Editor's Note:It's getting rough out there in the markets, with no shortage of threats to your hard-earned cash. But Bill's going to show you the same thing he showed his paid-up Private Briefing readers - how to spot trouble before it starts eating your returns. Here he is...
My wife, Robin, likes to tease me that I'm a creature of habit.
She's right, of course (as she usually is).
This is especially true with books or movies that I really like. There are a handful of flicks that I've watched 20 times during my life. And there are books that I've read an equal number of times.
One of those "favorite" books is "Baa Baa Black Sheep," the autobiography of U.S. Marine Corps ace Gregory "Pappy" Boyington. Pappy got his nickname (he was also known as "Gramps") because he was commanding a squadron of 20-somethings at the advanced age of 31 - ancient for a combat pilot at the time.
Boyington, who'd also flown for Claire Chennault's American Volunteer Group (AVG), more popularly known as the Flying Tigers, shot down somewhere between 22 and 28 planes (depending on the account), making him a quadruple ace. He spent time as a POW. And he won the Congressional Medal of Honor.
Boyington was flamboyant. And he was controversial. But he was also a difference-maker when America needed such personalities. And he was a guy I wish I'd had the chance to meet.
We want to be a "difference-maker" for you.
I was thinking about Boyington this past weekend because of a story I remember him telling in an interview, or in his book, about one of the dogfights he and his "Black Sheep" (VMF-214) fought on one of their missions. Fighter planes - American Corsairs and, most likely, Japanese Zeroes - were wheeling all over the sky.
The No. 1 lesson they told fighter pilots back then was to never forget to keep looking around. And in this dogfight, Boyington said, you almost had to be able to look everywhere all at once - just to survive.
The "cardinal sin" of aerial combat is a miscue known as "letting your head get up and locked" - meaning you're not constantly scanning... you're not trying to spot any and all possible threats. Forget that key rule, and commit that cardinal sin in a dogfight, and you risk getting shot down - "getting flamed," as fighter pilots used to say.
I thought about that story quite a lot this weekend - and for good reason: As investors, we're in a market dogfight right now, with threats zooming and wheeling all around us. More than ever, we need to be hypervigilant. We want to knock off a few victories - winning trades of our own.
And the key to all of that - to surviving and thriving in the freewheeling, rough-and-tumble stock markets of today - is to avoid being flamed because we weren't paying attention.
We're going to help you keep that from happening.
Then we're going to help you get a few victories of your own.
Confidence builders. And wealth builders.
Let me show you what I mean.
The Biggest Threats We Face
If we're honest about what we face now - and conduct a real "threat assessment" - we have a lot of things to watch.
And I'm not just talking about stocks that are at or near record highs.
Let's look at some of the threats we're facing right now - and then come back and talk about what you can do to avoid calamity... and to be opportunistic yourself.
Threat No. 1 - The Trump Rally: The Nasdaq Composite Index is at a record high above 6,000 - and has zoomed more than 17% since the Nov. 8 presidential election. The Dow Jones Industrial Average is up more than 14%. At some point, there will be a correction - indeed, it'll be healthy. But whether it's a correction, or something bigger, and how long it lasts will be partly determined by what triggers it. That makes it something to watch for.
Threat No. 2 - The "Rotation": You see this all the time with the markets - where the current leaders (in a sector, index, asset class, or geographic market) give way to new leaders. U.S. stocks have been the leaders for some time now - especially given the messes we see in markets abroad. Indeed, if you've invested in European stocks (as an asset class) over the past decade, your return has been... zero. But laggards eventually become leaders, making it worth your while to be ahead of the curve. And the time for Europe could be now, says my good friend Shawn Langlois, a columnist for MarketWatch. The last 44 times U.S. stocks outperformed their European brethren by as much as they are now, European stocks went on to outperform U.S. shares for the next 10 years.
At the end of the day, how stocks - and even our economy - fare has as much to do with psychology and emotion as anything else.
Threat No. 3 - The Saga of the Bottom Half: The Great Recession has been over for more than seven years. But there's still a hangover - one that can't be cured with tomato juice and pepper. A brand-new New York Federal Reserve forecast says that, sometime this year, total household debt will reach its previous record peak of $12.68 trillion - a level last seen in third-quarter 2008, during the aforementioned financial morass (and we were almost there at year-end 2016, when debt hit $12.58 trillion). This time around it's not housing that has folks in hock - but rather auto loans and student debt. Doesn't matter, debt is debt - and even though assets are greater now than before, those liabilities are still a drag on the economy. What's really worrisome is that half of all Americans just aren't making the cut. Roughly 50% of Americans won't be able to deal with a major financial emergency. Nearly one in three don't even have $500 they can put their hands on if something bad happens, while about one in five (19%) have nothing at all, concludes a survey by HomeServe USA, a home-repair service. So if the market rolls over - or if there's some sort of economic "shock" to the financial system - those poor folks will contribute to a stumble in U.S. growth.
