B (31:34)
That you feel stack well. I love it, I love it, I love it. Now I don't want to reach, I don't want dividends that are so high yielding that something's fishy. What I want are very solid companies with good balance sheets to pay dividends that we reach reinvest constantly. That is nirvana for me and that's the way I would love to invest if I could own individual stocks. The 2008 financial crisis gave us a once in a lifetime bear market with true systemic risk. But you have to remember that's the exception, not the rule. Much more money ahead in this special show. I'm giving you a flash crash survival guide with some takeaways from the crashes of 2010 and 2015 and the best ways to profit from market pullbacks. Then I'm answering all your Bernie questions with my colleague Jeff Marks. So stay with Kramer. In tonight's special survival guide edition of Bitmoney, we're discussing how to deal with brutal sell offs, specifically how to defend against them, take advantage of them even, because as you know, I like to be opportunistic. Now I've told you not to be glib about the systemic risk sell offs that involve pension collapse of the US Economy. But those are easy to spot because it'll seem like the world's falling apart like in 2008. You don't need me for that. But now I want to help you game out the other less dangerous kind of crash, the mechanical kind caused by a broken market in a healthy economy. Now, the best way to deal with these sudden declines is to recognize that there is, there's a bottoming process, one you can spot. So what should you do? I have a solution that has worked in even the toughest of times. I like to look at something I call the accidental high yielders. I should actually call them a H wise on the show. Those are stocks of companies that are doing fine, have good balance sheets. That's very important, by the way. But their share prices have fallen so low that their dividends are starting to give you an unbelievable return. That's right, good yield. How do you spot these? When you look at the historic level of dividend yields you've gotten from certain stocks, you also want to look at the yield in the 10 year Treasury. If a stock typically yields a 2%, suddenly is paying double that because of a market wide decline, then you're probably looking at an accidentally high yield as long as the stock's been going down for no particular reason. And that's why when you're hunting for these dividend stocks, you should focus on companies that are particularly sensitive to swings in the economy that are very good balance sheets. Second, if the yield level isn't giving you opportunities, I'd use a mechanical sell off to pick some stocks that you like. You can begin buying them using what's known as wide scales. That's why I recommended during the 2010 flash rush, I told people to use wide scales. Pick one of your best stocks out there, Premier stock, and buy some using limit orders only. Don't use market orders because you might end up getting terrible prices. Frankly, you should never use market orders because it's especially stupid during a crunch. I like this method because if the market does come right back as it did after the two Flash crashes, you've picked up some terrific merchandise at amazing prices. Then you can flip the stocks for big profits or you can hold on to them for the long haul. But take a look. I actually demonstrated exactly how this works during an appearance on TV. When the flash crash happened in 2010, P&G is now down 25%. That's true. If that stock is there, you just go and buy it. That can't be there. That is not a real stock. When I looked at it was a 61. I'm not that interested in it. It's at 47. Well, that's a different security entirely. So what you have to do though, you have to use limit orders because Procter just jumped seven points that I said I liked it at 49. So I mean, you know, you got to be careful. Market was down 900 points, we're now down 6. Remember, I buy 50,049. I now flip it at 59. I just made. I just paid 500 GS. Yeah, that's the crazy is what I'm talking about. And by the way, a lot of people ended up doing that proctor trade. I've been thanked for millions of. I mean like a dozen times. People thank you. Remember, the limit order advice really does ring true. Now we've talked about meltdowns and true systemic risk and gut churning moves that are untethered from the economy. But how about the garden variety pullbacks we experience all the time? What causes these declines? Well, there are usually a bunch of different varieties. First you've got the sell offs caused by the Federal Reserve. That's probably the most frequent reason for stock dumping. There's a reason that businesses, business media constantly talks about the Fed. When the economy is weak, weakening. It's the Federal Reserve's job to try to restore growth, which they did with a plum when Covid shut down the economy in 2020. As long as the Fed's printing money, almost every