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The Federal Reserve has trained investors like Pavlov’s dogs to buy every single dip, even the little ones. That strategy works until it doesn’t anymore. At some point, low prices will give way to even lower prices. Have we finally reached that point?
For one thing, I wouldn’t recommend going into financial chat rooms and message boards for guidance on this. Every time the stock market goes up a little bit, every social-media guru is bullish. When the market goes down, they’re bearish. It’s literally the same people flip-flopping with every uptick and downtick of the indexes.
Here’s what they won’t tell you: while the S&P 500 is tripping the -7% circuit breaker and the Securities and Exchange Commission has to halt stock trading, gold is holding its own. It’s one of the bright spots on a dour, sour day as the big banks, tech high flyers, and other bull-market leaders are now crumbling.
I do feel some sympathy for the folks who bought at the top. Today I read that the Robinhood app, host to many beginners trading their very first stocks, went down for the second Monday in a row. That’s got to be frustrating, and more than a little scary, for traders who didn’t understand that the market moves in both directions.
More generally, it could be argued that commodities are ridiculously cheap. The Bloomberg Commodity Index chart above shows that commodities are the cheapest they’ve been in over 30 years. It also shows that commodities prices are capable of going much higher.
Most retail investors don’t have the desire to open up a futures account and start trading wheat or lean hogs or anything like that. It’s much easier to open a stock-trading account and buy shares of gold and silver companies. Still, be sure to pick the best companies; you don’t want to just start buying randomly.
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Another class of investments to add to your watch list is cannabis stocks. The coronavirus has opened the door to some prime buying opportunities in pot stocks. There are profitable cannabis companies out there with their stocks trading near 52-week lows. The global movement towards decriminalization might be slowed down by the virus, but it won’t be stopped.
Cryptocurrencies are also trading at bargain-basement prices. Bitcoin, the mother ship of crypto coins, recently hit $5,000. The coronavirus caused a price dip as panicky traders sold practically everything to raise cash. There wasn’t anything intrinsically wrong with the blockchain. If you believe in blockchain technology, then a reasonably sized crypto position might make sense for you.
Courtesy: MSCI Inc., Refinitiv Datastream
One asset class that is not a bargain right now is government bonds. The chart above shows how sharply bond prices have increased when compared to stocks. If you buy government-issued bonds now, you’ll pay a high price and get a low yield – and when I say “low,” I mean zero or close to it.
Plus, believe it or not, those rock-bottom yields can go even lower. Germany and Japan have proven that central banks can and will push interest rates below zero. There’s really nothing stopping the U.S. Federal Reserve from doing the exact same thing.
So, comparatively speaking, stocks could be viewed as attractively priced. Certainly not all stocks are trading below their intrinsic value, so you’ll want to watch for the essential valuation metrics.
For example, with gold companies, you’ll want to look for the all-in sustaining cost. That’s the estimated cost to mine an ounce of gold. When a mining company’s all-in sustaining cost is low, that’s a good sign. You can also keep track of the company’s NAV, or net asset value. That’s a measurement of the company’s assets minus the liabilities, often expressed on a per-share basis.
I started this off with a common saying and now I’ll end with one: there’s always a bargain somewhere. With Crush the Street’s help, you can identify the best bargains on the market and use them to build wealth to last a lifetime.
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