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Inflation Introduces a New Investment Landscape

In recent years, the economic backdrop driving America’s investing environment has consisted of slow economic growth, easy-money policies, high asset prices, and disinflation. This theme drove prices for risky assets, many of which had no earnings, paid no dividends, and had no clear path to profitability, to valuations never before seen. Returns on “Hyper-growth” stocks, crypto currencies, and other speculative investments lured many workers out of work and into day-trading. Credible economists, like Lacy Hunt, of Hoisington Investment Management, suggested the excessive debt load would keep America’s economy in slow growth long-term, which would continue to dampen loan growth, which would allow the Fed to continue to suppress rates and print money, which would continue to elevate asset prices. While this narrative is very logical, and for a dozen years remarkably accurate, those supporting it understood that, should a sufficient amount of the Fed’s arbitrarily-created currency units fall into the hands of middle America, as opposed to staying concentrated in the hands of financial interests closest to the Fed’s “trough”, noticeably rising prices would unseat the narrative and change the investing environment. The hubris of government, to think it could shut down national supply chains and then turn them back on like a light switch, coupled with the historically reckless Fed decision to “do whatever it takes” to create inflation north of 2% annually (as if stealing 2% of your income each year wasn’t enough!), have in tandem lit the fuse on inflation, dislodged the old economic narrative, and ushered-in a new investment environment. In regards to the dangers of high inflation, who is most at risk, how might you be exposed, and what basic measures should be taken?

High inflation renders present streams of income more valuable today, and future streams of income less valuable today. This is why the NASDAQ, consisting primarily of growth stocks which pay no dividends, is under pressure, while the DOW JONES, consisting primarily of established dividend payers, is outperforming. The two groups of citizens most damaged by periods of sustainable high inflation are cash savers, or people who keep a substantial portion of their wealth in bank accounts, or similar, low interest vehicles, and pensioners, or people on a fixed income. Savings, after an ample emergency fund is established, must not habitat low interest cash accounts for long. Those on a fixed income should think of ways to diversify income sources, and should consider earning some income on at least a part-time basis. The following should also prove helpful navigating the new landscape:

  • Maximize positive cash flow by running a tight family budget, then save & invest more to pay for tomorrow’s higher prices

  • Consider The Alpha Strategy for all purchases (contact the office for a free e-copy)

  • Don’t relinquish earned income without serious consideration

  • Avoid big positions in low or non-income producing investments, like cash and speculative growth stocks

  • Focus on income and dividend investments, especially those able to raise prices with inflation, and are capital efficient

  • Own some inflation hedges (REIT’s, MLP’s, commodities, gold) 

  • Consider utilizing the Charter Economy

Think about it, Shaun.

 The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

 All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss.

 Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

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Simple Practices for Safe Online Shopping

If you are anything like me, you dread manual, old-economy shopping. Between the back going into seizure from standing motionless for hours on a hard floor, and the ‘Type A’ blood pressure spike from congested traffic and standing in long checkout lines, I can honestly say I prefer an equivalent time in hard labor to traditional shopping. While online shopping removes the annoyances of manual shopping, multiplies product options, saves time and gas, allows for better cost comparison, and provides greater quality assurance through product reviews, it can also introduce you to a genuine financial hardship with a single breach of your security. Adopt these online shopping habits to safeguard your security.

  • Use trusted sites ONLY. Whenever you enter your credit-card number, always look for the letter “s” at the end of the URL’s “http.” It should say “https://” before the rest of the site’s address.

  • Use encrypted sites ONLY. An icon of a closed padlock will appear at the bottom of the page in most browsers; without encryption hackers can more easily access your information.

  • Check the spelling. Make sure the URL you are about to access is the intended URL. The term “Official website” often accompanies a search for retail sites, and the URL of many scam-based websites resembles the real thing.

  • Shield your shopping devices. Invest in a good malware-removal program and a good antivirus program for your computer. For your handheld device, use programs like Malwarebytes (for Android phones) and Avast SecureLine (for Apple).

  • Avoid “free public Wi-Fi” like the plague. Never enter your personally identifiable information (PII) or financial information on an unsecured network!

