The R Word

I get it; how much negative news can we as small investors endure?  But when the house is not only on fire but almost fully engulfed is it bad news or good that someone’s telling you to get out?

Folks, we’re not simply in the midst of a bearish stock market.  We’re now witness to the worst stock market in the beginning of a new year since they started keeping records in 1897.  The Dow tanked 565 points yesterday before clambering up to a wheezy negative 249.  But stock market die-hards in search of bargains in international stocks will also be disappointed: Chinese stocks have already shed sixteen percent of their value.

We’ve had increasingly insistent warnings, but now it’s time we man up and confront the possibility that we’re inching closer to recession.

Andrew Levin, former advisor to Fed Chair, Janet Yellen, has observed our country’s so-called “jobs boom” probably won’t last.  Keep in mind the Fed authorized its first rate raise in almost a decade based on what the Federal Open Market Committee (FOMC) concluded was an optimistic domestic employment trend.

But as Washington Post reporter Matt O’Brien points out, “Industrial production is falling as fast as it does when there’s historically been a recession, and core retail sales, which strip out cars, gas, and building materials, started declining in December.” Think about it – retail sales declined in December.  So, to incurable optimists who insist we’re not headed for a recession, I can only reply, “if it looks like a duck, and quacks like a duck ….”

If we can’t face the idea, especially those of us over forty and only just beginning to feel like we’re returning to a solid financial footing, maybe economists should designate a word for being in recession’s waiting room. How does “unraveling” sound?  This seems to be what multi-billionaire hedge fund manager George Soros has in mind in his recent New York Review of Books interview when he describes economic conditions in Europe:

“The EU is on the verge of collapse. The Greek crisis taught the European authorities the art of muddling through one crisis after another. This practice is popularly known as kicking the can down the road, although it would be more accurate to describe it as kicking a ball uphill so that it keeps rolling back down.”

Soros feels the European Union has devolved into a “relationship between debtors and creditors,” whereas it was originally formed to be “a voluntary association of equals.”  Sort of like an arrangement in which you and your supposed friend meet for dinner once a week and you keep getting stuck with the tab because he invariably forgets his wallet.

The upshot of all this economic contraction is domestic and international stock markets on the verge of collapse.  Don’t kid yourself.  We’re not simply caught in a cyclical bear-bull pattern for stocks.  If you think you just need to wait out the bust trend, then dive back in during a boom that should follow, you’re putting your wealth and future security at stake.

What you need to realize is the house is on fire, and maybe you can save something later, but your first priority is to get out.  Don’t put funds you can’t afford to lose in the path of destruction; secure them in a tangible asset that speculators and scoundrels from Wall St. to China and beyond can’t touch.  My personal favorite has always been physical gold.  It’s still priced right, though it’s creeping upward with every terrifying headline. It represents nobody’s debt and has a time-tested record of reliability.

But the best news about gold right now is it’s negatively correlated both to the U.S. dollar and to stocks dependent on that dollar.  Whether you call it recession, unraveling, or depression, it’s coming fast.  Once it touches down for its inevitable hard landing, as a gold investor, your personal wealth stands to grow.