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Fortunes get made in bear markets

Jun 30, 2022

Good morning!

Futures are in the tank again as I type.

Like that’s a surprise given that the Fed’s “preferred” inflation measure (core CPI) is near the highest rise in 40 years.

Excuse me for having a Denis Leary moment … but what the fruit loops does that even mean?

Americans would “prefer” not to have any inflation whatsoever and wouldn’t if a) the Fed hadn’t been so blasted arrogant with the whole transitory thing and b) the President would reverse asinine policies that are crippling this country, even temporarily.

Personally, I’d prefer to see a stock market going higher because wealth is being created. I’d prefer to see millions of hard-working people earning a decent wage, not living paycheck to paycheck.

Things are so bad that 401ks are becoming 201ks. I heard that energy companies laid off 50 Congressmen. Seems like even Motel Six won’t leave the light on anymore for cryin’ out loud!

But I digress and, evidently need some more coffee!

Thankfully, all is NOT lost.

In fact, fortunes get made during bear markets!

Here’s my playbook.

When in doubt, zoom out

It’s very easy to get wrapped up in short-term noise simply because that’s human nature. The real strength (and success) comes from learning to ignore that and focus on the longer-term perspective.

It’s hard, it’s not fun and it’s easier said than done but that does not change the message!

Take a deep breath, print this chart out and tape it to your mirror or even your forehead if you must!

This WILL pass!

Why the VIX dropped as the SPY flopped

I’m getting a lot of emails this morning … why did the VIX drop; I thought it was supposed to go up when the SP500 falls??!!

That’s a common rule of thumb but the VIX and the SP500 move in the same direction a lot more than you’d think for reasons most people don’t understand.

First, the VIX measures expected annualized volatility of the next 30 days. The SP500 reflects forward expectations, often a year or more ahead. So, there’s a mismatch that shows up every now and then.

Second, a falling VIX does not mean that “fear” is decreasing like people think and scores of talking heads parrot. It simply means that options related to the SP500 are being priced less aggressively and that implied volatility is decreasing as a result.

Third, a falling VIX together with falling SP500 suggests there are some major funds getting liquidated. Sellers don’t need insurance which is what the VIX measures … downside protection through SP 500 options markets.

You can see that in the increasingly tight daily pricing ranges I’ve been tweeting about for the past few weeks.

Why you should care: A falling VIX and falling prices also suggest that the markets are building up energy for a big move. The situation is a lot like shaking a can of Coke before you open it … the results are entirely predictable.

3 Things to do immediately

First, focus on stocks you will kick yourself in the rear if you don’t own’em 5 years from now. Best companies only! Anything else is a risk you don’t need.

Second, hedge. I’ve been talking about this since the beginning of the year and, honestly, if you haven’t done this yet, that’s on you. Horse to water and all that jazz … but if you want to save what you have left, here’s something that can help: Your 5 Minute Guide to Hedging.

Third, go hunting. Everybody has a list of companies they wish they’d bought the first time around. So start nibbling.

Key Thought: The markets will rip higher when things become even “less bad” and you want to at least have a toe in the water. 85%+ of today’s markets are computerized and that means you must be in the fight when it starts or risk missing most of the move.

If you’re an income investor, this helps with reinvesting and also boosts your returns over time because buying shares for less boosts yield.

There are only 2 Chinese EV makers worth a ___

Beijing just changed policies (again) to further stimulate demand by increasing tax breaks for first-time EV buyers. Naturally, that’ll be great for Chinese EV makers or so goes the thinking.

Here’s the thing: Chinese EV stocks are complete crap for the most part. But there are two I actually like because they have global ambitions and are following Toyota’s groundbreaking playbook from the 1970s.

The first is NIO. And the second is something you’ll find in the latest issue of One Bar Ahead™ which, not coincidentally, publishes tomorrow exclusively for paid subscribers! (Get access now).

Strong businesses grow in weak times

LMT, one of my favourite defense contractors is a great example. The company is low-beta, high yield and has one of the strongest brand portfolios on the planet. Oh, and it’s all but recession-proof this time around.

I hope you own shares!

Everyone in the One Bar Ahead™ Family who’s following along as directed got in last November for a 41.82% advantage over the S&P500. And, as you might imagine, that’s helping take the sting out of otherwise tough markets.

There will be more profits created in the next 10 years than the last 50 combined. My job is to help you find 'em, then get your money there first by sharing the strategies and tactics that have helped successful investors and traders go from zero to millions, perhaps even billions. All in plain English beginners will understand and experts will appreciate.

Thanks for being here!