All eyes are on the Federal Reserve today and tomorrow to see if Chairman Jerome Powell and his colleagues will kowtow to Presidential Tweets and pause on the rate hikes, or if they will do what everyone expects them to do and raise the Fed Fund rate another 25 basis points. We’ll know tomorrow at 2:00pm ET, when the FOMC press release will be released, along with a new Summary of Economic Projections.
 
Will the Feds Raise Interest Rates?
On September 26, 2018, the FOMC participants projected that 2018 would end with the Fed Fund rate at 2.4%, with 3.1% on tap for 2019 and 3.4% to be the projected target by 2020. On Wednesday, November 28, 2018, Federal Reserve Board chairman Jerome Powell spoke to the Economic Club of New York, saying, “Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy‑‑that is, neither speeding up nor slowing down growth.” This was a slight shift in his language, which the markets interpreted to mean that he might slow the interest rate hikes going forward. Few expected that to mean a pause in December, however.

Former Federal Reserve Chairman Alan Greenspan said today on CNN that the economy is slowing, which indicates that lowering interest rates is an appropriate path. When asked about the risk of being too late to respond to the changing economy, Greenspan said, “It is a risk that you balance against the risk of being to early.” Either way, Greenspan is confident that the economy will dictate the policy, not White House pressure.
 
Should the Federal Reserve Raise Interest Rates?
The complaints from the White House are centered around the stock market volatility. As of yesterday, December’s performance of the S&P500 was -7.27%, the worst since 1931 (-14.53%). However, the dual mandate of the Federal Reserve is to keep inflation low and employment high, both of which are the case right now. As to Greenspan’s point about not being too early or too late, the expectations for economic growth are that the 4th quarter will slow down, but still be positive.
 
Economic Growth
The forecasts for 4th quarter 2018 GDP growth range between 2.4 and 2.9%. That’s pretty tepid compared to 3.5% GDP growth in the 3rd quarter and 4.2% in the 2nd quarter (source BEA.gov). However, it is still growth. On December 21, 2018, the 3rd estimate of 3rd quarter GDP growth will be released. It is expected to come in around 3.5%. (The 4th quarter GDP growth advance estimates won’t be available until January 30, 2019.)
 
As long as the Feds can point to an economic reason for raising interest rates, they are likely to for the following three reasons: 1) higher rates are needed to have more room for lowering in the next recession, 2) leverage has become more speculative, and, 3) asset bubbles form when rates are too low for too long.
 
Where The Feds Would Like the Rate to Be
As you can see from the chart below, before the last two downturns (which cost stock investors more than half of their assets), the Fed Fund rate was much higher. At just 2.0-2.25%, there isn’t enough wiggle room to help boost economic growth by lowering interest rates. That is why the Feds are raising rates as quickly as they can, while also winding down their own balance sheet.
 

Incidentally, the Federal Reserve reported a cumulative (unrealized) loss on its domestic SOMA securities holdings for October of $66.5 billion, compared to a gain of $80 billion in December of 2017 (page 7).
 
 
Leverage
In the Financial Stability Report that was released on November 28, 2018, the Federal Reserve indicated that they were watching leverage on a number of different fronts, including:
 

1. Aggressive risk-taking by banks; including a deterioration of credit standards for leveraged loans
2. Overleverage and high debt in companies with weak earnings,
3. Overleverage and high debt in borrowers with low credit scores,
4. 35% of corporate bonds are at the lowest rung of investment grade – near record levels,
5. Student loan delinquency rates are very high,
6. High delinquency rates for subprime credit cards and auto loans,
7. Aggressive leverage by hedge funds,
8. Illiquid investments made by the insurance industry,
9. Bond funds, and
10. Business debt relative to GDP is historically high.

 
All of that leverage has amounted to losses on the bond side, already. That makes 2018 even more problematic than 2000 and 2008 because during the last two recessions, investors earned gains in bonds (while their equity/stock side lost more than half).
 
Asset Bubbles
As I’ve indicated in many blogs over the past two years, low interest rates create bubbles. Stocks, bonds and real estate are all bubblicious. See the chart below. Even with the volatility in the stock market, stocks are still near their all-time high, and many are trading at high multiples.
 

Financial Engineering
Financial engineering, largely in the policy of corporate share repurchases, has been used by many corporations to reduce their share count, which in turn makes their EPS look strong, and lowers their price to earnings ratio (by reducing the share count). According to Howard Silverblatt, the senior index analyst at S&P Dow Jones Indices, “[The] first three-quarters of 2018 buybacks rose 52.6% to $583.4 billion from $382.4 billion in 2017, and was 1% shy of the annual record, set in 2007 of $589.1 billion.
 
This policy of borrowing from Peter to buyback stock has resulted in Standard and Poor’s lowering the credit rating of Lowe’s last Wednesday. Since over half of investment-grade corporations are at the lowest rung, if the downgrades continue, this will become very problematic. Corporations will have a more difficult time borrowing from Peter to buyback their own stock, and the price tag will be higher. Without the support of corporate buybacks, stocks could continue to weaken.
 
The Bottom Line
It is all speculation of what the Federal Reserve Board will do until tomorrow (Wednesday) at 2:00 p.m. However, based on the numbers, I’d be surprised if there wasn’t a rate hike. The Feds know that the market expects an increase, so there shouldn’t be a rout in stocks based on their decision. And the GDP report that follows on Thursday will make headlines for still being relatively strong.
 
Once the new projections are released, I’ll post those on my social media (Twitter and Facebook). I will offer a report on how that will affect 2019 in my December 27, 2018 teleconference, “Crystal Ball 2019.” 
​
 
A diversified, hot plan that is annually rebalanced and underweights the over-leveraged companies and municipalities is your best defense against a market downturn. Sadly, most people are not diversified, are heavily invested in companies that are drowning in debt and are still using Buy and Hope, instead of Annual Rebalancing and Modern Portfolio Theory. (Many broker-salesmen say they are using MPT; few are, however.) That’s why your first and best step is to Know What You Own. If you’re interested in an unbiased 2nd opinion, which includes a report of what you own, outlining areas of strength and weakness in your current plan, call 310-430-2397 or email info@NataliePace.com.
 
