The Markets

Some wild thoughts about a wild stock market. My stock picks next week in Part 2.

A reminder: “This is not investment advice; If you follow my ideas and lose your shirt, don’t even think about suing me, because you wouldn’t get anything, because I would have lost my shirt too. This is just what I would do and what I recommend to my children, based on my own personal experience, unprofessional opinions and philosophy.”

amazing volatility

In the last week we saw the stock markets go crazy over nervousness about the president’s tariffs. The only time I remember any such wild swings - up, down, up, down - predominantly down, down, down, around 20% in a week - was the one-day downer on ‘Black Monday’, Oct.19th 1987. I happened to be in Seattle that day to get a passport to go on a mission trip to India. I was sitting in a cafe having some lunch, and watching the TV news. The Dow dropped 22.6% that day, and I sat there watching with my mouth open. Monday and Tuesday this week our volatility continued - a history-making 2000 point swing for 2 days in a row. (however, that’s only 5%/day; not 22%) But that record was broken today, Wednesday the 9th, with a 2,900 point gain in the Dow, or 7.5%!

missed most of the rise in 2023 and 2024

For over a year, I’ve sort of held my breath, hardly daring to think the market could go still higher (but it did), and my main liquid portfolio was gradually building up cash, in the form of short term T-bills.

Percentage-wise, it got to about 72% cash and 28% equities, as I had been selling stocks that seemed most vulnerable to a slowdown. I thought that was quite reasonable, with stocks at all time highs, and with T-bills paying about 5% interest. (the Dow and the Nasdaq did peak in December and the S&P 500 on Feb. 19^th.)

things have changed

During the wild swings in the stock market in recent days, since the tariff actions, I started looking for opportunities to pick up some stocks at lower prices. I had already started cashing in my T-bills and a savings CD and sending the cash to my brokerage account with Schwab. It turned out to be good timing – not because I’m any smarter than anybody else – it was either just luck, or the Lord was answering my ongoing prayer to help me leave an inheritance for my grandchildren.

“A good person leaves an inheritance for their children’s children,” Proverbs 13:2

The election changed a lot of things.

We still have the burden of over $36 trillion in debt and its $1 trillion interest cost at current rates.

We still have inflation, which doesn’t look like it’s going away, although it has eased off a little.

The good news is we no longer have, or are in the process of greatly lessening, the drags on the economy from terrible energy policies and over regulation of just about everything. So I’m optimistic about the future, once the President’s policies have a chance to start working.

Complete reversal

Why am I doing a 180 degree switcheroo – from cash to looking for opportunities in the market, bringing T-bill money into my stock broker account as the T-bills mature and pay off?

I’ll explain my thinking.

the risk of holding cash

I now see holding cash as a greater risk than buying conservative, dividend paying stocks. Cash was never a long term plan, with a guaranteed loss of real value of at least 2%/year, and probably more like 3-4%, because of inflation, which of course is an invisible tax.

But that’s a risk everyone knows about.

What a lot of people haven’t thought about is the risk that the value of the dollar could drop a lot more than 3-4%, and not gradually, but overnight!

This sounds a little far out, but President Trump might be seriously considering devaluing the dollar. He’s obviously not afraid of taking drastic measures to accomplish his goals – what he’s been doing with his EOs (executive orders) has been truly amazing and almost everyone is surprised at how far he’s been willing to go.

I know there have been at least 139 lawsuits challenging his EOs at last count, but don’t think for one minute that the president didn’t know that was coming, and don’t forget that he’s had 4 years to plan for this, amid constant court battles, with the best lawyers money can buy. He is a seasoned combat veteran when it comes to defending against lawfare attacks. I’m pretty sure he’ll win a very high percent of these cases at the supreme court level, and get most of his agenda through.

devaluation?

So you’re wondering why might he devalue the dollar? First, it would be a powerful step towards paying down the debt. It would be a reset. For example, a 50% devaluation would be the same as cutting the debt in half.

