.
On the fiscal side, we are concerned that federal debt stands at some $33 trillion. That would be 120% of GDP, close to an all-time high.
We’re concerned that the U.S. government continues to increase this figure by some $1 trillion per year, and that some $15 trillion of that debt must be “rolled over” in the next four years at rates not seen in nearly two decades. And when that happens, we’re concerned that net interest on the debt will surpass $1 trillion per year, putting incredible strain on the bond market.
To us, the situation feels absurd. Absurd things can last a long time. But they can’t last forever.
By the way, we couldn’t do Mason justice by trying to explain his methods in such a short amount of space. But you can go here to hear all about it from the man himself.
As it happens, Mason has traded the market perfectly on a number of trades this year. Including multiple wins on Tesla (TSLA), and gains on Advanced Micro Devices (AMD), Visa (V), and the S&P 500 (SPY).
Those were a mix of long and short trades. (Editor’s note: “Long” meaning to profit from a rising stock price, and “short” meaning to profit from a falling stock price.)
That goes to show you it’s possible to invest and make money in any market environment.
And it shows that you don’t have to listen to just one view. You can get different views, without confusion, and still set yourself up for gains.
As you can see, often, some of the biggest differences are a function of timing. That’s why we include experts who take both short- and long-term views and who know how to trade on the long and short side.
Of course, that’s not to say our experts are perfect. They will be the first to admit they get things wrong too. That’s why all our experts insist on using risk management strategies to minimize any losses.
They know they aren’t infallible.
In short, the truth is no one knows with 100% certainty where the S&P 500 will be at the end of 2024. Anyone’s guess is as good as anyone else’s guess.
But if you get exposure to great investment ideas, backed with sound research (we feel we have plenty of that at Legacy Research) the level of the index doesn’t matter.
The truth is, as we hope we’ve shown you today, multiple voices can actually help you make better investment decisions, rather than creating confusion.
It Helps With Risk Management Too
Another benefit of multiple viewpoints is they can help you “keep your feet on the ground.”
It’s easy to get over-excited by the prospect of multi-hundred or multi-thousand percent gains.
But if you read analysis from someone else… someone with a different view, maybe it will cause you to pause and think.
You’ll still make the trade because it makes sense. But maybe instead of $10,000, you only invest $5,000. Or instead of trading three options contracts, you trade two…
Or instead of $1,000 into a crypto idea, you just go with $500.
If the trades play out as you’d hoped, sure, you’ll make less than if you’d gone “all-in.”
But that’s risk management. It’s not about trying to make “retirement money” from every single trade, it’s about assessing how much you’re willing to risk losing if you’re wrong.
Ignoring risk management will likely cost you more than what you stand to gain, no matter the investment.
Right or wrong, losses happen. As long as you can keep them small, you can keep investing – and build your wealth over time.
We don’t know what 2024 will bring. Nobody does. But with the right risk management, and a willingness to listen to opposing views, you’ll sail through just fine.
Today’s Top Gaining ETFs…
Shares U.S. Healthcare Providers ETF +1.9%
iShares MSCI Mexico ETF +1.8%
SPDR S&P Insurance ETF +1.8%
Invesco KBW Property & Casualty Insurance ETF +1.7%
SPDR S&P Aerospace & Defense ETF +1.7%
Today’s Top Losing ETFs…
iShares MSCI Thailand ETF -2.2%
Invesco DB Commodity Index Tracking Fund -1.6%
Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF -1.6%
iShares MSCI Sweden ETF -1.2%
KraneShares Electric Vehicles and Future Mobility Index ETF -1.2%
Today, reader PS writes:
Reader question: Hi, guys. In conjunction with the Dodd-Frank part 2, How is all this stuff coming together? Here is the stuff. FedNow, CBDC, and ESG. What stuff will pull us through this debacle over the next 2+ years? Why? I don’t see anything in it for me. What will happen to my monetary assets? Boys, I am scared!
As soon as we saw FedNow, CBDC, and ESG, we knew we had to send this question to Nomi Prins for her to answer. Here’s her reply:
Nomi’s response: I understand your concerns. The banking system remains a collection of big banks that are still too big to fail and regional ones that have been failing.
As it stands, the Dodd-Frank Act did not foresee a digital currency or the FedNow payments system coming to fruition. It also didn’t go far enough to keep banks from imploding as the recent bank failures this year have shown us.
And though the FedNow system isn’t using a CBDC yet, its architecture does open the door for their use in the future. So, let’s dig further into that ‘stuff’ a bit more, and what you can do about it.
First, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act to restrain the financial industry’s reckless behavior that led to the financial crisis of 2007–2008.
But, given the recent collapse of regional financial institutions like Signature Bank, Silicon Valley Bank, and First Republic Bank, it’s clear that it didn’t go far enough.
And when First Republic collapsed, the U.S. Treasury asked JPMorgan Chase to buy it. The FDIC lost $13 billion on that deal, while JPMorgan made a $3 billion profit, and became even bigger.
Now, Title II of Dodd-Frank created an entity called the Orderly Liquidation Authority (OLA). This was to be used in case of a financial emergency. So far, it hasn’t been used to take money from anyone’s account.
Separately, FedNow is a payments system that the Fed officially launched this summer. It’s neither a form of currency nor a CBDC. But it is a platform that can allow for the implementation of a CBDC in the future.
That’s because it provides the infrastructure for the Fed to use, should it get authorization from Congress to create a digital currency. In other words, they could potentially extract money from your bank account to say – bail out a bank through FedNow.
I believe this is a few years off. And your assets can’t be touched through the current incarnation of FedNow. But once the Fed does issue a CBDC, this becomes easier.
Meanwhile, there are things you can do to prepare for it. These include splitting your money up across different banks in case one fails, and buying assets that aren’t touchable by the Fed such as gold and bitcoin.
In fact, I recently recorded a video for that purpose, where I explained everything in detail.
Nomi sure did. To check out Nomi’s full investigation into FedNow and CBDCs, go here.
If you have any questions or comments for our experts here at Legacy Research, we’d love to hear from you.
Write to us at [email protected] and just type “Daily Cut mailbag” in the subject line.
Editor, The Daily Cut