3/17/2023 0 Comments Artisteer slider![]() ![]() Six former treasury secretaries, current treasury secretary Janet Yellen, numerous economists, and Moody's have all warned that a potential default of America's debt could trigger a financial catastrophe on par with the Financial Crisis of 2008-2009. Why The Debt Ceiling Showdown Could Trigger A Short But Severe December 2018 Style Correction This is why I wanted to potentially prepare my readers for what might be an exciting two to four weeks in the stock market, and allow you to potentially buy some of the world's highest quality blue chips at mouth-watering valuations. ![]() However, rapid declines can often result in strong rallies afterward, as we saw following both the 2018 plunge and the pandemic crash. This would be similar to the December 2018 downturn, which saw stocks fall 17% in 3 weeks. Most analysts and economists expect a 10% to 20% correction in 2021, with Morgan Stanley predicting a 20% downturn is the worst realistic case scenario. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.” - Benjamin GrahamĪs Ben Graham pointed out, volatility can only help the prudent long-term investor, as long as they avoid becoming forced sellers for emotional or financial reasons.Īnd that's where prudent asset allocation and portfolio risk management come in. Historically normal and healthy pullbacks and corrections are to be expected and celebrated.īasically, price fluctuations have only one significant meaning for the true investor. No one can predict exactly when downturns will happen, but stocks never go straight up forever. Stocks are both the best performing and most volatile traditional asset class in history. This idea was discussed in more depth with members of my private investing community, The Dividend Kings.Starting or adding to a position in each today is reasonable and prudent, as is setting follow-on limits to buy more should we get a December 2018 style correction. Analysts expect each to at least double in the next 5 years, and all have proven reliable income sources even during the two worst recessions in 75 years. Today MO, NNN, and NVS represent three defensive high-yield aristocrats you can buy at 2% to 24% discounts, that offer 3.9% to 7.4% very safe yields.However, it might take a 10% to 20% rapid slide in stocks to force Congress to do its job and prevent the stupidest recession in history.The good news is that the prospect of 9 million job losses and a 33% market crash wiping out $15 trillion is so horrible that it's not likely to actually happen.The biggest short-term risk is the debt ceiling drama that economists such as Moody's think could bring about another Great Recession.Today there are nine risks that could bring about a 10% to 20% correction. The 28% overvalued market is priced for nothing ever going wrong again.
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