Happy Holy Days! Making sure that your financial house is secure enough to withstand the economic storms that are raging will help your winter celebrations to be more bright.

You can learn the ABCs of Money that we all should have received in high school at one of my Investor Educational Retreats. Only 3 seats remain available at the Valentine’s Retreat in Santa Monica. Receive a massive discount on a private coaching package (and 2nd opinion), when you register for a retreat by December 23, 2018. 

Other Blogs of Interest
Why FANG, Banks and Your Value Funds Are in Trouble.
When the Santa Rally is a Loser, the Next Year is a Bigger Loser. 
Russia Dumps Treasuries and Buys Gold
OPEC and Russia Cut Oil Production. 
Trade Deficit Hits an All-Time High. Wall Street Plunges 800 Points. How to Protect Yourself.
​Rebalance and Get Safe in December. Here's Why. 
The Best Investment Decision I Ever Made. 
Thanksgiving 2018 Stocks Losses.
Black Friday Sales. Get a 2nd Opinion on Your Current Investing Strategy.
What's Safe for Your Cash? FDIC? SIPC? Money Markets? Under the Mattress?
The Real Reason Stocks Fell 602 Points on Veterans Day 2018.
Will Ford Bonds Be Downgraded to Junk?  
6 Risky Investments. 12 Red Flags. 1 Easy Way to Know Whom to Trust With Your Money.
Whom Can You Trust? Trust Results.
October Wipes Out 2018 Gains.
Will There Be a Santa Rally in 2018?
The Dow Dropped 832 Points. What Happened?
​Bonds are In Trouble. Learn 5 Ways to Protect Yourself.
Interest Rates Projected to Double by 2020. 
5 Warning Signs of a Recession.
How a Strong GDP Report Can Go Wrong. 
Should I Invest in Ford and General Electric?

Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.

The Dow Jones Industrial Average is down 16% losses on the year from the highs set back in October. The volatility is starting to fray investor nerves. FANG investors who were lured into lofty valuations over the summer have been slammed back to Earth with Netflix stock diving 40% and Nvidia tanking 51%. Those losses are staggering (and heartbreaking). However, this is likely the beginning, not the end, of the trouble.
 
Banks Drag Markets Down.
December has been a terrible month for most stocks and bonds. Banks have led in the losses for the year, alongside energy, materials, telecommunications and industrials. See the chart below for an industry breakdown. 

Energy prices are predicted to rise, since OPEC and non-OPEC countries have agreed to cut production. (Click for more that on that. 
​
​Goldman Sachs stock is down 40% since March, having lost $35 billion, or 1/3 of its market value. Most banks have lost at least a third of their market cap since March of this year. Morgan Stanley is down $30 billion; Wells Fargo is down $93 billion. JP Morgan is fairing slightly better, with share price losses of 16%. All told, six of the largest U.S. banks have lost more than $372 billion in market values since Spring of this year.
 
Value Funds
That’s a problem for value investors as financials were heavily weighted in most large cap value funds, with many carrying higher than 30%.
 
What’s the Problem? The Yield Curve.
One of the main issues is the yield curve. An inverted yield curve is associated with recessions, as you can see in the chart below. Currently the yield curve is flat, and on a downtrend. 
​

As Liz Ann Sonders, the Chief Investment Strategist of Charles Schwab Inc. explained in my interview that was published on October 22, 2018, “We have taken financials from an outperform down to a neutral. They are only profitable if they can earn the spread between short-term interest rates, which they borrow at, and long-term rates which they lend at. The reason why the inverted yield curve has almost always brought on a recession is the crush that causes for the financial sector, and the implications that has more broadly.”

Leverage is Another Big Problem
According to the Federal Reserve’s Financial Stability Report, “Credit standards for new leveraged loans appear to have deteriorated over the past six months... Lenders have become more willing to extend loans with fewer credit protections to higher-risk borrowers.”
 
Bond Funds
More than half of the investment grade corporations in the U.S. are at the lowest rung. That means there are a lot of bond investors who may not realize just how much risk they have taken on. Corporate bond mutual funds are estimated to hold about one-tenth of outstanding corporate bonds. That is likely why the Vanguard Total Bond Market II Index, had the highest outflows with $5.1 billion exiting the fund in October 2018, according to Morningstar.
 
The problem is that a lot of that money is moving over into money market funds, without understanding that those funds can lose money, too, and have liquidity fees and redemption gates. This underscores the need for you to be the boss of your money, and to know exactly what a healthy nest egg looks like in a world where stocks, bonds and real estate are in a bubble, and leverage is way too high. (Call 310-430-2397 to learn more about The ABCs of Money that we all should have received in high school.)
 
This is Just the Beginning
As you can read in my coverage on the Federal Reserve’s Financial Stability Report of November 28, 2018, there are many concerns in today’s economy. As I outlined in my blog, Tariffs + Trade + Interest Rates + Quiet Periods + Leverage + Valuation Issues + The Financial Stability Report = the Wall Street Rollercoaster and Losses to Your Nest Egg. January looks even more vulnerable.  When the Santa Rally is a loser, the following year is a bigger loser 2/3rds of the time. That’s why it’s important to get safe, diversified and rebalanced before January 2019, i.e. now. 

If you’ve been following my blog, you know that my warnings that stocks and bonds were in a bubble began last year. I wasn’t alone. Alan Greenspan, Warren Buffett, Robert Shiller and others were screaming from the rooftops as well. Now is the time to do a checkup on what you own, and make sure that you are safe, protected and hot. The last two downturns cost investors more than half of their retirement, and that was with bonds earning gains. This time around, bonds are already losing money, which means that it is even more important to get a time-proven program now than it was in 2000 or 2008.
 
During the Great Recession, the Dow Jones Industrial Average Lost 55%. During the Dot Com Recession, the NASDAQ Composite Index Lost 78% and Too 15 Years to Crawl Back to Even.

​The banks have the authority to buy back their own stock, which would stabilize the prices. However, the flat yield curve, the leverage and the capital requirements of banks, combined with the lower valuations, may explain why these mega corporations have allowed their stock to sink. If the bank stocks do start to recover, corporate buybacks, rather than strong fundamentals, could be the reason. So, be careful swallowing the bait.
 
