If the stock market were a financial highway, you’d need four-wheel drive to navigate it lately. Markets are a chunky, sloppy mess and October caps a three month slide that’s seen the Dow lose nearly 300 points. If the bad news continues to the end of this month, it will mark the first three month loss since 2011.
Those long in the stock market may try to take heart that the market typically rallies during the last quarter on years when October markets have performed poorly, but this is not a typical year. With oil prices stuck in the dumps and a scorched earth election dividing the nation, it’s quite possible the contentious political climate will start spilling over on the business world. If that happens, a recession could become a self-fulfilling prophecy.
Hedge Funds Wary
Hedge fund billionaire David Tepper sees the election as a major factor in the market’s current woes. A cultural shift toward more liberal economic policies could throw markets into a permanent funk. Like most big investors, Tepper, seen as the world’s most successful hedge fund manager, is very cautious on the market right now. His fund has returned solid single digits this year as he has remained wary of stocks and short on bonds.
Greed and Complacency
Gary Gordon at SeekingAlpha sees the two primary forces at work in the market today as greed and complacency. He compares the situation today to that in 2002-2007, when a runaway real estate market and healthy stock market fed the same type of complacency we’re seeing in markets today. Of course that ended well…
A Global Concern
The U.S. stock market isn’t the only one on the skids, signaling that what we’re seeing may be a sign of weaker growth worldwide. Chinese markets were down in sympathy with those in the U.S., though China’s losing streak has been less even than America’s. The economic data from Asia is soft and indicates there may be more weakness ahead for global markets. Only European stock markets seem to be bucking the recent trend, but growth there has been limited by the ongoing Brexit planning.
Don’t Keep All Your Wealth in Paper
Owner-occupied homes, possibly the worst-performing investment most people own, are seen by most Americans as a tangible asset though they’re really an expense (and you thought it was just you who felt that way!).
Commercial and multi-family properties that produce income and provide tax advantages are actual assets, though pricey ones. Commodities like timber, gold and silver are also tangible assets that provide a hedge against the buying power of your cash. Timber and other commodities can be hard to convert into cash. Because gold and silver coins are widely recognized and accepted in the precious metals trade, they’re easy to convert to cash. That makes gold and silver coins a liquid hard asset, and one that resists inflation over time.
Don’t Get Complacent
If you’re in your mid-forties or beyond, getting complacent can cost you. When the stock market is banging along and you’re watching neighbors sell their homes at seemingly outrageous prices, it’s easy to get lulled into thinking you’re pretty well off. Just think back to 2008 when millions saw their home values wiped out, their 401(k)s destroyed and then got pink slips on top of that.
Paper wealth and an owner-occupied home are little protection from financial disaster. If you have the bulk of your wealth in paper, and can see the handwriting on the wall, then diversify your asset base right now with a mix of assets that generate cash and liquid tangible assets that will maintain value when markets collapse. The cycle of boom and bust is well established, yet every time it “comes as a surprise.” Be ready this time.