  • Lock your device, guard your password, and use “two-factor authentication”, which you can learn about here.  

  • Use resell sites and gift cards cautiously. An online purchase requiring an activation code requires additional precaution, and we often don’t know if the full value remains on a gift card. I try to avoid both of these.

  • Check for a receipt. Save a digital or hard copy of all receipts, and check your credit card statement to verify the charge. ¹

Establish these safe online shopping disciplines, and enjoy the extra time online shopping will afford you with your family! I hope you had a wonderful Thanksgiving celebration this year. Shaun

“The prudent sees danger and hides himself, but the simple go on and suffer for it.”  ~Proverbs 27:12

1 Doc Eifrig’s Health & Wealth Bulletin, “Seven Ways to Stay Safe While Shopping Online”, November 22, 2021

Opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

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How to Understand and Overcome Inflation

It’s rare in our distractively-busy culture for the common American to engage macroeconomic issues, but rapidly rising prices driven by highly inflationary policy are a present and notable exception. Engaging the public discourse on inflation, and knowing how to effectively overcome it, however, seldom marry, so let’s investigate why that is.

It’s fascinating to ask people what causes inflation because the answer is super simple, and no one knows the answer. No one knows the answer because the definition has been changed to hide the cause. Inflation is properly defined as “an arbitrary increase in currency units without a corresponding increase in the supply of goods and services”. As you might expect, more dollars chasing the same goods causes prices to rise, a primary effect. Today’s money conjurers have people believing inflation is defined as “rising prices”, so that the cause can be blamed on other things. Properly defined, we’re ready to consider inflation’s rotten fruit.

The arbitrary creation of currency units, or inflation:

  • Steals from the lower and middle classes by devaluing the currency they heavily depend on, always rendering them poorer.

  • Enriches the wealthy by causing the risk assets they own to rise, which is disproportionate to their cost of living, which is comparatively small.

  • Taxes all users of the currency dishonestly, since the government never has to say it’s raising taxes (on everyone).

  • Results in divergently rising prices.

  • Invigorates speculation and risk-taking leading to widespread malinvestment and asset bubbles, which are followed by systemic crashes; then it rinses and repeats.

  • Causes fixed income and cash savings vehicles to lose purchasing power.

  • Threatens the society in which the compromised currency prevails.

Many people understand the above, and yet fail to reflect it in their financial lives. I believe this is the result of a) financial illiteracy, since Americans are not educated on financial matters at home or in school, and b) fear is stronger than greed, and they try to hide in all the wrong places. Astute responses to a highly inflationary environment are:

  • Make more money. Whether this means working longer, harder or smarter, extra income is very helpful in maintaining a net positive cash flow in your home.

  • Spend less money. It has the same effect as more income (but on the other side of the ledger).

  • Invest in quality assets. Focus on capital efficient companies with consistently high free cash flow and strong pricing power.

  • Place a high priority on investments paying dividends and rents, especially those able to consistently increase the payouts. Income your investments earn is income you won’t have to.

  • Maintain an exit strategy on all trades to protect your capital from the occasional systemic crash, and don’t let these busts deter you from decisively returning to the above assets when prices stabilize.

  • Own some classic inflation (hard asset) hedges.

In closing, it’s important to distinguish inflation from hyperinflation, which is the widespread loss of confidence in, followed by the widespread abandonment of, a compromised currency. The former is objective policy action; the latter is a subjective response to that action. The former causes a rise in prices; the latter involves the total breakdown of a society. The former is sin; the latter is judgment on that sin.

Think about it, and I hope this information empowers and blesses your family. I’m sorry for the length this week, after many shortenings, it’s still too long! Shaun .

“The best way to destroy the capitalist (free-enterprise) system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.” ~Vladimir Levin

“A false balance is an abomination to the Lord, but a just weight in his delight.” ~Proverbs 11:1

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

 All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

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The Capital Retention and Multi-Generational Wealth Connection

Time has shown the common-most ‘top priority’ among elite investors globally has nothing to do with buying securities or building investment portfolios, and everything to do with the protection of capital and knowing when to sell. Mountaineers ascending grades too steep to arrest a ‘slip-n-fall’ often attach to a fixed rope, so when things go wrong they can live to climb another day. While numerous and varied investment strategies prove successful at increasing investment values, retaining capital when things go wrong is the single indispensable factor in surviving to invest another day. Mark Twain went bankrupt late in life by doubling down on failed ventures instead of abandoning them, learning by mistake the critical importance of the ‘exit plan’ to the multi-generational retention of capital wealth.