Cryptocurrency isn’t the cure. A time-proven system that earned gains in the last two recessions and outperformed the bull markets in between is. Call 310-430-2397 to learn more now.



A diversified, hot plan that is annually rebalanced and underweights the over-leveraged companies and municipalities is your best strategy. Sadly, most people are not diversified, are heavily invested in companies that are drowning in debt and are still using Buy and Hope, instead of Annual Rebalancing and Modern Portfolio Theory. (Many broker-salesmen say they are using MPT; few are, however.) That’s why your first and best step is to Know What You Own. If you’re interested in an unbiased 2nd opinion, which includes a report of what you own, outlining areas of strength and weakness in your current plan, call 310-430-2397 or email info@NataliePace.com.
 
Happy Holy Days! Making sure that your financial house is secure enough to withstand the economic storms that are raging will help your winter celebrations to be more bright.

You can learn the ABCs of Money that we all should have received in high school at one of my Investor Educational Retreats. Only 3 seats remain available at the Valentine’s Retreat in Santa Monica. Receive a massive discount on a private coaching package (and 2nd opinion), when you register for a retreat by December 23, 2018. 
 

Other Blogs of Interest
When the Santa Rally is a Loser, the Next Year is a Bigger Loser. 
Russia Dumps Treasuries and Buys Gold
OPEC and Russia Cut Oil Production. 
Trade Deficit Hits an All-Time High. Wall Street Plunges 800 Points. How to Protect Yourself.
​Rebalance and Get Safe in December. Here's Why. 
The Best Investment Decision I Ever Made. 
Thanksgiving 2018 Stocks Losses.
Black Friday Sales. Get a 2nd Opinion on Your Current Investing Strategy.
What's Safe for Your Cash? FDIC? SIPC? Money Markets? Under the Mattress?
The Real Reason Stocks Fell 602 Points on Veterans Day 2018.
Will Ford Bonds Be Downgraded to Junk?  
6 Risky Investments. 12 Red Flags. 1 Easy Way to Know Whom to Trust With Your Money.
Whom Can You Trust? Trust Results.
October Wipes Out 2018 Gains.
Will There Be a Santa Rally in 2018?
The Dow Dropped 832 Points. What Happened?
​Bonds are In Trouble. Learn 5 Ways to Protect Yourself.
Interest Rates Projected to Double by 2020. 
5 Warning Signs of a Recession.
How a Strong GDP Report Can Go Wrong. 
Should I Invest in Ford and General Electric?

Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.

​When the Santa Rally is a loser, the next year is a bigger loser, 2/3rds of the time. Below are the last three times that the Santa Rally sucked, along with what happened the following year. 

​Before 2000, you have to go all the way back to 1978 for a bad Santa Rally. The Santa Rally was so reliable before 2000 that you could basically buy at the end of September (the worst performing month on average) and then sell at the end of January (the best performing month) for 50% or more of the annual gains of the year. That strategy hasn’t worked since 2000 (even though there are still “pundits” teaching the “Buy in October, Sell in May” theory).
 
2000
Dot Coms were in a bubble. Many had been cash negative for more than 4-5 years. The promise of shopping online was dumped every time your dial-up connection dropped. Technology wasn’t developed enough to execute the vision. Stocks dropped 13% in 2001, after losses of 8% in the 2000 Santa Rally. Most people don’t realize that there was a Santa Rally in 2001, after 911! 2002 was another down year for stocks, yet the Santa Rally brought in 8% in gifts. October of 2002 turned out to be the low of the Dot Com Recession. In 2003, the NASDAQ Composite Index earned gains of 50%.
 
2007
There had been a series of mortgage bank bankruptcies beginning in January 2007, yet the stock market roared on to an all-time high of 1549 for the S&P500 on Halloween.
Countrywide Financial, the largest mortgage lender by far, was in deep trouble by September 2007, and announced a layoff of 20% of its staff. By October, Countrywide’s stock was in free fall. Bank of America rescued the mortgage lender (with help from the Feds) on January 11, 2008. Incidentally, Angelo Mozillo, the CEO of Countrywide, first began selling hundreds of millions of stock in April of 2005. So did many other real estate CEOs, including the CEO of KB Home and the C-levels at Toll Brothers. The top dogs and bankers, including H. Paulson, knew real estate was a bubble waiting to pop in 2005. In 2008, the S&P500 lost 23%, after 4% losses in the 2007 Santa Rally.
 
2008
Bear Stearns stock fell to just $2/share in February. The company was swallowed up by JP Morgan on April 2, 2008. Indymac Bank failed on July 11, 2008. Lehman Bros. declared bankruptcy on 9.15.08. AIG was bailed out on 9.16.18. Banks were bailed out on 10.3.08. Local banks quietly changed signs as the FDIC worked hard to avoid bank runs. If you were without a high school diploma, you had a one in four chance of being unemployed in the U.S. The Santa Rally was a giant loser in 2008, with losses of 22%. The losses for the year were a devastating 38%.
 
So, why was 2009 a winner after the economy melted down?
The Dow dropped all the way to 6549 on March 9, 2009. That sparked the U.S. to fire up the printing machine and give a boatload of money to the banks. The banks loaned the money to corporations. That created jobs. Over 10 million jobs were created over the next four years. GM restructured on 6.1.09. Chrysler entered Chapter 11 on 4.30.09. Jobs and pensions were cut, but the auto industry was saved. Sadly, the lending was unequally distributed. 10 million homes also went to auction.
 
As we sit near an all-time high for real estate and stocks, many Americans have forgotten just how horrifying and devastating 2008 was.
 
What’s the Crystal Ball for 2019?
Complacency will not be your friend in 2019. As President John F. Kennedy said, “The time to repair the roof is when the sun is shining.” As we enter 2019, most of the issues that were a problem in 2008 are just as problematic now. More so, when you consider that bonds are losing money. That means that the “safe” side of your nest egg won’t save your assets if stocks drop. In the Dot Com and the Great Recessions, bonds earned gains. However, that will not be the case in 2019. There’s just not enough wiggle room in interest rates for the Feds to lower them and spark growth, as you can see in the chart below.  