decline is a viable one. Just fact life. It's been like that since I got the business. But when the economy strengthening, it perhaps starts to overheat. Well, the Fed has a different mandate, stamping out inflation. When the Fed declared war on inflation in late 2021, the market started rolling over with the highest risk groups getting eviscerated. Now nobody wants to Persistently high inflation. Those of you who missed the 70s and 80s now know from the post Covid experience. But we also don't want the Fed to break the economy like it did when it raised rates 17 straight times in lockstep going into the Great Recession. It caused the Great Recession. Now there are plenty of times when the Fed's tightening, but the stock market didn't get crushed because the economy didn't get crushed. And that's how we got the incredible bull market in the first half of 2023. However, whenever the Fed tightens, some prognosticators will come out of the woodwork to tell you the market will crash or at least take a very big header. That's inevitable. So when you hear these comments, please don't panic. Fed rate hikes don't necessarily lead to crashes. In fact, I've seen plenty that do next to nothing. But there are rational reasons why the stock market deserves to go down when the Fed tightens, and I'm not ignoring them. First, stocks are only one of the are only one of the assets available to individuals and institutions. For instance, there's gold, there's real estate, of course, the market bonds. I like gold as a safe haven. I believe that every person should hold some gold, preferably bullion. But if not, then the gold is a hedge against economic chaos. Real estate, actual real estate can be a good hedge, but most people don't have the money to invest in that kind of real estate. The big institutions can buy. Now we do have real estate investment trusts, but they're not as reliable proxy for real estate as a whole. Finally, we have bonds as an investment alternative. And bonds are the source of the problem when the Fed tightens. You see it yourself when short term Treasuries give you more than 5% risk free. Lots of people cash out of the stock market and park their money in Treasuries. Hey listen, it's not a bad return. As the Fed tightens bonds, particularly short term pieces of paper, become more competitive with stocks. You'll notice as the Fed jacks up rates, high yielding dividend stocks are going to be among the worst performers because suddenly they got some serious competition from fixed income. So please be careful. These dividend stocks of safe havens when you're dealing with a sell off caused by the Fed, they're very different from accidental high yielders that can spring back when the Fed starts tightening. The second reason why stocks can go down legitimately when the Fed raises rates because the Fed isn't perfect. They've raised rates when they should have stood pat or even been cutting rates fast because the economy was already slowing rapidly. Although in recent years Jay Powell has been much more responsible about not pushing us off a cliff than some of the previous Fed chiefs. Here's the bottom line. Garden variety pullbacks can be gained as long as there's no systemic risk involved. But sell offs in the wake of the Fed raising rates, those are trickier, although they can lead to decent opportunities as long as you stay away from the high yields that become less attractive than the Fed tightens. And stick with the accidentally high yielders that might just give you the delicious bounce when the Fed's Door on tight Matt Money will be back after the break. Tonight we're talking sell offs specifically during this block. What causes garden variety pullbacks? Many times the problem is indeed the Fed as I mentioned before the break, but sometimes there are other issues that are driving the carnage. For starters, there's the issue of margin. Margin. As a former hedge fund guy, I'm well aware that there are many times when money managers borrow more cash than they should. So when the stock market goes down, they don't have the capital to meet the margin clerk's demands. These kinds of margin induced declines have repeatedly happened, including say February of 2018. That was a good one. When funds that had borrowed money to bet against stock market volatility and so called VIX got their heads handed to them. They were short the VIX betting the market would remain calm. Stupid. And at the same time they bought the S&P 500 using borrowed money. Again, real stupid. When the stock market fell, these managers were forced to dump their S&P 500 positions that raise capital and unwind their trades. There were so many managers doing this at once that their selling ended up causing some severe market wide loss. These margin induced breakdowns often occur after the market's down for several days in a row. That's why I'm often lucky to tell you to be aggressive in the first few days of a big cloud decline. Because there will