I was fascinated by a recent webinar in which three profoundly successful investors each shared their very different approaches to investing, the systems being so dissimilar apologies were offered at every exchange to temper strongly held but opposing views! Yet the one commonly practiced principle by the three was to have an ‘exit plan’ for every equity ‘trade’ at the time of purchase. What is an ‘exit plan’, how do the basic strategies work, and which are right for you?

Wall Street promotes the idea “time in the market”, not “timing the market”, is what produces reliable and lasting wealth, but Wall Street profits on the widely-held belief, and offers no comfort to the casualty investor when the delusion recurrently vaporizes. Here are some key practices that will save you from becoming a statistic:

  • A ‘Forever Stock’ holding involves the purchase of capital efficient, industry-dominating, dividend-paying, dividend-increasing companies at attractive valuations. All other stock purchases constitute a trade, and all trades must involve an exit plan Day 1.

  • Never fall in love with a holding of any kind. If you don’t understand this principle, read the book of Hosea. Nothing in this world is worthy of your confidence but GOD alone.

  • Run with your winners and cut your losers. Appreciating stocks tend to continue appreciating, and vice-versa. Give leash to your winners and maintain a cold and distasteful low tolerance for losers.

  • Take a ‘free ride’ on every 100% winner by promptly removing the original investment amount. Never make an exception to this rule.

  • Investigate and use Stop-loss orders on all equity trades, stocks, ETF’s and mutual funds alike, or make sure the person managing your critical retirement capital is doing so on your behalf, at all times and with strict discipline.

  • Never trust your personal insight or instinct to tell you when to sell. The counter-intuitive stock market, coupled with your vulnerable emotions, will betray and punish you ruthlessly.

  • Enjoy, and be thankful for the financial freedom these principles will afford you, and teach them to your children.

Think about it, Shaun.

“In all toil there is profit, but mere talk tends only to poverty” ~Proverbs 14:23

“The sluggard does not plow in autumn; he will seek at harvest and have nothing.” ~Proverbs 20:4

“The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty” ~Proverbs 21:5

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Shaun Scott No Comments

Challenges and Solutions for a 2020’s Retirement

Retirement planning and income investing professional, David “Doc” Eifrig, of Stansberry Research, has been warning near-term retirees, “The deck is stacked against you”.¹ What are the converging hazards to the planned ‘2020’s retirement’, and what solutions may avert disaster?

Many retirees dread the humiliation of running out of money and having to return to work or move in with their kids late in life, yet according to The World Economic Forum, most retired Americans will outlive savings by an average of 8-10 years.²  Converting to an exclusively unearned income while in debt, failure to accumulate sufficient retirement capital, neglecting to factor inflation into the planning, and loose spending in early retirement years are common pitfalls retirees stumble into, but various external threats are now aligned to endanger even those avoiding the common hazards.

The greatest threats to a planned retirement in the next few years are:

  • High Inflation. How can retirees overcome higher than expected expenses without earned income? The indications are high inflation is here to stay, and its potential damage is unlimited.

  • High costs for Long Term Care present the second most threatening financial risk, particularly for the independent spouse.

  • Tax hikes are a mathematical certainty following an era of reckless government spending, and are the end goal of the coming issuance of a central bank digital currency (CBDC).

  • Financial planners using Monte Carlo Simulation understand how devastating an early retirement bear market can be to a retiree’s drawdown rate, yet a significant bear market may be lurking.

  • Negative real interest rates neuter fixed income yields and force retirees into riskier securities to battle the aforementioned threats. This magnifies the effect of an early retirement bear market, which can alone decimate even the best-laid plans.

The most effective solutions for these perils include:

  • A net positive cash flow (net income exceeds total living expenses) is most critical at all times. It is achieved by frugality, fiscal discipline, and various passive income sources (like rental, charter-economy, or increasing annuity income).