As you can see from the chart above, real estate is higher than ever, and unaffordable in many cities. Stocks are higher than ever, with expensive valuations not seen since the Great Depression and the Dot Com Recession. U.S. public debt just hit $21.8 trillion. The economic indicators touted on television, mainly GDP growth and unemployment, are not predictive of recessions today. Asset bubbles are, which is one of the reasons why the Federal Reserve Board is determined to raise interest rates. (Low interest rates create bubbles.) We’ll know how far and how high at the December 19, 2018 meeting. Currently they are on track for a 3.4% Fed Fund rate by 2020.
 
What’s Your Best Move?

1. Don’t try to market time.
2. Do make sure that you have enough safe, i.e. at least a percentage equal to your age.
3. Know what’s safe in a world where stocks and bonds are in a bubble.
4. Diversify. (Most people are not.)
5. Get hot. (Most people are not.)
6. Avoid over-leveraged companies. The higher the dividend the higher the risk.
7. Underweight bonds, particularly those of overleveraged companies, sovereigns, counties, municipalities, etc.
8. Don’t reach for yield.
9. Keep your job.
10. Learn strategies to reduce your big-ticket bills by thousands annually.

​
A diversified, hot plan that is annually rebalanced and underweights the over-leveraged companies and municipalities is your best strategy. Sadly, most people are not diversified, are heavily invested in companies that are drowning in debt and are still using Buy and Hope, instead of Annual Rebalancing and Modern Portfolio Theory. (Many broker-salesmen say they are using MPT; few are, however.) That’s why your first and best step is to Know What You Own. If you’re interested in an unbiased 2nd opinion, which includes a report of what you own, outlining areas of strength and weakness in your current plan, call 310-430-2397 or email info@NataliePace.com.
 
Happy Holy Days! Making sure that your financial house is secure enough to withstand the economic storms that are raging will help your winter celebrations to be more bright.


You can learn the ABCs of Money that we all should have received in high school at one of my Investor Educational Retreats. Only 3 seats remain available at the Valentine’s Retreat in Santa Monica. Receive a massive discount on a private coaching package (and 2nd opinion), when you register for a retreat by December 23, 2018. 

Other Blogs of Interest
Russia Dumps Treasuries and Buys Gold
OPEC and Russia Cut Oil Production. 
Trade Deficit Hits an All-Time High. Wall Street Plunges 800 Points. How to Protect Yourself.
​Rebalance and Get Safe in December. Here's Why. 
The Best Investment Decision I Ever Made. 
Thanksgiving 2018 Stocks Losses.
Black Friday Sales. Get a 2nd Opinion on Your Current Investing Strategy.
What's Safe for Your Cash? FDIC? SIPC? Money Markets? Under the Mattress?
The Real Reason Stocks Fell 602 Points on Veterans Day 2018.
Will Ford Bonds Be Downgraded to Junk?  
6 Risky Investments. 12 Red Flags. 1 Easy Way to Know Whom to Trust With Your Money.
Whom Can You Trust? Trust Results.
October Wipes Out 2018 Gains.
Will There Be a Santa Rally in 2018?
The Dow Dropped 832 Points. What Happened?
​Bonds are In Trouble. Learn 5 Ways to Protect Yourself.
Interest Rates Projected to Double by 2020. 
5 Warning Signs of a Recession.
How a Strong GDP Report Can Go Wrong. 
Should I Invest in Ford and General Electric?

Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.

What a busy week. We’ve seen a lot of economic news, most of which is negative for the economy, stocks and bonds. The trade report released on Thursday revealed that the U.S. is on track for a $600+ billion annual trade deficit in goods and services – a high we haven’t seen since President George W. Bush was in office. The arrest of Huawei’s deputy chairwoman and CFO Meng Wangzhou scuttled attempts at a trade truce between China and the U.S. That and more happened by Thursday. And then, on Friday, after the markets closed, we had a flurry of more bad news.
  
1. OPEC and non-OPEC countries (i.e. Russia) agreed to cut production by 1.2 million barrels/day beginning in January 2019. This is to stabilize the price of oil, which fell from over $75/barrel (WTI Crude) in early October to $50/barrel on November 23, 2018.
 

Winners and Loser of an Increase in Oil Prices
 
Winners

1. Oil Companies. Higher prices = higher profits.
2. Gold Bugs. High oil prices are positively correlated with high gold prices. This is because a high oil price is strongly correlated with recessions. During recessions, investors flock to gold for perceived safety.

 
Losers

1. Consumers. When consumers pay more at the pump, they have less to spend elsewhere. Since consumers make up 69% of the U.S. GDP, a pullback on consumer spending can spark negative growth.
2. Economic Growth. Countries that spend a lot on oil have lower economic growth than countries that are not oil-dependent. The U.S. trade deficit hit an all-time high of $762 billion in 2006 under President George W. Bush. When the U.S. was fighting two wars, the trade deficit with OPEC soared to $178 billion. The U.S. became the top oil producer in 2013, and the top natural gas producer in 2009. This helped the recover from the Great Recession tremendously. It’s important to remember, however, that when we fight wars in the Middle East, we have to purchase oil from Saudi Arabia – even if we are producing enough oil here to be energy independent.
3. Investors. The last two recessions cost investors more than half of their retirement. High oil prices squeeze Main Street in all directions by reducing their household worth, while simultaneously costing them more to get to work and to try to make ends meet. 

Other Big News That Dropped Late on Friday, December 7, 2018

1. Iran is exempt from the oil production cuts. In an interview with Bloomberg, HE Alexander Novak, the Russian Minister of Energy, went on record in support of Iran, saying, “Iran and Russia have been partners for a very long time. We support Iran in its urge to further strengthen trade and economic ties with other countries and we will continue doing so.”
 
2. General Electric announced that the company will cut its dividend to a penny. Last year the dividend was $0.24/share. That was slashed in half in November of 2017. General Electric’s share price has taken a huge hit as a result of the dividend cuts, dropping by 78% from above $31/share in January 2017 to $7.01/share on December 7, 2018.
 
3. The Mueller Report. The Manafort and Cohen sentencing documents have been headline banter since they became publicly available Friday night (12.7.18). This is not the full Mueller Report. However, it puts political turmoil center stage – something investors rarely stomach well.
 
 
All of these events are tough on Main Street. The stock futures are pointing lower for next week, and then we have to deal with a Federal Reserve rate hike on Wednesday, Dec. 19, 2018. Even though the rate hike is widely expected, rate hikes have been associated with weakness in equities and fixed income.
 
