Some of the brightest minds in investing are bullish on 2020 — here’s why
“Cash is trash.”
That’s from billionaire hedge fund investor, Ray Dalio, speaking at Davos yesterday.
Dalio is echoing a message that’s similar to that of many of our InvestorPlace analysts. Namely, while caution is always needed in investing, 2020 is not a year you want to miss in the investment markets.
But wait — what about the inverted yield curve? What about slowing growth in China? What about election uncertainty and the growing wealth gap?
While all of these factors are significant and should be considered, the bottom-line takeaway is they’re unlikely to take down the market in 2020.
In other words, it’s not time to sit on the sidelines.
Today, let’s dig into this so that you don’t prematurely move to the “trash” of “cash.”
***It was back in August that a Digest article profiled Ray Dalio, the billionaire founder of the investment group, Bridgewater
You may recognize Dalio’s name, as he famously predicted the Global Financial Crisis in 2017. Beyond that, Dalio has a history of nailing market calls, which, in part, is why he now has $150 billion of assets under management.
In that issue, we highlighted Dalio’s belief that we’re nearing a “paradigm shift” in the markets. Dalio believes that we’re in the late stages of our current paradigm — marked by this epic bull we’ve been enjoying. What he believes comes next won’t be quite as rosy.
From Dalio:
I think that it is highly likely that sometime in the next few years, 1) central banks will run out of stimulant to boost the markets and the economy when the economy is weak, and 2) there will be an enormous amount of debt and non-debt liabilities (e.g., pension and healthcare) that will increasingly be coming due and won’t be able to be funded with assets.
Now, if you’re like me, you read this and think “bearish, time to batten down the hatches.”
And that’s what makes Dalio’s bullish comments yesterday so interesting — while also pointing toward a fascinating reality of investing …
Many times, the major market changes take far longer to play out than anticipated.
Is this bull market going to end? Yes, one day it will. And will whatever comes next probably be painful for investors who aren’t prepared? Most likely, yes.
But based upon the economic and market data we have today, that market shift is not imminent.
Here’s Dalio’s blunt summation of this point:
Cash is trash … Get out of cash … What you have to do is have a well-diversified portfolio. You have to be global, and you have to have balance …
Now, Dalio isn’t the only headline-name investor who believes it’s not time to get out of stocks.
Yesterday, billionaire investor Paul Tudor Jones said that our current stock market is reminiscent of the late-stage bull market of 1999.
When asked if that meant he believes investors should step aside to avoid a blow-up like what happened in March of 2000, Jones said:
Not really. The train has got a long, long way to go if you think about it.
***So, what’s behind the pessimism that stocks can’t sustain more gains?
Well, in many ways, it’s an innate fear that’s simply hardwired into us.
Our own Matt McCall, editor of Investment Opportunities, spoke to this point on his podcast just last week.
From Matt:
When things are good, you worry. You think “wow, this bull market is going to end.” The problem with that thinking is, that thinking began nine years ago after the market rallied off that major low we had in 2007/2008.
Well, it’s been ten years since then, and we’re still going. So, that mentality really would have screwed you up. You would have missed out on one of the greatest bull markets in the history of bull markets.
… I don’t want you to feel this way that things are going to end anytime soon. Because I truly believe they’re not. I believe that we’re setting up for what is going to be the Roaring 2020s …
***Part of the challenge is differentiating between fears and facts
The most prevalent fear of today is that, somehow, the age of this bull market precipitates its end.
But the facts don’t support that conclusion.
Age does not drive, nor detract from, the sustainability of any market direction — whether up, down, or sideways.
What drives a market are sentiment, fundamentals, and momentum. We just referenced the sentiment aspect with the help of Matt McCall. As to fundamentals, here’s our own Louis Navellier, from an update to subscribers last week:
Numbers don’t lie, and the data on the housing market, jobs, and consumer spending are all very supportive of further gains in 2020.
Neil George echoed this last week, beginning his update the following way:
The S&P 500 Index has touched new highs, hitting 3,288.13 on Monday. These are heady levels to be sure, but are there rational reasons for further gains?
The short answer is, yes, there are.
Neil then walked through a series of valuation metrics, leading to the conclusion that the S&P has further upside.
And just yesterday, Neil continued his analysis by focusing on the strength of the U.S. consumer and gains in sales and earnings, noting “the compiled estimates done by Bloomberg show the potential of gains for both sales and earnings over the four quarters of 2020.”
On that note, as I write Wednesday morning, more than 10% of S&P 500 companies have posted their latest quarterly results. Of those companies, 75% have posted better-than-forecast earnings.
Finally, on “momentum,” John Jagerson and Wade Hansen, editors of Strategic Trader, commented on this market’s bullish momentum in their update last week:
We believe in the power of trends in the stock market.
We like that the strong bullish trend that started with a bullish breakout last October has continued into January.
Just two weeks ago in our Weekly Update, we talked about the trend being your friend. We pointed out that if the trend has been incredibly bullish for the past decade, we shouldn’t expect it to be any different at the start of this new decade …
The S&P 500 continues to reach new all-time highs, and we don’t need to know where the index is going to end 2020 to take advantage of the current bullish momentum.
***Still not sure how to position yourself? You don’t have to be all-in or all-out
For some reason, many investors approach the markets with a binary mindset. They’re either “all” or “nothing.”
Unfortunately, this results in a need to nail your entry- and exit-timing with near-perfect accuracy.
Who can do that consistently?
The easier path that results in more peace is simply tailoring your market exposure to match your investment temperament and financial goals.
The truth is that cash is not “trash” when holding it results in your internal peace, as well as your increased confidence that you can “let ride” the money that you do have exposed to stocks.
The challenge is simply finding your own personal balance between “fear of missing out” and “fear of having too much on the line.”
Take some time today to consider where this point is for you, and if you’re being overly conservative, then keep in mind the reality that many of the smartest thinkers in investing — our own analysts included — believe this bull has further to run.
Have a good evening,
Jeff Remsburg
