There are times to be Bold and times to be Cautious. Everything associated with the US Stock Market is distorted! The Stock Market has reached all time record highs, but valuations seem to be overly stretched with historically precarious P/E ratios of over 30+. Current Corporate Profits are suspect due to the liberal use of Non-GAAP accounting procedures which give enormous flexibility to Earnings. In addition, Dividends have been paid with Debt rather than Profits and the use of debt is so pervasive that Margin Debt used to leverage stock purchases is now also at Historic all-time levels and will compound and multiply any downturn in prices. Further, Central Banks have for 10 years, relentlessly pushed the Global Stock and Bond Markets higher, but now are attempting to shrink their balance sheets. The Fed is starting to sell $10 Billion a month for the 4th Quarter of 2017 and will be increasing every quarter through 2018 resulting in $510 Billion of liquidity withdrawal. Removing the constant purchasing of Equities may introduce Selling Pressure creating the unwanted opposite effect.
Trees do not grow to the sky and cycles eventually turn. There comes a time to take profits and re-distribute assets to safer allocations. In December of 2007, Charles Nenner recommended cashing out of the Stock Market and remained out until after March of 2009 avoiding the horrific sell off. He has again recommended to be out of Equities since July 1, 2017 and recommends only “Small Units” that can be rented for a portion of assets. Bill Gross who was known as the Bond King because of his stature with PIMCO, has stated he does not like Stocks and does not like Bonds believing both asset classes are extremely overvalued and risky. Mr Gross recommended Real Assets such as Gold and Real Estate in August of 2016. Real Assets versus Financial Assets are now inverse to Financials having declined for several years; they now appear to have bottomed, but have not yet turned up.
As shown on the chart above, a new Commodity Cycle is due to appear. There are many reasons for an increase in prices; a declining US Dollar would be a good pick. Nonetheless, these cycles come with regularity and are inverse to the Stock and Bond Markets. As copper, iron ore, gold, lumber, and land increase, typically, stocks and bonds decline as higher commodity prices are the harbinger to higher interest rates and inflation.
To be Prudent, consider an exit strategy for any precipitous decline in the Markets or Economy. Should the Commodity Cycle begin, the building components of Single Family homes typically thrive causing Capital Appreciation in addition to the consistent monthly Cash Flow and Income. Due to the Hurricane damage in Houston and Florida, Maricopa County in Arizona should be considered as a prime market for investment.
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