Bloomberg’s Lisa Abramowicz tweeted, “More than half (51%) of institutions overseeing $7 trillion surveyed by BlackRock said they planned to reduce exposure to equities this year. The proportion was 35% last year and 29% in 2017.”
John Mauldin of Mauldin Economics calls 2019, “The Year of Living Dangerously.” The Federal Reserve is “our top risk,” writes Mauldin. “The Fed is raising rates and reversing its quantitative easing at the same time. They should be doing one or the other, not both. I think the global balance sheet reduction is especially harmful.”
The Fed has been draining liquidity, the fuel driving the stock market. David Rosenberg of Gluskin Sheff & Associates, Inc. made the point last year, “this bull market and the S&P 500 would have stopped out at 1800, not 2800. The excess is central bank liquidity. The central banks added 1000 points. Not fundamentals. Central bank liquidity.” For now, Fed Chair Jerome Powell has stopped draining, responding to President Trump’s critcism. However, positive economic news will change Powell’s mind.
The stock market is about to receive a further 30 to 50 percent hair cut according to Stephanie Pomboy, president of MacroMavens, which provides macroeconomic research and commentary to the institutional investment community. Pomboy, appearing on Fox Business on January 2nd, expects negative earnings reports to drive the markets lower.
Retirees can’t afford to take another stock market beating during their golden years. Unfortunately, banks are still being stingy with their CD and money market rates. Government bill and bond rates are still low with junk bond and the leveraged loan markets being train wrecks.
Imagine if you held Pacific Gas & Electric (PG&E) bonds believing the huge California utility couldn’t possibly go broke. However, the company declared bankruptcy after the state’s deadly wildfires have put the company’s finances in peril.
Just days before PG&E filed bankruptcy, Bloomberg reported, “PG&E Corp. shares plunged and bonds dropped to all-time lows on Tuesday after S&P Global Ratings slashed the electric company’s credit grades to the middle of the junk spectrum from investment grade, citing its limited options for managing wildfire liabilities. More cuts may come, it said. Fitch and Moody’s Investors Service still rate the company at investment grade.”
Investors need to look locally to achieve reasonable returns with a commensurate amount of risk. Not many people have the knowledge to understand a publicly traded company’s financial statements, which are complicated and written in such as way as to make the reader sleepy and disinterested.
Investing in first trust deeds on properties in Southern Nevada is a profitable alternative to Wall Street’s wild ride. The returns are double digit and your first trust deed position gives you the opportunity to foreclose and obtain the property if the borrower defaults. If PG&E defaults, its bond owners will have to sit by silently and hope for the best in court.
When the private money broker sends you a loan opportunity, you can jump in your car and look at the property (collateral) for yourself. If you have a friend who is in the real estate business, you can show the deal to them and obtain an expert third party opinion.
You may know, or have heard of, the borrower. If not, again, you may have a friend who knows the borrower and their track record.
It is equally important to know the loan broker (or loan officer) who is offering you the investment. How long has he or she lived in Las Vegas? How long has he or she been making loans? Did he or she live through the 2008 real estate crash? Ask what the loan originator learned from the experience and whether the loan officer is licensed by the state.
There are opportunities to earn 10-12 percent on your money while taking less risk than having your money in the publicly-traded stock and bond markets. Your money will earn more and you will sleep sounder.