INVESTING & WEALTH

Stock Market Investing: Why I’m More Defensive Right Now

After years of aggressive investing, I’m focusing more on protection than growth.

Photo by Sortter on Unsplash

In this article, I want to share with you what I am doing in the stock markets. What I am doing right now is different than what I would normally be doing. Okay, so I argued that the stock market is just going to keep going up, and it’s by design. Okay,

How did I know this? How did I know the market was going to keep going up? And my explanation was very simple. Anyone can get it. Everyone can get it. The root of the problem is political greed and corruption. Like, that’s the problem at the bottom of all this.

So, because of political greed and corruption, the politicians don’t care about the fiscal budgets for the governments. And this has been resulting in and will continue to result in persistent government overspending and fiscal deficits.

And this has caused a debt crisis for the federal government.

In effect, the government has incurred more debt than it can ever pay back. So I just want you to know, okay, the government is at a crossroads with two options ahead.

So, option A, the government can default on its debts, which means that they just tell everyone that they borrowed money from, you know, “Sorry, guys, like we can’t pay you back.” Of course, if they did that, that would cause chaos.

Or they can go with option B. Option B would be the government printing a ton of money. I mean, we’re talking about trillions of dollars.

And by doing so, they can pay back the people who lent them money.

You know, print money, prevent the disaster, politicians and central bankers are going to keep their jobs, the stock market’s going to go up, and then deal with inflation later, or let the next politician deal with the inflation problem.

And when they ramp up inflation by printing money, prices are going to go up. Value is not going to go up, but prices are going to go up.

Okay, so what prices? What prices are going to go up?

And I would say just about everything. I mean, food prices, home prices, vehicle prices, insurance prices, as you name it.

Also, stocks, precious metals, and financial assets are going to go up in price as well. They’re not going to be excluded from inflation.

So, in a nutshell, what I’m saying is that they’re going to support inflation, and everything’s going to go up even more in the long run. So, we are in an everything bubble.

So, in my opinion, it’s in everyone’s best interest to stay invested in the markets and ride the inflation wave up. And if you don’t, then you’re going to get left behind.

But now, there’s a dilemma.

Okay, why? Why is there a dilemma?

Because in the long run, it’s obvious, at least to me, that the government cannot repay its debts. So, they’re going to use inflation to monetize the debts.

Source : Design by Author

What do I mean by monetizing the debts?

I’ll give you a quick example. So, let’s just say that you make $100,000 a year, and you buy your home for whatever price, but you take a $300,000 mortgage to buy the home.

Let’s say over the next few years, inflation gets out of control, the price of a home, you know, on average, goes up by 10x, but your income goes up by 10x as well because of inflation.

So now, instead of you making $100,000 a year, you make $1 million a year. And now the $300,000 mortgage that you took out for your home, that’s going to look very easy for you to pay back, right?

That makes sense.

You’re inflating the debt away. So, you’re paying off those old debts with basically devalued dollars or inflated dollars.

So, it’s going to be the same thing with the US government and its debts.

They’re using inflation and money printing to their advantage to more easily pay back old debts.

Okay, now going back to the dilemma.

I mean, the Federal Reserve, the central bankers, the government are going to continue to print money, they’re going to continue to inflate, we’re in an everything bubble, prices are going to continue to go up, right? In the long run.

But in the short run, we are facing a potential energy crisis because of the Strait of Hormuz, and that may throw us into a quick and nasty recession and a violent stock market crash.

So, the dilemma is that we know that the market’s going to continue going up in the long run. However, in the short run, I mean, we may be in for a nasty dip.

And this could be an amazing buying opportunity if the market does crash.

This is how I’m interpreting the situation.

If oil spikes to 150, 180, maybe even 200 or more per barrel, then, in my opinion, it’s going to cause a recession, and the stock market will drop if there’s no government intervention.

However, as I told you, our governments cannot afford a recession, or at least a prolonged one.

There will be government intervention, there will be stimulus, and I don’t expect the government and the Federal Reserve to dilly-dally around.

So, in other words, they’re going to be on top of this so quickly at just the threat of recession, and they’re going to be ready to stimulate.

And I believe that this is going to lead to a V-shape recovery in the stock market if it does crash.

With that being said, given that’s my interpretation of the situation, what are my options here?

I’d say that I have three. You know, these are the three best options.

The first thing is to just stay invested and do nothing.

The thinking is that long-term, the market’s going to just go up, right?

So if that’s the case, then who cares what’s going to happen in the short run, right? You know, if the market crashes, just take the hit and just weather the storm because we’re looking at the long-term picture, right?

Okay, option number two is that it’s basically like trying to time the market. You sell your stocks now, you hope for a stock market crash, and you hope to rebuy at a lower price.

The plan is like if you’re going to go this route, the plan is that you’re going to try to time the market perfectly, sell at a good time, and rebuy at a better price.

And I’ll just tell you, most likely it’s not going to go according to plan.

You know, personally, I am not even thinking about writing this route. I believe that timing the market is just wishful thinking.

But, you know what? That’s just me. Like, don’t let me discourage you. Like, if you think you can and you’re willing to give it a shot to try to time the market perfectly and come out ahead, you know, be my guest. Like, don’t let me stop you.

Okay, so the third option is that you can stay invested and hedge, hedge your positions.

I am personally choosing to go this route. Like, I am choosing to stay invested but hedge my portfolio to play defensively.

And given the current environment with the Strait of Hormuz, I truly believe that what I’m doing is the most responsible approach.

You know, it’s not guaranteed that oil prices are going to spike, but I’ll tell you that it’s not far-fetched at all, in my opinion, given the circumstances.

Now, I just want to say that my plan is very simple.

If the price of oil spikes and crashes the stock markets, then I’m just going to sell my oil for a big gain, and then use that money to buy stocks and precious metals, and assets that have fallen from the crash.

You just buy low and sell high, right?

Now, normally, I wouldn’t do this with my portfolio. I normally don’t carry a big hedge, but I’m truly concerned about the Strait of Hormuz right now. Like, that’s just my honest opinion.

Now, another thing that I’m doing differently is that I am accumulating a cash position.

Normally, I would have the vast majority of my money invested, about 90 to 100% of my portfolio invested, because of the great melt-up. Like, I don’t want to lose to inflation, right?

But, right now, at least in the short term, we are facing some unique circumstances where having a larger-than-normal cash position is, you know, completely understandable, at least to me.

But, of course, the purpose of having a larger cash position right now would be to buy the dip if that opportunity presents itself.

I’ve sold some non-essential positions for a gain. I’ve not reinvested dividends. I’ve sold some covered calls.

So, right now, I’m basically stockpiling cash at the moment.

And I got, of course, I have the hedges to produce cash if the market takes a turn for the worse.

So, right now, I’m basically preparing for a bad scenario.

I’m not at 30% cash yet, but, you know, ideally that’s where I’m trying to head to.

And I just want to say this just so you know, to clarify. So, going back to this in terms of our options, I don’t think it would be bad to just do nothing and weather the storm if you’re a long-term investor.

Like, I think that’s perfectly fine.

Personally, I just want to be able to capitalize on the buying opportunity if there is a stock market crash, like if it happens in the upcoming months ahead.

Thanks For Reading: )

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