  • Avoid big voluntary outlays in retirement. Buying homes and making loans to children can do quick, irreversible damage to your retirement. Do these things before relinquishing earned income.

  • Learning to maintain your home can save thousands annually.

  • Buying certified, pre-owned vehicles saves thousands on every purchase.  

  • Mitigate catastrophic risks. Married couples in the upper-middle class should have some Long-Term Care protection. Avoid being caught with a high percentage of your retirement capital in ‘yet to be taxed’ accounts. Avoid excessive cash savings and own ‘dividend aristocrat’ stocks to fight inflation. Have an exit plan on equity trades to offset the bear market.

  • Have an ample emergency fund for unexpected bills, but quickly replenish it from the positive cash flow following outlays.

  • Consider whether a tiny investment of your retirement capital in mega-technology trends, like those mentioned here, would be appropriate.

  • If you are blessed with sufficient retirement cash flow, dollar cost average into a great stock fund for the first dozen years of your retirement, to help pay for the second dozen years of your retirement.

  • Be thankful for your success, and generous with others in need!

Think about it, and I hope these suggestions are a blessing to you. Shaun

“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.” ~Ecclesiastes 11:2

“A good man leaves an inheritance to his children’s children.” ~Proverbs 13:22

“God loves a cheerful giver” ~2Corinthians 9:7

1 Daily Wealth Premium, by David “Doc” Eifrig, “Conventional Wisdom Won’t Save Your Retirement”, October 1, 2021

2 Daily Wealth Premium, by David “Doc” Eifrig, “Don’t Fall Into The Retirement Nightmare”, September 3, 2021

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

Investing in mutual funds involves risk, including possible loss of principal. Fund value will fluctuate with market conditions, and it may not achieve its investment objective.

Shaun Scott No Comments

Solutions to the Dilemma of Rising Prices

The ongoing debate over whether the recent surge in prices will be ‘transitory’ or ‘lasting’ has quieted, as price-hikes persist with no end in sight. The cost of living in America is presently increasing at over 8% annually, based on the U.S. government’s own 1990-based formula.1 Meanwhile, Trish Regan, of American Consequences, reports inflation-adjusted wages are down 1.2% in the same period.2 This divergent trend won’t have to last long to pinch a large swath of middle class Americans with little or no savings. What caused the sudden inflationary surge, what will alleviate it, and what solutions can help working Americans survive it?

While an arbitrary increase in the money supply is the primary impetus for rising prices, there are other catalysts. Supply chain disruptions caused by the Covid19 lockdown and sudden economic re-opening is causing consumers to pay more and wait longer for virtually all imported goods. Loaded container ships sit idle outside major ports due to vaccine mandate regulations and a shortage of workers, both issues affecting prices. A shortage of container ships causes further delay, and many return to China empty or slightly loaded, the natural result of America’s exported manufacturing industry. It’s notable the USA/China trade imbalance, roused by the Trump Trade War, is inspiring China to seek new trading partners. Dependence on a less interested supplier is bad enough, but China also controls the global supply chain for raw materials, from which everything is made, and commodity prices are rising noticeably.

A return to free market-based interest rates would expediently correct the rising price problem, as Paul Volker demonstrated, but with the U.S. government, numerous municipalities, and 25% of all corporations in the U.S. burdened by an excessive debt load, don’t count on the Fed allowing it. Setting a limit on the creation of new currency units that is consistent with economic growth would kill the life-blood of rising prices, but due to the fact it would set interest rates ablaze, we must also rule it out. Absent the moral courage to enact these solutions, price increases are likely here to stay, which means we must find our own solutions.

These are some ways to fight price increases:

  • Maximize positive cash flow by running a tight family budget, then save & invest more to pay for tomorrow’s higher prices

  • Consider The Alpha Strategy for all purchases (contact the office for a free e-copy)

  • Don’t relinquish earned income without serious consideration

  • Avoid big positions in low or non-income producing investments, like cash and speculative growth stocks

  • Focus on income and dividend investments, especially those able to raise prices with inflation, and are capital efficient

  • Own some inflation hedges (REIT’s, MLP’s, commodities, gold)

  • Consider utilizing the Charter Economy

Think about it. Shaun

“A nickel ain’t worth a dime anymore” ~Yogi Berra

“You shall do no wrong in judgment, in measures of length or weight or quantity.” Leviticus 19:35

1 John Williams’ Shadow Government Statistics, Inflation 1990-Based, 10/14/2021

http://www.shadowstats.com/alternate_data/inflation-charts

2 American Consequences, “The Incredible Shrinking Dollar”, 10/13/2021

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss.

Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Shaun Scott No Comments

Embrace the Emerging Charter Economy

The Fed’s policy of perpetual dollar debasement makes it increasingly difficult for common folks to put food on the table, but new technologies present valuable solutions for the nimble. Consider the charter economy, and how it can help your family solve the dilemma of rising costs.

The charter economy is simply a “sharing” economy in which useful possessions are “rented” to others when not in use. Americans pay high real estate taxes on basements and garages, and then fill them with depreciating, non-income producing accoutrements, like cars, lawn mowers, and generators, which in most cases rarely get used. Your family is a micro economy, and this is an inefficient use of your God-given capital!

The charter economy is mutually beneficial, which means it’ll save you money when you smartly rent an item instead of buying it, and it’ll make you money when you rent an “in-demand possession” instead of storing it. This new sharing economy is booming, in part because modern technologies have solved the former hindrances of a) finding a willing lender and renter, b) negotiating a fair price, c) making payment, and d) trusting associated parties. Choose a well-established vendor with many users, lots of favorable reviews, and a strong insurance policy (for protection from damage, theft, or injury). Reputable sites include, but are not limited to, Airbnb, VRBO, Turo, Neighbor, StyleLend, Fat Llama, Spinlister, RVshare, and Boatsetter.1

The most practical and profitable “not-in-use” items to rent include homes, cars, storage space, parking spaces, tools, bikes, snowboards, skis, surfboards, paddleboards, kayaks, RV’s, and boats. Neighbor’s site has a calculator to provide estimated income amounts on various items, and other free calculators can be found online. My own recent search for a rental garage on Aquidneck Island revealed there is zero supply available, and the going rate for a secure 12×24 space is north of $300/month!

Rules for success in the charter economy include:

1) Provide high quality photos and descriptions. When placing an ad, use clear, well-lit photos which accentuate the intended use. If renting storage space, for example, the picture should reveal the whole space, which should be clean, empty, and inviting. Offer a very detailed description of your products.

2) Treat it like a business. People want to deal with professionals, so be punctual, courteous, and kind, and offer a fair price.

3) Focus on products that are in high demand.

4) Post and encourage reviews, the more the merrier!

5) Make sure you are protected.2

Remember to appreciate and enjoy the God-given new relationships the charter economy will send your way! Shaun

“Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal, but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal.” ~Matthew 6:19-20

1,2 Retirement Millionaire, “Charter Income: America’s No. 1 Income Strategy for 2020”, August 21, 2020

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL does not provide research on individual equities.

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Today’s Disruptive Global Economic Trends

Disruptive trends are in place in the world today which are changing the social and economic experience for virtually all people everywhere. This week let’s identify a few of these primary shifts in mass behavior, not to judge the moral integrity or economic feasibility of these developments, for a sufficient number of policymakers with sufficient power and wealth have collectively determined to pursue, and ultimately implement these changes: they are going to happen. Rather, let’s simply acknowledge the trends and begin considering the financial implications of each.

Let’s face it, robots are incomparably more productive at accomplishing repetitive tasks than humans, and in today’s highly inflationary environment, productivity is paramount. Robots don’t get sick or need sleep or rest, and they don’t require benefits or over-time pay. While robotics benefits shareholders and corporate balance sheets, it threatens the human jobs it can potentially displace. Does that include yours? Might the displacement of employees caused by the advent of robotics introduce a universal basic income in America, and with it widespread dependence on government for basic subsistence? How exposed is your private wealth to such a development?

