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The Fed recently raised interest rates for the third time this year.
And that begs the question…
Is it time to start worrying?
It must be. After all, popular economic theory dictates that rising rates make fixed-income investments more attractive than equities. Investors will sell stocks and buy bonds, being the rational, thoughtful folks they are all the time.
Higher interest rates also mean higher interest costs for corporations and consumers alike, forming the double whammy of lower profits and lower spendable income that will inevitably ensure the stock market tanks.
The folks on TV look pretty worried about it. So we should be as well, right?
Heck no! If you want to worry about something, there's a veritable smorgasbord of much more worrisome crap out there…
We ignited a trade war with several allies that could hit the economy pretty hard if it lasts for the foreseeable future.
We have seen lower results from key Apple suppliers that indicate we may actually see a slowdown in iPhone sales. GE is looking to sell assets at almost any price to pay down its debt and survive its current difficulties.
We have India and Pakistan hoarding almost 300 nuclear missiles ready to go, and they detest each other for sound, well-thought-out national and religious reasons.
Oh yeah, and the midterm elections are over, with the GOP keeping the Senate and the Democrats taking the House. Look for Washington to become a very shrill, loud, and obnoxious example of gridlock at its finest.
Isn't that better? We took those sissy interest rate worries and put some hair and fangs on them. When it comes to worrying, my motto is "go big or go home."
That's because I've been in this game for over three decades, and I've profited handsomely through some of the most worrisome times in the history of the United States.
So let's take a look at some of those times…
The Sky Is Never Actually Falling for Those of Us with Market-Proof Accounts
The sky may have been falling for the majority of investors during the various market downturns in recent history, but they could have profited if they had the right assets in their portfolios.
The following examples are evidence:
The 1997 Asian Financial Crisis
The first worrisome event from recent history that truly scared the hell out of everyone happened just before the dot-com bubble and started on the other side of the world.
I'm talking about the Asian financial crisis that started in 1997 and caused a market sell-off that terrified everyone at the brokerage firm where I worked.
I remember looking at my market screener on Oct. 27, 1997, as the Dow dropped a massive 7.2%. People worried the crisis would ruin Russia's forex reserves and cause the country to collapse entirely. The big tech stocks were cratering, and our margin clerk was busy for the first time in several years.
But if you were a broker like me who built market-proof accounts consisting of undervalued REITs and corporate liquidations, you were doing just fine as the rest of the investing public lost its mind.
My brokerage also had lots of cash, opening up an opportunity to buy the huge dips that came as Long-Term Capital Management LP infamously dissolved at the turn of the millennium. Closed-end funds were also hard hit, so I naturally bought stakes in the ones specializing in Russia, Mexico, and France that were at 150% to 200% discounts.
The 2001 Dot-Com Crash
Not long after, the Internet bubble burst, and I had about as much fun as you can have while sitting at a desk.
After years of ignoring the hot tech stocks and "being stupid," I was suddenly smart again. Once high-flying behemoths like McDonald's Corp. (NYSE: MCD) and Apple Inc. (Nasdaq: AAPL) plunged as much as 80%. It wasn't hard to find cheap stocks in any sector, and I had more cash than I knew what to do with since I couldn't find anything to buy before the sell-off, when everything was so stupidly expensive.
We also bought REITs on the cheap while everyone was snatching up the popular companies before the bubble burst. Of course, once the ball dropped, our REIT holdings soared as investors sought safe, high-yielding investments.
The 2008 Financial Crisis
And of course, I'd be remiss if I didn't mention the financial crisis a decade ago, which, despite its devastating effect on American families, presented one of the best value opportunities I've seen in my life.
On Dec. 5, 2006, when the market was rising to obscene levels, I wrote that, "You might be able to sell me the fact that this market is fairly priced, providing I've been drinking heavily – but undervalued, I can't see it… We have rallied almost 12% since August without a real pause of any length, and anybody who is not cautious now pretty much deserves what they get."
As you can imagine, it was not a popular opinion.
Once again, as stocks roared higher, I was hoarding cash and arbitrage trading to pay my bar tabs while other clients yelled at me for not owning the white-hot airlines and media stocks.
Just over two years later, the S&P plunged to its lowest level in more than 12 years.
In the midst of the turmoil around November 2008, I wrote, "As for the market itself, there is a fortune to be made over the next several years… I see an ever-growing list of companies that sell for less than cash in the bank. I am buying DAR, HDNG, DOW, ASH, and others like a crack addict at a rock convention."
Those four companies were Darling Ingredients Inc. (NYSE: DAR), Hardinge Inc., pre-merger Dow Chemical Co., and Ashland Global Holdings Inc. (NYSE: ASH). I held them for about three years following the recession lows and ended up selling them for several times what I originally paid.
2018 – 2019?
If my strategies through these last three crises prove anything, it's that you don't have to be a rocket scientist to make a killing during bear markets.
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Of course, as with any new market apocalypse, the general consensus is that "this one is so much worse than the last."
So, is a potential hawkish-rate market crisis looming? As I mentioned earlier, the talking heads would have you think so – but sensationalizing is basically included in their job descriptions.
Here's what you can really expect from the Fed's new policy of pushing interest rates through the roof…
This Is What the Future Holds for U.S. Markets (and Your Bank Account)
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of "Max Wealth" and Heatseekers.