Threat No. 4 - The "I Don't Feel Good" Effect: If you tune into FOX Business or CNBC, or read The Wall Street Journal, you see all these analyst commentaries, earnings reports, political commentaries, and pundit pieces. It's all "noise." At the end of the day, how stocks - and even our economy - fare has as much to do with psychology and emotion as anything else. When folks feel upbeat about their current circumstances, and about their futures, they spend and invest - which means stock prices advance and the economy grows. But when those same folks are wary, fearful, or angry, they stuff their wallets back in their pockets and stop spending. At this stage of the economic cycle - and at this stage of a market rally - it's the "real people" who are providing the fuel. A full 70% of economic growth stems from consumer spending. And retail investors are serving as the "rally extenders," fueling record stock prices. But "real people" are worried. A new survey by insurance carrier MetLife Inc. (NYSE: MET) found that 49% of employees are "concerned, anxious, or fearful about their current financial well-being." And the latest consumer-confidence survey, released Friday, found that consumers were generally optimistic during April - though not as upbeat as Wall Street economists had expected. That's a bit concerning - especially since another report released that same day found that the U.S. economy "unexpectedly" grew at its slowest pace in three years as consumer spending "appeared to falter," CNBC reported. When you're counting on debt-ridden, worried-about-the-future, no-emergency-cash Americans, it's not really a stunner to see them pulling back on spending.
Threat No. 5 - The United States of Schism: Let me be clear here - and my colleagues will back me up on this - I'm not a political guy. In fact, I'm here to help you folks make money. So any comments I make about America's political environment are made as an observer who's trying to project "cause/effect" - and not a guy who's advocating one side or the other. The fact is, America is about as split as I've seen it in my 55 years. And that "schism" has a couple of effects. One, it makes everybody mad. The right is mad that the folks on the left can't "see it for how it really is." And the folks on the left feel the same way about their "rivals" on the right. But beyond merely raising everyone's blood pressure by a measurable amount, it also leaves folks feeling... well, uneasy. And that means they're much more likely to engage in knee-jerk reaction - should stocks, bonds, gold, oil, or any of the other closely watched markets roll over.
Threat No. 6 - The China/Russia/North Korea Syndrome: Remember, at the outset, my mention of loving movies? Well, back in the 1970s, one of Hollywood's alarmist flicks targeting commercial nuclear power was "The China Syndrome." The title was hijacked and, for a long time, was morphed into all sorts of warnings about China, its politics, its nuclear aspirations, and even its economic emergence. Today, China, Russia, and North Korea have morphed into an interconnected "trifecta" syndrome - with each and all of those three countries standing as both security threats and economic threats to America's market and economic expansions. And by "threat," I mean that the increasingly militant policies and actions of these countries could result in an "international incident" that could trigger a stock market correction... or crash. We've covered it all here. China is trying to cordon off the South China Sea by building artificial islands and arming them to the teeth. Both Beijing and Moscow are making aggressive aerial and seagoing "feints" against key U.S. ally Japan. Russia has been doing the same with the United States - its subs and spy ships are running close to our coasts as they did back in the Cold War, and the U.S. Air Force is having to scramble fighters to intercept Russian Tupolev Tu-95 Bear bombers as they repeatedly approach U.S. air space. Both China and Russia are testing "Wedge Weapons" (officially known as hypersonic glide vehicles) - a maneuverable, nuclear-tipped strategic strike weapon, with the full intention of fielding them by decade's end. And North Korea pushes ahead with its nuclear tests and ballistic-missile launches - overtly threatening a U.S. strike, with Beijing apparently doing little to thwart the growing threat. An environment like this is like a West Coast forest during a prolonged summer drought - kindling actively waiting for a spark. Depending on what follows, that spark could ignite a correction - or a crash - with burn-stocks-to-the-ground potential.
Threat No. 7 - Everything I Haven't Mentioned: When it comes to this kind of analysis, I'm a reasonably smart guy (again, Robin is smarter). I haven't mentioned everything I see to be concerned about. And I'll also be the first to admit that I'm not seeing all the threats. Indeed, just as investors get jazzed by "upside surprises" in corporate sales or profits, they react very badly to "negative surprises." That's a fact - and the more unexpected, the more extreme the sell-off that results. That's why it's so crucial to be vigilant. The fighter pilots who made it through combat were mostly those who excelled at scanning for threats. The same is true of successful investors - keep your head "on a swivel" and don't "lock onto" any one thing.
There's a twin benefit to this kind of caution, this kind of vigilance.
There's the "defensive" benefit: It's much less likely that some unforeseen threat will "slip up on your six" - cut in behind you, totally unseen - and shoot you down.
But there's also an "offensive" - opportunistic - benefit: You'll find hefty profit plays, "targets of opportunity," that few others see.
In Part 2 of this report that I'll issue to my Private Briefing readers next week - I'll circle back and talk about the tactics and opportunities you need to be looking for.
Have a great weekend.
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Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press.