The perception that recent climate variation is caused directly and exclusively by human behavior has invigorated a powerful trend towards the development of renewable energies, including financial penalties on companies emitting an excess of “greenhouse gases”, but financial bonuses to those with the means of purchasing “carbon credits”. The (too) early abandonment of oil and gas holdings in this long transition from fossil fuels to renewable energies may have created a substantial investment opportunity short-term for the oil dinosaur, but this may ultimately be the biggest economic disruption in world history to date.

“Smart cars” were the first step towards autonomous, electric vehicles, powered by modern battery technology. I recently read America’s “car fleet cycle” runs 15+years, and that only 50% of today’s car owners intend to buy electric, so this, too, is a multi-decade trend. But might gasoline surcharges be applied, and a special license issued for gas purchases, to accelerate the trend?

Blockchain technology provides investors a new “store of value”, and allows for transactions to occur faster, cheaper, and without counter-party risk, benefits the rich are not ignoring.

The emergence of Asia is the final trend I’ll mention today, and the chart below says it all.1

 

 

 

These are some of the disruptive trends that should be on the radar of investors today. Think about it, Shaun.

1      https://howmuch.net/articles/trade-timelapse-usa-china

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

Shaun Scott No Comments

China’s ‘Evergrande’ Invigorates a Stock Sell-Off

The S&P 500’s ongoing 18 month run without a 5% setback is in jeopardy, courtesy of Chinese real estate firm, Evergrande. The company is vulnerable to defaulting on an $80 billion loan payment due Thursday, should the CCP refuse to bail it out, and fear of contagion Monday delivered the U.S. averages their biggest daily decline since May.
1
Warren Buffet once said, “Only when the tide goes out (credit market tightens) do you see who’s been swimming naked”; the Lehman-like failure of behemoth, Evergrande, could be the catalyst of such a tightening. What does this situation mean for the markets going forward, and what are investors to do?

A healthy market advancement involves the indices periodically stooping to their respective 200 day moving averages, and occasionally “correcting” with declines between 10%-20%. These are important adjustments which keep valuations ‘in-check’ and hold speculators accountable, but have been absent this market since March, 2020.2 Further evidence the present market is a dangerous bubble which departed economic reality long ago is the fact America has for over a decade suffered more than $1 of new debt for every $1 of economic growth produced. A gardener who spends $5 on fertilizer to produce $4 worth of vegetables year after year would be dealt with expeditiously by a free market, yet it’s essentially what our government is, and has been, doing. The bull market in stocks is built on the foundation of money-printing and interest rate suppression, and requires both for a continuation. Proof of this assertion is the fact 25% of every corporation in America today is a “Zombie”, failing to produce sufficient revenue to meet interest payments on existing debt, and surviving only by borrowing more money at artificially low rates in an artificially ‘loose’ lending environment.

As bad as all that sounds, these disturbing facts do not mean the market party must end today. The stock market has been searching for a reason to correct, and Evergrande, along with the formality of a debt-ceiling debate, and possible Fed tapering, have finally provided a few. The euphoric sentiment which accompanies major market peaks briefly appeared in the first quarter, but subsequent bearish sentiment from institutional money managers suggests the party may yet continue. When every available investor is “all in” on stocks and “wildly bullish”, the lingering bear market will charge, but that’s not the case today. I expect the present setback in stocks will once again prove a “buy the dip” opportunity for investors starved of income and desperate for growth.

Pay no attention to the “China bashing” you’re hearing on TV; the Evergrande debacle will by no means deter, or even slow, China’s global economic domination. Look for evidence of this in the coming blog.

Think about it, Shaun.

1 Bloomberg, “Evergrande’s Total Liabilities Swell To Over $300 Billion”, August 31, 2021

[https://www.bloomberg.com/news/articles/2021-09-01/evergrande-s-falling-debt-masks-dues-swelling-over-300-billion][0]

2 CNBC, “Market’s record price action is mimicking late 1999 and it could spark a 10% to 20% correction, long-term bull Julian Emanuel warns”, August 30, 2021

[https://www.cnbc.com/2021/08/30/market-is-mimicking-1999-it-could-spark-10percent-to-20percent-correction-btig.html][1]

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The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial. The economic forecasts set forth in this commentary may not develop as predicted.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.