As I’ve reported previously, bonds have been losing money all year and are predicted to become even more problematic in 2019. (Stocks, too.) The solution, however, is not market timing. Few people get it right when they try to sell everything when they are scared, and back up the truck for stock buys when they feel the market is strong. Emotions operate on a buy high, sell low plan, which is a losing strategy. Everyone wanted to buy Bitcoin in December of 2017, when it soared to a high of $20,000. Those who did are very sorry, as Bitcoin today is worth just $3,370/coin, just one year later (as of December 7, 2018). Stocks are down on the year, with a lot of volatility and could weaken next week further.
 
A diversified, hot plan that is annually rebalanced and underweights the over-leveraged companies and municipalities is your best strategy. Sadly, most people are not diversified, are heavily invested in companies that are drowning in debt and are still using Buy and Hope, instead of Annual Rebalancing and Modern Portfolio Theory. (Many broker-salesmen say they are using MPT; few are, however.) That’s why your first and best step is to Know What You Own. If you’re interested in an unbiased 2nd opinion, which includes a report of what you own, outlining areas of strength and weakness in your current plan, call 310-430-2397 or email info@NataliePace.com.
 
Happy Holy Days! Making sure that your financial house is secure enough to withstand the economic storms that are raging will help your winter celebrations to be more bright.


If you are interested in receiving an unbiased second opinion on your current investing strategy, email info@NataliePace.com or call 310-430-2397. You can learn the ABCs of Money that we all should have received in high school at one of my Investor Educational Retreats. Only 3 seats remain available at the Valentine’s Retreat in Santa Monica. Receive a massive discount on a private coaching package (and 2nd opinion), when you register for a retreat by December 23, 2018. 
 

Other Blogs of Interest
Trade Deficit Hits an All-Time High. Wall Street Plunges 800 Points. How to Protect Yourself.
​Rebalance and Get Safe in December. Here's Why. 
The Best Investment Decision I Ever Made. 
Thanksgiving 2018 Stocks Losses.
Black Friday Sales. Get a 2nd Opinion on Your Current Investing Strategy.
What's Safe for Your Cash? FDIC? SIPC? Money Markets? Under the Mattress?
The Real Reason Stocks Fell 602 Points on Veterans Day 2018.
Will Ford Bonds Be Downgraded to Junk?  
6 Risky Investments. 12 Red Flags. 1 Easy Way to Know Whom to Trust With Your Money.
Whom Can You Trust? Trust Results.
October Wipes Out 2018 Gains.
Will There Be a Santa Rally in 2018?
The Dow Dropped 832 Points. What Happened?
​Bonds are In Trouble. Learn 5 Ways to Protect Yourself.
Interest Rates Projected to Double by 2020. 
5 Warning Signs of a Recession.
How a Strong GDP Report Can Go Wrong. 
Should I Invest in Ford and General Electric?

Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.

Surviving the Plunge.
Stocks dropped over 800 points again yesterday.  The Dow Jones Industrial Average survived the plunge, however, settling in for losses of 78 by the end of the trading day (on Thursday, December 6, 2018). That dive exacerbated Tuesday’s Dow drop of 799, which came on the heels of a week-long rally of over 1500 points (between November 23, 2018 and December 3, 2018). If you’re getting a bit dizzy, welcome to the club. Stocks have been on a rollercoaster, and are flat on the year. Bonds have lost money. 

What’s Going On This Time?
The overriding challenges faced by the U.S. economy were outlined in the Financial Stability Report that was released by the Federal Reserve Board on November 28, 2018. Click to access the 12-points of concern that were outlined in that report, which include over-leverage and asset bubbles. In short, there is too much leverage in the world, and low-interest rates create asset bubbles. Rising interest rates will start affecting rate-sensitive industries and assets first, such as corporations with too much debt and real estate. Retail was already in trouble. The California wildfires didn’t help. Tariffs increased costs in an already troubled and over-leveraged U.S. legacy auto industry.
 
This winter, there were a few more challenges that were thrown in the mix.

1. The U.S. trade deficit hit highs not seen since the George W. Bush years, and is the highest ever recorded with China. In October 2018, the U.S. trade deficit in goods and services hit $55.5 billion, and is on track for over $600 billion in deficit for 2018. Tariffs have resulted in a worse trade deficit with China, as you can see by linking to the historical data. 

2. Meng Wanzhou, the CFO and vice chairwoman of Huawei, was arrested in Canada, and is expected to be extradited to the U.S. This is huge because Huawei is actually bigger than Apple in terms of global smart phone sales. Imagine China arresting Steve Jobs! (Meng Wanzhou is the daughter of Huawei’s founder and CEO Ren Zhengfei.) Markets around the world dropped the day of her arrest. China has called for her release. Hope of a trade deal between the U.S. and China just evanesced with this arrest. 

3. General Motors’ closure of 5 plants continues to make headlines. GM CEO Mary Barra is closing down plants that are underperforming, so that the focus can be on meeting consumer demand – away from sedans and toward SUVs, crossovers and trucks. She’s also doubling engineering resources in electric and autonomous vehicles. The restructuring charges will come in at $3.0 - $3.8 billion. GM’s loss was $3.9 billion in 2017. So, the 2018 restructuring and plant closures are not making investors or Congress very happy, even though the overriding GM vision and business plan appear to be sound, given the challenges the company faces.
​
4. PG&E and So Cal Edison are being investigated for the November 2018 California fires that wiped out Paradise, California and burned up at least 670 structures in Malibu (including over 400 homes), respectively. PG&E has lost half of its share price value since the fire.

How Can You Protect Yourself?
At minimum, you need to:
 
1. Know What You Own.
2. Rebalance at Least Once a Year.
3. Put a Better Plan in Place.
 
Know What You Own.
Not one financial plan that I’ve reviewed this year is properly diversified. Most people, even if they have pages and pages of holdings and funds, basically have large caps and bonds. All of them are at risk of losing half of their retirement (or more) – just as they did in the last two recessions. By contrast, the easy-as-a-pie-chart nest egg strategies that I developed in 1999 earned gains in the last two recessions and have outperformed the bull markets in between. Click to access a video of Nilo Bolden talking about just how easy this strategy is.
 
