In my macro picture, I wrote, “you’ll find the outline of my first two steps to getting ready for the next big one, be that big one a recession or a credit crunch or best yet some combination of the two.
Step #1: Lay the Next Big One risk foundation.
Okay, it is not certain, guaranteed, 100% likely that we’ll see either a recession or a credit crunch in 2020 or 2021. I think the odds of a recession are currently about 40%–not insignificant but not a lock either. The odds will go higher if the trade war stretches past the end of the year (extremely likely), if one of the governments running a really stupid fiscal and monetary policy continues or makes a big mistake (hear that Turkey, the United States, Italy, the United Kingdom, China, Brazil, India, etc.), if a strong dollar leads to a emerging market liquidity crunch (again very likely), or if something unexpected happens (volatile weather leads to a massive crop failure somewhere, for example.)
But what is certain is that the fear of a recession or a credit crunch will continue to rise for the next 15 months or so (through at least the November 2020 elections and the end or not of the U.S.-China trade war.) There’s no way that growth in the global economy will pick up in that period so we’re looking at increasing fear–and an increasing desire to hedge against that fear.
Everyday seems to come with a new reason to fear a recession or a credit crunch. So, for example, on August 13, we got a report from the Labor Department saying that the United States had 7.3 million job openings in June, down from a peak of 7.6 million in November. The drop seems to be a result of the uncertainties created by the Trump administration’s trade war with China and tariff threats directed at other big U.S. trading partners such as China. A decrease in job openings has tended to be a signal of economic trouble, according to Labor Department Job openings peaked in April 2007, for example, nine months before the start of the Great Recession. Does that mean we’re headed for a recession nine months from now? Nobody knows. But everybody can read the indicators. And get nervous. And buy assets that will do well, or at least better, if we do head into a recession.
What I’ve been buying and what I suggest you buy for Step #1 of my 5 steps is what I’d call the early foundation for the next Big One. These picks are built on rising fear of a recession or a credit crunch and they will climb ahead of either event on fear of the event–even if the event finally doesn’t take place. My recent picks for this risk foundation include
Barrick Gold (GOLD), a June 21, 2019 pick that was up 16.09% as of the close on August 13
First Majestic Silver (AG), a July 26, 2019 pick that was up 4.79% as of the close on August 13.
Vanguard Short-term Treasury ETF (VGSH), a June 20, 2019 pick that was up 0.02% as of the close on August 13.
Vanguard Intermediate-term Treasury ETF (VGIT), a June 3, 2019 pick that was up 1.56% as of the close on August 13.
I’d also add to this foundation list earlier picks such as
Wheaton Precious Metals (WPM), a June 15, 2018 pick that was up 19.08% for the life of the pick as of the close on August 13 and that is up 36.71% for 2019 to date through August 13
SPDR Gold Shares (GLD), a September 11, 2017 pick that was up 12.36% for the life of the pick as of the close on August 13 and that is up 16.93% for 2019 to date through August 13
Invesco Currency Shares Japanese Yen (FXY), a January 4, 2019 pick that is up 0.43% as of the close on August 13.
That’s just 7 foundation picks spread over my Jubak Picks and Volatility Portfolios. To complete Step I I’d like to add a couple foundation picks such as
VanEck Vectors Gold Miners ETF (GDX) to give myself more leveraged exposure to gold and an index that tracks senior gold mining stocks. This ETF is up 34.90% for 2019 to date as of August 13. (As an alternative you could buy shares of the VanEck Vectors Junior Gold Miners (GDXJ). The stocks of the junior miners are historically more volatile and more leveraged to the price of gold than are the socks of the senior gold miners. So far this year, however, this ETF’s 32.59% year to date performance trails that of the senior mining stocks ETF. And I have a suspicion that with worries about a credit crunch swirling in investors’ heads, the better balance sheets of the senior miners could be a significant advantage.
iShares 7-10 Year Treasury Bond ETF (IEF) to give me a little more duration in a period of sinking Treasury yields and climbing Treasury prices. The iShares 7-10 Year Treasury ETF tracks an index for Treasury bonds with just a big more duration than the 3-10 year Treasuries tracked by the Vanguard Intermediate Term Treasury ETF. That has resulted in a little more performance in 2019 to date–9.38% for the iShares ETF vs 6.46% for the Vanguard ETF. The iShares Treasury ETF has a 2.28% 12-month yield and charges a low 0.15% expense ratio.
As of August 14, I’ll be adding both these ETFs to both my Jubak Picks and Volatility Portfolios.
And now on to
Step #2: What to sell first to avoid the Next Big One.