Macro Environment

As of May 30th, 2020, unemployment is at 14.7%. That alone is terrifying. The Great Depression, universally accepted as the worst financial time in the last hundred years, saw unemployment levels just shy of 25%. Predictions for May put the country at ~20%. 

Based on polling numbers, around 35% of small businesses said they would not be able to survive a 3 month closure, which is where we are now.

Tensions with China are beginning to heat up again.

Oil prices recently went negative as storage for the commodity became scarce against a backdrop of excess supply sparked by a price war between Saudi Arabia and Russia.

It's an election year in a bitterly divided country with accusations of voting fraud, election tampering, etc. already floating. 

There are LITERAL riots in the streets this weekend over police brutality. 

Point being, the macro environment isn't just volatile. It's a gigantic cocoon of potential energy waiting to explode and realize its kinetic butterfly-ness.

Any ONE of these things has the potential to crash a market.

Risk/Reward Picture

While it's not quite as skewed as it was early February, there is still considerably more downside risk than upside reward in the market.

Because markets tend to trend up, we are more likely to find new highs, but there is a tremendous amount of downside risk inherent in the numbers in the current market.

• Upside likely potential - 10-15% (back up to prior highs)
• Downside likely risk - 25+% (back down to prior lows)

Order Flows

March 2020 saw a massive inflow of capital into the equity markets with the caveat that it came OUT of the credit markets. This is a SHIFT from the bond market to the stock market.

MORE money is now long the market than BEFORE this prior crash! That adds MORE exposure to an already frothy and dangerous market.

• Money has moved INTO the stock market
• Money has moved OUT of the bond market

Cash Needs

Because of the current business environment, there's a strong FEAR of a cash shortage (if small businesses continue shutting down involuntarily, businesses owners [i.e. INDIVIDUAL INVESTORS] will tap whatever cash they have by SELLING assets.)

This can put tremendous pressure on the markets.

• Small business owners need capital
  • They sell assets
  • Everything gets sold (bonds, gold, stocks, etc.)

So what causes the next market crash?

Any of the above things along with any number of known or unknown unknowns (black swans) could tank this market.

• Small business owners need capital
  • They sell assets
  • Everything gets sold (bonds, gold, stocks, etc.)
• Snowball effect
  • Algorithmic (computer) trading selling into weakness
  • Behavioral finance causes selling against more selling
• Any one of the other macro risks above could kick off EITHER of these.

Are you prepared?

Is your portfolio ready for a crumbling market? Are your assets hedged and/or protected? Do you have the ability to take advantage of opportunities as they arise? If the answer to ANY of those questions is "no," we would like to hear from you.

Believe it or not, there are a hundred different ways to take advantage of a bear market. Let us explain them to you!