always be margin clerks against these managers who buy buy stock with borrowed money and that doesn't happen immediately. They got to have to keep chopping. How do you spot these margin call driven declines? You know what? I use the clock. Margin clerks don't want their firms to be on the hook for overstating individuals, for overstretched individuals, or for hedge funds. They want to get out before the night. So margin clerks demand the collateral be put up, raise some cash or they sell you out of your positions without your say so. I always consider the margin Clark the Butcher and the butchering occurs between 1 and 2 o'. Clock. If the selling runs its course by 2:45pm Yes, I find it's actually that specific. Then I think you have a decent chance to start buying safety stocks, the kinds of stocks that tend not to need the economy to be strong to advance. Like the health cares. You might also want to buy the secular growth plays that work in any environment. Mega cap stocks I thought. Look, I talk about the them all the time, especially members of the CNBC investing club because we like to own the best ones for the travel trust. What else can create viable opportunities Sell us from Overseas? I cannot tell you how often I've heard commentators who scare the bejesus out of us because of imported worries, say from Greece or Cyprus, Turkey, Venezuela, Mexico, countless other places. I always tell you to ask yourself, do any of these woes truly impact the stocks of the American companies in your portfolio? Do they really make you want to pay dramatically less for an individual US stock? Usually the answer is no. Unfortunately though, you can't just start buying stocks hand over fist into an overseas driven sell off. You should always assume there are people who don't understand how unimportant these worries are in the vast scheme of things. And of course those people are going to panic and sell after you would have thought they would have known better. That's why these international declines often last for three days. Again, the best way to figure out if they're done is to watch the clock as the sellers usually need to be margined out against their will if there's going to be a bottom. Another kind of sell off the IPO related decline. Remember, at the end of the day, stock markets are markets first and foremost and markets are controlled by supply and demand. So if the bankers start rolling out lots of new IPOs and then these companies sell more shares via secondary offerings, you could end up in a situation where there's just much too much supply and not enough demand. By the way, we saw this near the end of 2021 after we've been drowned under the weight of 600 odd IPOs and SPAC deals. Oh man, don't buy, don't buy. My suggestion? Avoid the blast zone, the area where most of the WHO IPO concentrated, and focus on the stocks that are down due to collateral damage, especially ones with yield protection. Sometimes we get declines triggered by multiple simultaneous earnings shortfalls. Oh, you got to be real nimble with these if you want to buy stocks after an Earnings induced pullback. Isolate the sectors where the shortfalls are occurring and avoid them like the plague. There's no reason to stick your neck out here. Instead, buy unrelated stocks that have been hit by the much broader selling via the s and PBE 500 futures. Then there's the trickiest kind of risk, one that's truly Tolstoy Ask political risk. I often find this risk tremendously overblown. Whether it's because of strife between parties or trade policies, or even all out war risk. I am not a political guy and I hate talking about this stuff on air and off air. But with every stock you own, you need to ask, does this company have direct earnings risk when it comes to Washington? If not, then you've got nothing to worry about. However, if you own something that's directly impacted by say a trade dispute with China or a government shutdown, well, it could turn into a house of pain. I know political risk is enticingly negative because, well, there are so many pundits everywhere wading in and giving their two cents. I think these guys want to scare you. My suggestion? Tune it all out, please. Instead, look for companies that have nothing to do with the political fray even as their stocks may be brought down by it. Like we see every time there's a debt ceiling stick standoff. I can't tell you how Many times since 1979 I've seen politics used as a reason to sell stocks. Now they may be a reason to sell some stocks, but rarely is anything in Washington been enough to sell everything. Here's the bottom line. There are all sorts of sell offs, but unless they involve systemic risk, which is increasingly rare like in 2007, 2009, they're going to prove to be buying opportunities long term. You just need to recognize what's driving the decline. No. Note the signs that it might be subsiding and then take action. To buy, not sell. And never to panic. Stick with Creme.
