Update - May 10, 2022

The Market Sees Things the Way We Do

During our recent “town hall” meeting, I called this the most interesting market I’ve ever worked in.

Now I’m calling it the most confused market I’ve ever worked in.

But let me be clear: I used the word “confused,” not “confusing.”

After all, we know exactly what is going on. (And by the way, I’ll be hosting an “emergency town hall” meeting later this week. Stay tuned for details.)

In January, we released our annual “big prediction” issue. I called for a recession to hit in the second half of this year. At the time, it was an extremely contrarian take. Most headlines were touting record-low unemployment, consumer spending and a return to a “normal” economy.

But the historical data suggested the outlook was not so rosy.

Record-low unemployment almost always precedes a recession. Consumer spending was only rising thanks to pent-up savings. Once that cash hoard was gone (surprise… it now is), we knew spending would plummet. And the “normal” economy was only being fed by too much government money printing.

Today, the market sees things the way we do.

Almost all the big banks are calling for a recession. But most, even as recently as last month, were still saying it would occur in 2023.

Every day, though, they’re getting fresh evidence that the slowdown isn’t just coming… It’s already here.

As they are forced to update their pricing equations and admit their optimism was misplaced, their models are having a tough time finding a fair value. On the one hand, things are slowing at an incredible pace. But on the other, the Fed is still tightening.

But even that last idea is changing. During last week’s conversation with the money press, Fed boss Jay Powell took the idea of a 75-basis-point hike off the table.

It was big news.

It’s the first piece of evidence that shows he’s worried about the consequences of raising rates.

Mark my words… Powell will be taking a dovish stance by the end of this year.

As it happens, investors who stick to their strategy and don’t get emotional will be rewarded handsomely.

We will continue to buy good stocks (now getting them at discounted prices) and use our proven stop loss strategy to minimize losses in a chaotic market.

With that, we have a few stocks that have hit our trailing stops in recent days.

Our stake in Sandstorm Gold (SAND) has done its job. We’ve gotten a nice profit, and it’s helped us negate some of the market’s volatility. But with gold hardly budging in recent weeks and the market reducing premiums across the board, we hit our stop.

We’ll sell.

It’s a similar story with two stalwart blue chips… ABB (ABB) and Gartner (IT). They both have treated us well. But, again, even the strongest of the strong have seen their multiples reduced as a confused market tries to figure out where things are headed next.

And finally, Silvergate Capital (SI), the bank of crypto, has hit our trailing stop. It’s given us a wild ride… and depending on when you got in, it very well may have been a profitable one.

This is a company to keep a very close eye on. I like the business model and, with much of the speculative riffraff being pushed out of the crypto market, I like where Silvergate is headed.

For now, we must follow the rules and protect our downside.

Action to Take: If you haven’t already, sell your shares of ABB (NYSE: ABB), Gartner (NYSE: IT), Silvergate Capital (NYSE: SI) and Sandstorm Gold (NYSE: SAND) at the market’s price.

Overall, there’s no denying things have been rough. But we’ve been here before.

While it may feel like we’re in uncharted territory when the storm is at its fiercest… we’re not. Once the clouds lift and the wind subsides, skittish investors will realize we’re not all that far from where we started.

Watch for the recession talk to rise.

As it does, the doves at the Fed will gain more credence. And as they do, stock multiples will rise, premiums will return… and big profit opportunities will await those who were patient.

I’m confident.

The market may be confused. But we’ve proven over and over again that we know exactly what is going on.

Let’s take advantage of it.

Note: Like I said, we’ll be holding an “emergency town hall” meeting later this week. We’ll cover what’s happening with the markets, what comes next and what you should be doing with your money. Right now, I’m aiming to go live on Thursday afternoon. But I’m still working out the details with the team. Keep an eye on your inbox.