The “Crisis” Is Here
The U.S. economy has seen one of the greatest periods of growth ever under the Trump administration.
But the ride might be coming to an end soon.
Last month, the U.S. Commerce Department revised fourth quarter GDP growth down from 2.6% to 2.2%. The change stems from weakness in consumer spending, investment, and housing — all of which came in lower than initially thought.
Economists are saying a lag in growth in foreign markets like China and Europe, as well as Washington's trade policies, likely contributed to dampening GDP growth here in the States.
But did we really expect the party to last forever?
No. Of course not. Booms like these don't last forever.
And let's face the facts: A lot of the growth was built on rhetoric. Trump “ra ra ra”-ed people up, told them what they wanted to hear, and they got busy.
It was a successful pep rally.
Now, I'm not going to blame Trump for hyping up the economy or his contributions to it. He's a politician. That's what they do. But there's no reason for us to expect — or bet our money on — the rhetoric being able to continue propelling the economy forever. That's just not going to happen.
Realistically, the boom has to end with a readjustment.
The boom is called good business, prosperity, and upswing. Its unavoidable aftermath, the readjustment of conditions to the real data of the market, is called crisis, slump, bad business, depression. People rebel against the insight that the disturbing element is to be seen in the malinvestment and the overconsumption of the boom period and that such an artificially induced boom is doomed. They are looking for the philosophers' stone to make it last.
— Ludwig von Mises, Human Action: A Treatise on Economics (1949)
Way back when I was first learning the stock market, one of the many things my mentor repeated to me many times was this:
Trees don’t grow to the sky. Neither do stocks.
What he meant was vertical growth is great. But obviously constant vertical growth is impossible. Stocks, markets, businesses, and industries at large also need to maintain horizontal growth. And it's healthy when they do.
What I'm getting at is the recently revised GDP growth could be a screaming indicator that it's time for a readjustment.
But it's probably not the end of the world as the result of some apocalyptic market crash. We could be headed for a longer, more drawn-out cool-off. (That would be ideal, actually.) To expect a Venezuela type of situation would be foolish.
Yet that doesn't mean we're not really in a crisis right now.
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See, the modern word “crisis” is derived from the Middle English word “crise.” It was a medical term used to denote the turning point in a patient's terminal health. The “crise” was the axis at which the patient was either going to live or going to die.
While, again, we're not exactly talking about a death of the market, the recently revised GDP growth — which was pretty significant — might be the turning point, the axis, to the readjustment. So I think it's important to prepare.
Again, the boom isn't/wasn't going to last forever. Readjustment is necessary. Right now I'm looking at the most popular “recession-proof” stocks. I'm talking about stocks like Costco (NASDAQ: COST), CVS (NYSE: CVS), Dollar Tree (NASDAQ: DLTR), Walmart (NYSE: WMT) — the stocks most people automatically think of when they think “recession-proof.” These are naturally going to be the first go-to equities in any kind of readjustment.
Then there's gold.
Let me say again, I don't think we should expect some kind of disastrous breakdown of society a la Mad Max after some impending economic catastrophe. Still, it's important to hold a little gold bullion to hedge any unseen losses.
If you have as little 5% of your assets in gold bullion, you are safer than most people by a long shot. Estimates are hard to come by, but the few that are out there suggest only 1–2% of the entire U.S. population owns gold, other than in jewelry — and they really don't even own a lot of gold jewelry relative to other people around the world, particularly in places like India.
The traditional philosophy of gold ownership says you should keep 20% of your assets in gold bullion. But I want you to aim for just 5% for now.
I don't expect to see a whole lot of action from gold anytime soon. The only thing in the market I see really moving gold significantly higher right now would be that very unlikely crash. Still, we want to own the yellow metal as a bit of a hedge.
Buy a little gold bullion for yourself.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bubble and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
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