The Bottom is Near - Time to Buy
Now the fun part starts...
Everyone wants to know how to invest in this environment.
Whether its the hundreds of thousands of people in my social media audience, the thousands of people in our investing community, my friends, and my family, everyone wants clarity on what to do.
But the fact is, nobody knows for sure. And the hard truth is any forecast made right now is completely unreliable. As billionaire hedge fund manager Howard Marks said in a Bloomberg interview on Friday:
"We normally assume the future will look mostly like the past. And usually it works because the world doesn't change that much. But the world economy and world order has been shook up like a snow globe by the events of the last week. And today, whatever your forecast may be, you have to acknowledge the probability your right is lower than ever. Because the probability we know what the future will look like is lower than ever."
Any forecast right now is unreliable because the rules of the game are changing. That means we need to be cautious, tactical, and patient—only deploying capital into high-conviction, long-term positions with a minimum one year time horizon.
We did this on Friday and Monday during two of the worst sessions I've seen in my career. We bought the fear. It takes balls to do that.
And we're going to do it again today.
Reliable Bottom Signals are Piling Up
As Howard Marks said, you can't really make reliable forecasts right now.
Too much is changing and there's little clarity as to where we're headed. A few massively important questions currently unanswered are:
Is the US government trying to unseat the US dollar as the global reserve currency?
Is China going to dump their $1 trillion in US Treasuries to tank the bond market?
Will the Federal Reserve cave to political pressure and cut rates this year?
One of these questions had been whether the Trump administration was trying to crash stocks on purpose. We posed this question back on March 11 in this newsletter and again multiple times over subsequent weeks in newsletters, podcasts, and videos. And as that reality became more likely, we made defensive portfolio changes before the rest of the market realized what was coming.
Obviously, I wish I would've taken more decisive action and sold more. But by taking profits on some of the best trades of 2023 and 2024 - Bitcoin, Ethereum, Microsoft, etc. - we raised our cash position to 20% prior to this crash. And with defensives like SPDR Gold Shares (GLD), Invesco DB Agriculture Fund (DBA), and our Treasury holdings, we have a ton of ammo to deploy here.
And while we will never time the bottom perfectly, I am seeing encouraging signs. The first is the VIX is still massively elevated and in what I've been calling the "spike zone." That doesn’t mean these positions won’t go down more in the near-term, we are not trying to call a bottom but instead are using reliable signals (like VIX spikes) to our advantage. I imagine many of these buys will likely look really good 6-12 months from now as long-term S&P 500 returns are triple the average when buying with the VIX at these levels.
And today, we have another bottom signal: stocks rallying on bad news. China retaliated last night with 84% tariffs on US goods. And while futures were getting smoked when I went to bed last night, I was surprised to see futures rallying this morning pre-market.
Stocks try and "discount" what will happen in the future. And when the worst news has already been "discounted" or "priced-in" you get rallies on bad news. We saw this in October 2022 when stocks rallied after a hotter-than-expected CPI report, which marked the bottom of that bear market.
Again, nobody knows for sure where the bottom is. I could be wrong and we could have more downside. But I am comfortable nibbling more on long-term positions today based on my analysis and 15 years of investing experience.
And now, just as I'm about to publish this, we have this announcement from the Trump administration leading to a furious rally in stocks:
We are going to add to the following positions in light of this news: