"I believe we could be in what’s called a “Triple Waterfall Crash” which is a long and drawn-out downturn that can take years to experience and that has many bull market rallies in between."
On The Money
Note – this isn’t professional advice, it’s just my opinion alone from having been a daily investor and investment advisor for nearly two decades. Also note that my opinions could be wrong and are my opinions, if you need professional advice, please go seek it elsewhere.
With respect to the economy and the markets I think we are in for a repeat of a very tough period for most of the world. Which period though, is difficult to determine – no two times are exactly alike.
The Dot Com Bubble and Bust of the 90s/00s isn’t exactly analogous to today. But combinations of periods like that and including the Nifty Fifty Stocks (over heated stock prices) of the 60s/70s followed by Former Fed Reserve Board Chairman Volker’s time overseeing the economy (high energy prices, inflation, and crippling interest rates) all draw certain parallels to today.
No one has a crystal ball… and certainly the US consumer has shown great resilience time and again… but it still looks like:
- There is still way too much money in the system;
- The black market is healthy as ever and commanding more market share -- look at massive growth in narcotics use and digital/cyber crime;
- All asset prices are still too high;
- Governments around the world have not rationalized spending with current debt loads;
- Corporate defaults haven’t risen materially; and
- Stock investors have not yet capitulated.
Thus, I believe we could be in what’s called a “Triple Waterfall Crash” which is a long and drawn-out downturn that can take years to experience and that has many bull market rallies in between. The bull market rallies are indicative of a false positive economic outlook, which brings me back to a legendary former Chief Investment Officer of BMO, Donald Coxe, who said, “You have to destroy the belief system.”
Add possible COVID threats, increasing China/Taiwan tensions, continued supply chain issues, broken political/media systems in most western nations (especially the UK and the USA), major problems in agriculture with prices and crop/animal disease spiking, a worsening labour market, near record personal credit card debts, massive wealth/income disparity between rich and poor, a dying middle class, and not enough affordable homes almost anywhere.
In other words, the proverbial “doo-doo” has really yet to hit the fan!
So, what do you do? Don’t listen to anyone saying “stay the course” -- that’s lazy nonsense in my view.
I think diversifying intelligently is something most people can do easily, like buying the bluest of blue chip stocks like banks that are quasi-government institutions that essentially have powers of taxation. Buy high quality short duration bonds that nowadays pay a decent yield and but those in your registered accounts. Employing a well thought out options strategy on commodities, although complex, can help a portfolio from losses while getting out of any digital assets and most tech stocks (hello US Anti-Trust department -- late to the party, but here now). Also stay away from most anything European -- invest in western countries with commodity-based economies like Canada or Australia, and PRIVATE EQUITY, but be choosy and do your research! Holding a good chunk of cash, say 2/3rds to start right about now, is gutsy but safe, however, this goes against what you may be hearing: “my advisor tells me to stay invested or I’ll miss those really great up days where the market goes up 5-8% in a day”… that doesn’t always work out very well -- and FYI they have to say that. In three to six months, re-assess potential for placing back in another 1/3, and then repeat in three to six months.
Feel free to contact me for more information, but most importantly, do your own homework.
Romel Dhalla is the president of the Dhalla Advisor Corporation and can be reached at (204) 509-1020.