We are on the brink of a debt crisis. Mark Tepper, CEO of Strategic Wealth Management, said on ‘Mornings with Maria’ Tuesday 4/8/25 “Of our $36 Trillion debt, $9 Trillion has to be refinanced almost immediately, and $50 Trillion has to be refinanced over the next 3 years, at these higher interest rates.”

Since debts are denominated in dollars, a devaluation would not only help our government to pay its debts, it would help all debtors. If you have a mortgage, or have a big, burdensome balance on your credit card, a devaluation would be a great help to you too. On the other side of the coin, lenders would be hurt. The bank’s mortgages would lose value overnight. (I wouldn’t shed any tears for the bankers - one month I forgot to pay the balance on my card on time, and they charged me 26%! This highway robbery makes it almost impossible for the poor to ever get out of the hole. BTW, the president has mentioned he would like to see a law make 10% the max.)

Second, it would help solve the balance of trade, somewhat like raising tariffs. Devaluation would cheapen the dollar, and with a cheaper dollar, it would be easier for other countries to buy our products, so our exports would increase, and at the same time, our imports would decrease because we would have to pay more for foreign products because it would take more of our cheaper dollars. Bingo - a better trade balance - which is just what the president wants.

Note: If you’re just starting out in stocks, Fidelity has no minimum. Not only that, but they even allow you to buy partial shares! Here’s the scoop:

so, what are the implications for our investments?

Next week we’ll focus on the answer to that question, and look at a whole spectrum of investments that would be worth considering. For today, here’s one example of what could happen if the dollar was devalued:

gold

see also “Golden Insurance”

First, and most obvious, the price of gold and silver and many commodities would go up proportionately, and overnight. Take gold as an example. Gold is real. It has value. It can’t be inflated. Its value is independent of currency price. Its real value certainly doesn’t change overnight. So if the value of the dollar was cut 50%, the price of gold would likely double the same day. I see it’s already close to another all time high – about $3000/oz, and a 50% devaluation of the dollar would take gold up to $6000/oz. I’ve read from some experts that most of the gold buying is from central bankers, which is suspicious in itself – what do they know that we don’t? Also, BTW, you have to wonder why the president has mentioned wanting to audit Fort Knox.

You can buy gold coins and keep them in your safe deposit box or bury them in the back forty, or you can even entrust them to Monetary Metals and get about 4% interest, in gold, when they lease your gold to jewelers insured one year at a time. Or you can invest in gold miner stocks, or a gold miner ETF like GDX, or an ETF that tracks the price of gold itself, like GLD. My personal pick for a gold miner stock is Newmont Mining (NEM) which is paying a dividend of 2.6% currently.

In normal times, commodities and real estate have always been considered great inflation hedges. Even with 2-5% inflation, dollars lose their value over time, and over the years, it really adds up.

At 4% inflation, $1000 will only be worth $6,648 in 10 years.

For you math wizards, using the formula FV=PV(1-r)^n, at 4% inflation, FV (future value) = PV (present value) X (1-r)^n, or 1-r to the nth power. So with r=4% and n=10 years, $1000 today will only be worth $1000X(1.00-.04)^10 = $1000X(0.96)^10 = (approx.) $6,648.

So as you can see, holding cash for the long term is a losing proposition whether we actually have a devaluation or not.

caveats

Even though commodities are generally a good hedge against inflation, commodity prices are also volatile, sensitive to economic cycles and also fluctuations in international currency values, so caution and timing are important. Gold went down from a high of $2780 in March 1980 to a low of $476 in March of 2001. That was a 21 year decline! Not fun. Real estate went through a rare crash in 2007-2008.

Don’t forget - I’m not an investment adviser. Besides, things have been changing very quickly. This is just what I’m personally doing with my own investments and a glimpse of what my thinking is.

Next week, we’ll really get into it - thoughts and stock picks in mining, energy, gas, coal, nuclear, infrastructure, utilities, consumer staples, foreign stock index ETFs, crypto, and stocks I wouldn’t touch with a 10 foot pole.