If you start by knowing what you own, then you can compare that to my sample nest egg pie charts to get safe, protected and hot before the next correction. Call 310-430-2397 or email info@NataliePace.com to receive links to my free web apps, where you can personalize your own sample nest egg pie chart. If you’d like help knowing what you own, then ask for an unbiased second opinion. We’re here to help. Now is the time to be the boss of your money. Blind faith and hope are not good strategies.
 
Rebalance at Least Once a Year.
Annual rebalancing is key! It puts you on an automated buy low/sell high schedule for your diversified nest egg. This works far better than losing more than half every 8-10 years, and then taking the next decade to crawl back to even, which is what Buy and Hope investors are experiencing.
 
How Can You Put a Better Plan in Place? Here’s a To-Do Check List.
 

1. Keep depositing 10% of your income into tax protected retirement accounts (which are also financial predator proof). Make sure that you are paying yourself first and not just the debt collector.
2. Keep a percentage equal to your age safe (i.e. not in stocks).
3. Overweight up to 20% safe since we are in the 10th year of the bull market, and the economic indicators for 2019 are not as positive as they were this year (and this year wasn’t a good one for stocks or bonds).
4. Know what is safe in a world where stocks and bonds are vulnerable. Bonds are already losing money. As interest rates rise, losses in bonds could accelerate because over ½ of investment grade corporations are at the lowest rung above junk bond status. This is where knowing what you own is VERY important. Most people have more exposure to junk bonds and over-leveraged companies than they realize. (General Electric isn’t the only company that is borrowing from Peter to pay Paul.)
5. Diversify your at-risk (stock side) into 10 different funds. Six funds should be small, medium and large companies with both value and growth exposure, with four “hot” funds. This is where knowing what you own is VERY important. Most people have pages and pages of holdings that are really only 2 fund classes, and are not properly diversified at all. 
6. Avoid overleveraged and interest rate sensitive companies.
7. Rebalance 1-3 times a year.

 
The Bottom Line
The average person loses money in a flat market, due to the fees. (In other words, you’ve likely lost money this year.) In the last two downturns, most developed world denizens lost more than half of their retirement. So, knowing what you own and understanding how to get safe, diversified, protected and hot now, should be priority one. If you wait for the headlines that the economy is in trouble, it will be too late to protect yourself. Click to read my blog on why you should get safe in December (this month). 

If you are interested in receiving an unbiased second opinion on your current investing strategy, email info@NataliePace.com or call 310-430-2397. You can learn the ABCs of Money that we all should have received in high school at one of my Investor Educational Retreats. Only 3 seats remain available at the Valentine’s Retreat in Santa Monica. Receive a massive discount on a private coaching package (and 2nd opinion), when you register for a retreat by December 23, 2018. 

Other Blogs of Interest
​Rebalance and Get Safe in December. Here's Why. 
The Best Investment Decision I Ever Made. 
Thanksgiving 2018 Stocks Losses.
Black Friday Sales. Get a 2nd Opinion on Your Current Investing Strategy.
What's Safe for Your Cash? FDIC? SIPC? Money Markets? Under the Mattress?
The Real Reason Stocks Fell 602 Points on Veterans Day 2018.
Will Ford Bonds Be Downgraded to Junk?  
6 Risky Investments. 12 Red Flags. 1 Easy Way to Know Whom to Trust With Your Money.
Whom Can You Trust? Trust Results.
October Wipes Out 2018 Gains.
Will There Be a Santa Rally in 2018?
The Dow Dropped 832 Points. What Happened?
​Bonds are In Trouble. Learn 5 Ways to Protect Yourself.
Interest Rates Projected to Double by 2020. 
5 Warning Signs of a Recession.
How a Strong GDP Report Can Go Wrong. 
Should I Invest in Ford and General Electric?

Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.

Tariffs + Trade + + Interest Rates + Quiet Periods + Leverage + Valuation Issues + The Financial Stability Report = the Wall Street Rollercoaster and Losses to Your Nest Egg. Already. So far the 2018 Santa Rally has been coal in the stocking for Wall Street, with losses of 4% since October (including Wednesday’s rally). January looks more vulnerable. That’s why it’s important to get safe, diversified and rebalanced before January 2019.
 
 
On Wednesday, November 28, 2018, Wall Street rallied on two key words, "Just below." The jump happened right after Federal Reserve Board chairman Jerome Powell’s speech to the Economic Club of New York. Powell said, “Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy‑‑that is, neither speeding up nor slowing down growth.” The Dow Jones Industrial Average jumped 618 points, while the NASDAQ Composite Index (with lots of technology FANG* stocks) rallied almost 3%.

Investors were thrilled because they believed this indicated that interest rates might get a pause after December’s expected increase of another 25 basis points.
 
However, even with yesterday’s rally, the DJIA is only up 2.5% on the year. So, unless December is a rip-roaring rally, 2018 marks a year where investors lost money their nest egg. Stocks are not performing well enough to keep up with fees, and bonds (the safe side of your nest egg) lost money.
 
The issue with stocks is valuation. Prices are still too high. The issue with bonds is leverage. There’s just too much debt. All of that was revealed (and more) in the Federal Reserve’s Financial Stability Report, which was also released on Wednesday. The pressure on stocks and bonds is expected to get worse in 2019, which is why it’s important to protect yourself now, before January.
 
Here’s a chart on the asset bubbles, compared to where the economy looked prior to the last two downturns (which cost investors more than half of their retirement). 

​Here’s a chart on monthly performance. As you can see, January has been a loser over the last 5-20 years. 

​That is why it’s very important that everyone gets safe, diversified, hot and protected now, and knows what is safe in a world where stocks are vulnerable and bonds are already losing money. And that is why I now offer a second opinion on your nest egg, so that you can know exactly what you own, how diversified (or not) you are and the areas of strength and weakness in your current plan. You have to be the boss of your money, and having the right information is key to that. Blind faith that someone else is doing this for you, or hope that everything will be okay, is not a strategy. In fact, it has cost investors all over the developed world more than half of the assets every 8-10 years on average since the new Millennium began. 

through December 23, 2018, if you bundle a second opinion with a retreat registration, you receive up to 50% off. Call for details.
 
