From Simon Black at Sovereign Man:
Stock markets around the world were crushed yesterday…
The Dow Jones fell 800 points, its biggest dump since February. The Nasdaq fell 4% (its worst day in seven years).
Japan fell 3.9%. Chinese stocks fell 5.2% to their lowest since 2014.
And people are freaking out (the market’s fear gauge, the volatility index (VIX) surged 43.9% yesterday).
I’ve been writing for months that the current bull market could easily go on for another few years… or it could all come crashing down tomorrow.
It’s possible the market lemmings simply “buy the dip” once again and push the market back up. Or, maybe, we should be legitimately concerned…
The 24-hour news cycle never has a shortage of reasons for a big market fall (though always after the fact).
And there are plenty of reasons for stocks to fall today.
Rising rates, too much debt, trade wars… take your pick.
Right now, a major US retailer, Sears, is on the verge of bankruptcy. And if it goes down, 150,000 jobs go with it.
But it’s not just Sears that’s in trouble. A bunch of old-line retailers have been kept alive by cheap credit and too much money sloshing around the economy… otherwise they already would have met their inevitable faith.
Ask yourself, what real value does Sears – a dumpy, desolate and inferior department store –add to today’s economy?
What service does it provide that you couldn’t get elsewhere (probably for less money and in a much more pleasant environment)?
You can ask the same question about department store JC Penney, which has 100,000 employees and is also in financial trouble.
Last August, we said these retailers’ bankruptcies could be one of the many things that could spark the next recession.
At the time, Sears was trading around $9 a share (already down 95% from its peak)… today, shares are less than 50 cents.
But it’s not just the retailers that exist thanks to lax creditors… around 35% of companies in the Russell 2000 index haven’t earned a profit in the past 12 months.
So far this year, 83% of the companies that have gone public this year in the US are actually losing money.
And a full 14% of companies in the S&P 500 can’t cover the interest on their debt.
Like the old retailers, these corporate “zombies” only exist because of the ultra-low interest rates we’ve seen over the past decade and the trillions of dollars printed by the Federal Reserve… devalued money blindly found its way into every crevice of the economy.
As rates rise (the 10-year Treasury is over 3.2%) and central banks continue sucking liquidity from the system, those companies will be exposed for what they really are… worthless.
Despite the doom and gloom we discussed above, it’s still possible this market goes higher for another year or two. The truth is, nobody knows.
And given that uncertainty and how fragile the market is, doesn’t it make sense to acquire assets that will do fine regardless of the S&P 500’s daily moves?
There are plenty of ways to do this besides just stuffing cash under your mattress…
I think it makes sense to own some gold today. Gold has been real money for millennia. It’s also one of the only assets that hasn’t soared in the current “everything” bull market.
And while stocks plunged yesterday, gold went up.
As I’ve shared already this week, I’m also arranging a loan secured by a European estate that I’ll control. The collateral is worth 2x the loan amount, and I’m still making a double-digit yield.
I’ve also told Sovereign Man: Confidential readers about super conservative, asset-backed loans that pay up to 12% a year.
And there are still some corners of the stock market that offer value, if you look hard enough.
That’s what my Chief Investment Strategist, Tim Staermose, looks for in his value investing service, The 4th Pillar… well-run, profitable companies trading for less than their net cash.
It doesn’t get much safer than buying an entire company for less than the cash on its balance.
Still, there’s risk with any investment you make. Even if you’re holding physical cash, you risk missing out on future returns.
But the biggest, no-brainer risk free return is when you take legal steps to reduce your tax bill.
They say there’s no free lunch, but there actually is.
Paying less tax is free money.
And there’s no risk… you follow the law and you get money.
That’s why I’m spending more time in Puerto Rico these days.
It’s also why I’ve spent so much time researching opportunity zones.
Opportunity zones allow you to take money out of the bloated, public markets and invest them in undervalued areas around the US.
And if you hold that investment long enough, you’ll pay ZERO capital gains tax.
It’s one of the greatest wealth-building deals I’ve seen… and the US government is begging you to take advantage of opportunity zones
And if you reduce your tax bill to zero, you can sleep a lot better at night… regardless of what the stock market is doing.