World News – United States – Eliminate volatility, with bonds and gold – Investing Daily

By
John persinos
•
October 6, 2020
•
Stock market investment

I have been covering the news as a professional journalist since Ronald Reagan’s first term and I have never witnessed in my adult professional life a year more wild and anxious than 2020 It’s like being attached in a roller coaster and you are not allowed to descend

However, even in this upside down environment, you can still protect your portfolio and make money As I explain below, the answer lies in two asset classes: bonds and gold

Shares surged on Monday, in hopes President Trump would recover from the coronavirus and talks would lead to a new stimulus bill The Dow Jones Industrial Average rose 46,583 points (168%), the S&P 500 climbed 6,019 points (180), and tech-laden NASDAQ rose 25,747 points (232%) on Tuesday morning, when trading pre-market futures, all three indices were trading in the red as the investors digested news of Trump’s spectacular return to the White House by Walter Reed

I think investors are hoping that Trump has fully recovered and that a recovery is imminent are not supported by the facts Meanwhile, we are witnessing the disorderly birth of a new economy, with the global plague as midwife

Pandemic accelerates macroeconomic trends already underway Concrete example: collapse in demand for fossil fuels, although recently eased, has accelerated the green energy revolution

A turning point briefly occurred during intraday trading on Monday when solar and wind company NextEra Energy (NYSE: NEE) dethroned Exxon Mobil (NYSE: XOM) as the most valuable U-listed energy company based on S Yesterday, at market close, NEE’s market cap was $ 1409 billion and Exxon Mobil was $ 142.6 billion In August, the Dow pulled Exxon Mobil from its 30-stock index to replace it with the cloud solution provider Salesforce (NYSE: CRM)

The old order is dying and the transition is painful An economic renaissance awaits, next year and beyond But in the meantime, with a hugely important presidential election looming in November, you must close the hatches

The strength of the stock rally since the lows of the pandemic era at the end of March is largely due to aggressive monetary and fiscal stimulus in the US and other developed economies

The US So far, the federal government has generated around $ 4 trillion in new spending to support the economy during the worst economic downturn since the Great Depression

Government stimulus checks for individuals and business loans at the start of the pandemic helped the economy weather the worst of the recession, with growth picking up slightly in the third quarter But this aid has largely expired, the dynamics of the labor market have slowed down and companies are going bankrupt

Republicans and Democrats are deeply divided over how much further fiscal stimulus is needed If a compromise can be found, economic recovery can get back on its feet But that’s a big question mark , as ideologically driven lawmakers bicker and White House becomes petri dish for coronavirus

Throughout this uncertainty, bond markets have been used as ballast During the bear market trough in March, the Federal Reserve has launched several unprecedented measures to stabilize credit markets The Fed currently has a whopping $ 7 trillion on its balance sheet (see graph, updated last Wednesday):

By lowering rates to near zero and buying government and corporate bonds, the US central bank has facilitated low-cost financing for households and businesses

As a result, bonds rallied from their March lows Due to decisive actions by the Fed, bond market functioning returned to pre-pandemic levels and provided a pillar of strength for the economy Access to cheap money supports businesses suffering from declining demand and lower incomes

Bonds have returned to their hedge status and they deserve a place in your portfolio Despite yields at lower levels, bonds can cushion your portfolio against volatility and the sharp drop in stocks

As a general rule, current market conditions suggest that you invest around 10% of your portfolio allocation in bonds

About 5% to 10% of your portfolio should be in precious metals, such as gold These percentages depend on your risk tolerance and stage of life; you should tailor the suggested allowances to your particular situation

Gold makes sense as an investment not just as a crisis hedge, but as an opportunity for growth From January 31 to October 5, the price of gold rose from around $ 1,582 an ounce to about $ 1,918 / oz, for an appreciation of over 21% My colleague Dr Stephen Leeb, a world-renowned expert in commodities investing, has tightened the numbers and his calculations suggest a 10-year price target for gold of around $ 18,000 / oz (yes, c is $ 18,000 and not a typo)

I recommend gold mining stocks over physical bullion or funds Admittedly, gold mining stocks carry more risk than bullion or exchange traded funds as these individual companies often struggle with volatile political environments abroad However, when there are benefits, they tend to be very large

To find out exactly why our investment team is bullish on long-term gold, click here for our special report Our presentation highlights an under-the-radar small-cap gold miner that’s about to make explosive gains

John Persinos is Editorial Director of Investing Daily Send questions or comments to mailbag @ investmentdailycom To subscribe to John’s video channel, follow this link

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Gold, Stimulus, Federal Reserve System, United States Department of the Treasury, Donald Trump, Jerome Powell, Inflation