Here are the highlights of the Federal Reserve Board’s Financial Stability Report from November 28, 2018.
 
1. Banks. Money Market Funds. What They Said.
“Banking institutions have built stronger capital and liquidity buffers that, together with reforms to the rules governing money market funds, strengthen the ability of institutions to withstand adverse shocks and reduce their susceptibility to destabilizing runs. Money market fund reforms implemented in 2016 have reduced “run risk” in that industry… Across the entire banking sector, the credit quality of bank loans appears strong, although there are some signs of more aggressive risk-taking by banks. The leverage of borrowers who are receiving C&I loans from the largest banks has been trending up in recent years, reflecting the overall upward trend in business leverage.”
 
What That Means.
Money market funds now have liquidity fees and redemption gates, which will stave off any run on the banks. In other words, you might have to pay to get your money, or you might have to wait to get access to your money. Banks should be in good shape. However, they are taking on more risk than might be prudent in lending to overleverage businesses.
 
2. Debt. What They Said.
“Overall, vulnerabilities arising from total private-sector credit appear moderate. Among businesses, debt levels are high, and there are signs of deteriorating credit standards. In addition, recently, debt has been growing fastest at firms with weaker earnings and higher leverage. By contrast, household borrowing has advanced more slowly than economic activity and is largely concentrated among low-credit-risk borrowers.”
 
What That Means.
Debt is Too High, particularly in debt-laden businesses. It’s high on the consumer side, too. In fact, higher than ever. However, the debt is more concentrated in people with good credit scores. (People who need money can’t borrow to get it.)
 
3. Business Leverage Has Become Risky. What They Said.
“Credit standards for new leveraged loans appear to have deteriorated over the past six months. The share of newly issued large loans to corporations with high leverage—defined as those with ratios of debt to EBITDA (earnings before interest, taxes, depreciation, and amortization) above 6—has increased in recent quarters and now exceeds previous peak levels observed in 2007 and 2014 when underwriting quality was notably poor (figure 2-5). Moreover, there has been a recent rise in “EBITDA add backs,” which add back nonrecurring expenses and future cost savings to historical earnings and could inflate the projected capacity of the borrowers to repay their loans…”
 
What That Means.
Beware of junk bonds and companies with high dividends, as those companies are more high-risk than you might be aware of.
 
4. Corporate Bonds. What They Said.
“The share of bonds rated at the lowest investment-grade level (for example, an S&P rating of triple-B) has reached near-record levels. As of the second quarter of 2018, around 35 percent of corporate bonds outstanding were at the lowest end of the investment-grade segment, amounting to about $2¼ trillion. In an economic downturn, widespread downgrades of these bonds to speculative-grade ratings could induce some investors to sell them rapidly, because, for example, they face restrictions on holding bonds with ratings below investment grade. Such sales could increase the liquidity and price pressures in this segment of the corporate bond market.”
 
What That Means
Beware of bond funds. You need to do a credit analysis of any investment-grade bond that you own. Even your investment grade bonds and bond funds are vulnerable to capital loss and illiquidity. If you need the money back before the term, it might not be possible. And even though you are now investing in what you believed was low-risk, it could become high-risk virtually overnight.
 
5. Rich People are Borrowing a Lot of Money. What They Said.
“Loan balances for borrowers with a prime credit score, who account for about one-half of all borrowers and about two-thirds of all balances, continued to grow in the first half of 2018, reaching their pre-crisis levels (after an adjustment for general price inflation)… The ratio of outstanding mortgage debt to home values is at the moderate level seen in the relatively calm housing markets of the late 1990s, suggesting that home mortgages are backed by sufficient collateral… Half of borrowers with near-prime and subprime credit scores were essentially unchanged from 2014 to the middle of 2018.”
 
What That Means
If you need money, you still can’t get it. If you don’t need money, You’re okay now as long as home prices remain high. Since home prices are expected to fall with rising interest rates, that could be a vulnerable strategy. Don’t use debt as an ATM machine to sustain a potentially unsustainable lifestyle. Just because you can borrow doesn’t mean that you should.
 
6. Student Loans. What They Said.
“Student loans had aggregate balances of about $1.5 trillion at the end of the second quarter of 2018. Over 90 percent of these loans are guaranteed by the U.S. Department of Education and were extended through programs that did not involve traditional loan underwriting. Through the first half of 2018, student loan delinquency rates continued to improve gradually but remain elevated by longer-run standards.”
 
What That Means
Student loan debt is a problem and delinquencies are high.
 
7. Auto Loans and Credit Cards. What They Said.
Payment delinquency rates for subprime credit cards and auto loans, which were on the rise for the past few years, also seem to be stabilizing, although, in the latter case, they remain relatively high. In addition, early payment delinquencies (delinquencies occurring on relatively new credit accounts) remain high for credit cards and have continued to rise for auto loans in the first half of 2018, suggesting that underwriting standards might continue to be looser than usual in these two segments and underscoring the need for ongoing monitoring of associated vulnerabilities.
 
What That Means
Delinquencies and defaults are very high for autos and credit cards issued to Main Street Americans with a low credit score. More than half of Americans under the age of 50 have a low credit score.
  
8. Hedge Funds. What They Said.
“Average hedge fund leverage has risen by about one-third over the course of 2016 and 2017… as well as some easing in credit extended to hedge funds. The increased use of leverage by hedge funds exposes their counterparties to risks and raises the possibility that adverse shocks would result in forced asset sales by hedge funds that could exacerbate price declines.”
 
What That Means
With $7.3 trillion in total assets, and a large amount of leverage, hedge funds are vulnerable. Their need to sell to cover leverage and margin could result in very rapid movements that would harm, but not devastate, the U.S. economy. If prices decline, the hedge funds could cause those declines to be faster and deeper than normal.
 
