Incidentally, if history didn’t have such a bad habit of repeating itself, I might think of going all-in on the market. Why not? The S&P 500 is performing well, the NASDAQ and Dow are on the uptrend, and everything looks peachy keen on the surface. But then I remembered the law of physics, lest we forget the infamous Law of Gravity: that which goes up must come down.
The Law of Physics Meets Wall Street
Here’s a noteworthy caveat:
“When the market goes up, it climbs steadily. But when it takes a downturn, brother, you better have a parachute.”
Leading up to the market crash in late 1929, virtually everyone wanted to jump aboard the train to riches. Out of short-sighted greed, many people invested all their cash reserves into stocks or, even worse, leveraged their home equity. Even riskier, many brokers convinced people to buy stocks on margin, never revealing the consequences if things didn’t pan out. How could anything possibly go wrong? Nevertheless, that train kept chugging along faster and faster… Until one day, it derailed and caused the Great Depression. In the aftermath, people lost everything or waited decades to recover.
The stock market crash of 1987, now famously known as Black Monday, delivered a fatal blow of a near drop of 23% of the Dow in a single day. While the catalyst for this market crash involved different dynamics than the crash of 1929, the commonality is that even Wall Street cannot defy the law of gravity indefinitely. Before Monday, October 19, 1987, such an unprecedented plunge in the market was considered highly improbable, if not impossible. The additional lesson from the 1987 crash is that a financial earthquake can rock the market unexpectedly without forewarning.
Right before the 2008 financial crisis, running up to the brink of collapse, all but a few seasoned Wall Street veterans and economists saw the writing on the wall. Lenders were giving out loans like candy, and the market was soaring, leaving many blindsided. The catalyst was greed, investor mania, and massive corruption in rotten-to-the-core lending markets. However, the population—at large—bought into the sentiment that everything was going up, up, and up —until the law of gravity struck its vengeance.
Are you starting to see the correlation between the catalysts of the worst market crashes in history?
Metaphorically speaking, this blog article serves as a smoke signal to investors. What you’re currently witnessing in the stock market is the last leg up. I don’t have a crystal ball, so this event could happen in Q4 of 2024 or stretch into early to mid-2025. Regardless, it would behoove you to have a Plan B and an exit strategy pronto!
The Gold Factor
During times of high interest rates, gold typically has an inverse correlation. When interest rates are high, it’s more attractive for investors to buy bonds. When interest rates are low, investors tend to lean towards gold as a hedge and store of wealth. However, amidst the rate-hiking cycle of the past 18 months, a strange anomaly occurred. Gold went on a run to an all-time high.
The contrarians might say this was a fluke, but I beg to differ when considering what has happened geopolitically over the past 18 months. The Saudis recently announced they are now open to accepting currencies other than the USD (petrodollar) to purchase oil. Although they haven’t vowed off USD entirely, they are still open to trade transactions outside Swift.
I’ve been writing about this- for what seems like forever. And there are two key smoke signals here that I want to identify. First, the days of the petrodollar are over. Second, I said that when gold goes on a run like you’ve never seen… that will herald the beginning of the end of the U.S. dollar as the world’s reserve currency. Gold has indeed hit an all-time high, but it hasn’t nearly gone on the run I anticipate- where the first stop might be $3k, then $5k before going nuclear.
Suppose you want to prepare yourself for an economic catastrophe—own gold. Sprott Physical Gold Trust (PHYS) is a viable option if holding physical bullion in a depository doesn’t appeal to you. Additionally, own silver in whatever form you feel most comfortable with.
Exciting New Way To Own Gold
An exciting choice for owning both gold and silver is Kinesis Money, a platform operating outside traditional banking. It offers fully allocated ownership of gold and silver, which can be instantly traded and spent via blockchain technology. Through a desktop and mobile application, Kinesis provides an avenue to buy and sell physical gold using the U.S. dollar, the euro, the Swiss franc, and other currencies on the platform.
Kinesis Gold (KAU) is fully insured and independently audited gold stored in vaults across multiple regions. 1 KAU represents full title ownership of one gram of gold bullion. All trading is conducted through Kinesis’s proprietary platform, requiring you to open a free Kinesis account to purchase KAU.
Kinesis Silver (KAG), which represents ownership of one ounce of silver bullion, equals 31.2 grams. Through regional card programs, Kinesis provides real-world utility to the gold and silver in your Kinesis Money account, enabling you to make purchases with your precious metals holdings. As you make a card purchase for something priced in dollars, your gold (KAU) will be converted into dollars to fund the transaction at the moment of purchase.
Another suggestion (aside from owning precious metals) is to own stock in top industry-leading companies- in emerging markets like China and Eurasia. Position yourself and your investment portfolio for a worst-case scenario. The market will likely keep going up for another quarter or two, but after that- you better know when to run for the exit door!
Final Thoughts…
The moral of this story is threefold. Economic disasters can strike out of the blue; therefore, it’s in your best interest to always have an investment strategy that protects your wealth. Since you cannot keep your entire portfolio in defensive positions, at least have an exit strategy in place in case of a market downturn.
Second, don’t forget the law of physics. When stocks become grossly overvalued, the force of gravity will only get stronger as everything comes crashing down to earth. While there are many reasons that stocks become overvalued, in the end, earnings growth does not keep up with price gains. A great example of this point is Nvidia, a poster child. To continue growing at breakneck speed, it will have to defy the laws of physics in that incremental improvement in AI requires wildly disproportionate needs such as energy.
Third, take heed when you witness financial markets going up, up, and up. Sorry, folks, but the law of physics doesn’t make an exception for Wall Street, the economy, or your investment account. What goes up will undoubtedly come down. Thinking you can ride the train to riches forever is a fool’s errand. Instead, be wise and mindful of your market timing.
Learn more about Kinesis Money – check out their website for more info!
https://go.kinesis.money/l/563572/2024-07-17/39tbpk
