In today’s Money Morning…out of the frying pan and into the fire…a ‘rip-your-face-off’ crash…a final warning from a respected colleague…and more…
Melbourne is finally free…
No more curfews, no more travel restrictions, no more lockdown.
It certainly feels like a relief. And I think I can speak for everyone in Victoria when I say that we hope to never have to endure something like this again.
But, in many ways, this feels a bit like we’re out of the frying pan and into the fire.
Because while we may finally be putting the pandemic behind us, the economic ramifications may be far more brutal. As can be seen by growing pessimistic sentiment from the mainstream media.
Just take a look at some of these headlines from this morning:
‘Companies brace for fierce battle to attract workers’
‘US inflation expectations reach highest level in more than a decade’
The Australian Financial Review
‘China Evergrande set to collapse potentially causing US-style GFC’
Between labour shortages, ever-rising inflation, and a Chinese property bubble set to burst, things aren’t looking too great. And that doesn’t even include the speculation about fuel shortages, increased market regulation, or central bank tapering…yet.
Meaning the worst, for investors at least, may be still to come.
A ‘rip-your-face-off’ crash
Now, let me start off by saying that here at Money Morning, we like to think of ourselves as optimists. And I say that on behalf of myself and all my fellow editors.
When we look at the market and investment ideas, our goal is to find the upsides: ways to capitalise upon the ability of markets to deliver life-changing returns. Which is precisely why we’re often infatuated with innovation and up-and-coming trends.
But that doesn’t mean we’re not realists either…
As much as we wish markets and stocks always went up, they simply don’t.
Volatility and corrections are a part of a healthy economy. The trouble is, they’re rarely healthy for your individual wealth if you end up caught in one. Particularly when a downturn escalates into a complete crash.
That’s why today I’m taking a slight detour from my usual messaging. Because while I personally don’t believe this sort of mega-crash is coming yet, others certainly do.
Take this over-the-top and totally bombastic sentiment from financial blog writer, Charles Hugh Smith, for example:
‘What I’m calling for is a rip your face off, weeping bitter tears over the grave of the speculative wealth that you thought was forever crash. All those buying the dip because the Fed will never let the market go down will be crushed like scurrying cockroaches and all those trying to rotate into the next hot sector or asset class will also be crushed like scurrying cockroaches because when the Everything Bubble pops, well, everything pops. There is no shelter in a risk-off cascade.’
No matter what you think of his conclusion, you’ve got to admire his ability to really sell the feeling of despair. But that is also precisely why I can’t really buy into his argument.
It is dripping with so much emotion that it feels divorced from reality. Which is why I often don’t pay attention to these kinds of ‘doomsayer’ sentiments.
There is one man I do make an exception for, though.
How to Limit Your Risks While Trading Volatile Stocks. Learn more.
A final warning from a respected colleague
If you’re unfamiliar with who Vern is, then all you really need to know is that he doesn’t just talk the talk, he walks the walk.
Having been involved in financial planning for close to four decades now, Vern has seen and experienced more than most in Australia’s financial sector. He’s helped plenty of clients, friends, family — and anyone who will listen — not just make money but retain it.
That’s because unlike a broker, or an investment banker, he understands the people he works with. People that have experienced the weeping of bitter tears that Smith is talking about. Having to console everyday Australians who have lost everything in some of the major crashes of the past.
And right now, Vern is telling everyone that he can that things are at code red. The tipping point where he is urging any investor to get out of these four key assets.
Now, whether you believe Vern is right or wrong on this is a personal matter. I’m not going to be able to convince you, because like I said, I don’t necessarily believe a big crash is coming that soon.
But you need to understand that I am lucky enough to have the luxury to take this stance.
At only 30 years of age, I have plenty of time to recoup any personal losses if I’m wrong.
As for the paid subscribers that I write to in Australian Small-Cap Investigator, it is explicitly noted that it is a speculative stock-picking service. One filled with high risks and high rewards. And even then, we’ve taken some sizeable profits off the table in recent weeks just in case.
So compared to most investors who are much older than I am, perhaps even close to or already retired, Vern’s message is far more pertinent. Something that you should at least take half an hour out of your day to read properly (dropping in a few hours).
After all, when someone like Vern warns you of something, you don’t simply ignore it.
Editor, Money Morning
PS: Our publication Money Morning is a fantastic place to start on your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here