Editor's Note: We're sharing this Money Map Report with our Members today because, later this afternoon, Janet Yellen and the Fed are likely to try and sell investors on a rally. That's going to be a market "event," but we believe investors will get superior returns over the long run, no matter what happens, with the strategy Keith is about to share…
The markets began this week in a foul mood. Ostensibly, the story is about oil dropping further and dragging stocks along for the ride.
But you and I both know that's not true.
As I noted on FOX Business Network Monday, the real issue here is leverage. Traders are simply taking matters into their own hands and thinning the markets out because the Fed hasn't. To be very blunt, they're doing the Fed's dirty work.
That leaves the Fed a day late… and several trillion dollars short.
I suspect Team Yellen is going to come out with another mealy-mouth statement this afternoon that's intended to jawbone a rally into being.
If that's what it takes, then I say good!
But we have to go into this prepared, with our eyes wide open…
The Fed Is Downplaying a Critical Relationship
Research suggests that every 6% drop in household net worth translates into a corresponding drop in consumer spending. Unless that improves, the numbers suggest a $150 billion drop in consumption that translates into 1% right off the top when it comes to GDP.
Yellen's tried to paint this relationship as "transitory" or insignificant since she took office, arguing that a) the "data" points to a recovery and b) that market swings are largely irrelevant to monetary policy.
The only problem is that spending is a very real influence:
- Personal savings rates have risen to 5.6% from 4.8%, which was their average in 2013 and 2014, according to Reuters, which tells us that consumers place a higher priority on repairing their finances than accumulating more stuff.
- Retail sales fell over the holidays, which suggests that consumers are not happy to open their wallets even when they're in a "festive" mood. Things are so bad that Wal-Mart Stores Inc. (NYSE: WMT) is closing 269 stores globally, 154 of which are located in the United States. And one-third of America shops there every week.
- Real estate ownership has flat-lined.
- Household net worth is flat or in decline.
- Wage growth is non-existent in most industries.
- These are the lowest workforce participation rates in generations.
The smoke signals are clearly for softer markets.
Where does that leave us?
In a very promising spot, actually…
Don't Walk Away from the Gains on the Table
I know the markets are tough right now. I get that – there are millions of investors who are rightfully concerned about their portfolios, their investments, and frankly, their financial future.
Don't lose sight of the bigger picture here, though, and, if at all possible, stay in the game. In the low-rate regime the Fed continues to inflict on us, the markets remain the single most powerful wealth-creation tool at your disposal. And that means you can't ignore them in any mission to protect and grow your retirement.
Here's a closer look at what I mean…
There have been 16,425 days since 1970. Missing out on just 0.2% of the very best days – just 33 in total – means that you would have thrown away a staggering 1,539% in potential returns. That's a drop from 1,910% to just 371%, according to Michael Batnick, director of research at Ritholtz Wealth Management.
If you're tempted to believe that 371% still sounds okay, you're not alone.
Unfortunately, that translates into 3.4% a year. One-month T-bills returned 4.9% a year over the same time frame. Incidentally, a three-month U.S. Treasury pays only 0.28% at the moment.
Most investors shun volatility thinking it leads to terrible results, but in reality volatility is exactly what you want because that's when the biggest returns happen.
Big down days like those we've been living through recently tend to cluster with big up days. In other words, they tend to run together.
That's why it's good to be buying when volatility rises. Not selling – unless it's in keeping with stop-loss discipline.
Every one of the six Unstoppable Trends we follow will get stronger in the next few months:
No government in the world can derail them, and no central banker can stop these forces driving the world's biggest developments. No matter how bad things get, the combination of Unstoppable Trends, strong balance sheets, "must-have companies," and proven risk management remains the path to profits.
And a buying opportunity, even if there's more selling yet to come.
The triple-digit gains my Money Map Report subscribers have seen in companies like Raytheon Co. (NYSE: RTN), Becton, Dickinson and Co. (NYSE: BDX), and American Water Works Co. (NYSE: AWK) are just the start.
Keith and his team are putting the finishing touches on two new Money Map Report recommendations right now that are perfect for this volatile market. To learn how to get them just as soon as they're available, click here. You'll also get our latest investor briefing on how to be one of the winners of Congress' Social Security reform, which goes into effect in less than five months.
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.