 9. Bond Funds. What They Said.
“Total assets under management in corporate bond mutual funds and loan mutual funds have more than doubled in the past decade to over $2 trillion (figure 4-5). Corporate bond mutual funds are estimated to hold about one-tenth of outstanding corporate bonds, and loan funds purchase about one-fifth of newly originated leveraged loans. The mismatch between the ability of investors in open-end bond or loan mutual funds to redeem shares daily and the longer time often required to sell corporate bonds or loans creates, in principle, conditions that can lead to runs, although widespread runs on mutual funds other than money market funds have not materialized during past episodes of stress. If corporate debt prices were to move sharply lower, a rush to redeem shares by investors in open-end mutual funds could lead to large sales of relatively illiquid corporate bond or loan holdings, further exacerbating price declines and run incentives. Moreover, as noted in earlier sections, business borrowing is at historically high levels, and valuations of high-yield bonds and leveraged loans appear high. Such valuation pressures may make large price adjustments more likely, potentially motivating investors to quickly redeem their shares.”
 
What That Means
Beware of bond funds.
 
10. Insurance Companies. What They Said.
Life insurers have been shifting their portfolios toward less liquid assets, somewhat weakening their liquidity positions.
 
What That Means.
Are you aware that insurance companies are not FDIC-insured and that if the U.S. had not bailed out AIG in 2008 over 50 million policyholders would have been without much of a backstop? Just how safe and protected is your annuity?
 
11.  Risks. Brexit. China. Rising Interest Rates. What They Said.
“An escalation in trade tensions, geopolitical uncertainty, or other adverse shocks could lead to a decline in investor appetite for risks in general. The resulting drop in asset prices might be particularly large, given that valuations appear elevated relative to historical levels.
In addition to generating losses for asset holders, a significant fall in asset prices would make it more costly for nonfinancial businesses to obtain funding, putting pressure on a sector where leverage is already high. Markets and institutions that may have become accustomed to the very low interest rate environment of the post-crisis period will also need to continue to adjust to monetary policy normalization by the Federal Reserve and other central banks. Even if central bank policies are fully anticipated by the public, some adjustments could occur abruptly, contributing to volatility in domestic and international financial markets and strains in institutions.”
 
What That Means.
All eyes and ears will be on the dinner tonight with the American and Chinese Presidents. More tariffs are problematic. A deal would be a step in the right direction for investors. The fallout has a trickle-down affect that might be more of a waterfall, largely because asset prices are too high to begin with.
 
12.  Vulnerabilities. What They Said.
“Valuation pressures are generally elevated, with investors appearing to exhibit a high tolerance for risk-taking, particularly with respect to assets linked to business debt… Debt owed by businesses relative to gross domestic product (GDP) is historically high, and there are signs of deteriorating credit standards.”
 
What That Means.
Your dividend-paying stocks are pricier and riskier than you might realize. Values are very high. Be careful of having too much at risk. 
 
Santa Rally 2018?
So far this Santa Rally has been coal in the stocking for Wall Street, with losses of 4% (including Wednesday’s rally). If there is a truce on the trade war between the U.S. and China that is announced this week, the market could react favorably. However, it would just be making up lost group, with a vulnerable January on the horizon.
 
It’s a good idea to get protect yourself now. Call 310-430-2397 or email info@NataliePace.com to learn what you own and easy, time-proven, critically-acclaimed strategies that earned gains in the last two recessions and have outperformed the bull markets in between.
​
If you are interested in receiving an unbiased second opinion on your current investing strategy, email info@NataliePace.com or call 310-430-2397. You can learn the ABCs of Money that we all should have received in high school at one of my Investor Educational Retreats. Only 3 seats remain available at the Valentine’s Retreat in Santa Monica. Receive a complimentary private, prosperity coaching session (value $300) when you register for the Colorado Retreat by November 30, 2018. 

Other Blogs of Interest
The Best Investment Decision I Ever Made. 
Thanksgiving 2018 Stocks Losses.
Black Friday Sales. Get a 2nd Opinion on Your Current Investing Strategy.
What's Safe for Your Cash? FDIC? SIPC? Money Markets? Under the Mattress?
The Real Reason Stocks Fell 602 Points on Veterans Day 2018.
Will Ford Bonds Be Downgraded to Junk?  
6 Risky Investments. 12 Red Flags. 1 Easy Way to Know Whom to Trust With Your Money.
Whom Can You Trust? Trust Results.
October Wipes Out 2018 Gains.
Will There Be a Santa Rally in 2018?
The Dow Dropped 832 Points. What Happened?
​Bonds are In Trouble. Learn 5 Ways to Protect Yourself.
Interest Rates Projected to Double by 2020. 
5 Warning Signs of a Recession.
How a Strong GDP Report Can Go Wrong. 
Should I Invest in Ford and General Electric?

Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.

​Recently someone asked me, “Natalie, what was the best investment decision you ever made?” I’ve certainly had a few that were rocket ships to the moon, like plunking down a buck a share for the first cloud-based computing company in August of 2001, and watching that investment almost triple in just a few short months. Yup, you read that right. I bought stock the month before 911, and enjoyed the best ROI* I’d ever known, up to that moment. However, the best investment decision was not buying Loudcloud on the cheap. It was the investment decision that I made right before that purchase.
 
The Real Reason That People Don’t Buy Low
The reason that most people don’t buy low is because they can’t. Their money is all tied up. Most of the time, when stocks are low, investors are shocked at how much money they’ve lost and are either hoping to recover from their losses, or are tempted to sell low so that they can sleep again at night. If you sold in 2009, then you know intimately how this feels. If you haven’t kept enough safe and diversified, then you would have to sell low in order to buy low.
 
So, how was it that I had money to buy low in August of 2001, when the NASDAQ Composite Index had already lost 64% of its value? Because the best investment decision I ever made was to refuse to buy high.
 
The Best Investment Decision I Ever Made
In August of 2000, a banker noticed that I had some cash in a CD that was earning 4.5%. It was at a bank where everyone was incentivized to cross-sale you into other products. So, I was introduced to the bank’s investment advisor. He had a lot of letters behind his name, which he flashed around like a Ph.D., so I assumed that he was an expert. I didn’t know at the time that he was hired as a salesman, which is the primary qualification required to get a job as a broker-salesman.
 
So, this financial advisor laid out his “safe and diversified plan” for me. He told me that he would have to make an exception for me to take me under management because normally he only takes people who buy in at a much higher level than I could. But he’d make that exception if I committed to depositing $450/month into the account, in addition to placing all of my money with him. He also told me that I’d be buying low because “stocks had pulled back about 25% from their highs.”
 
Here’s what his plan looked like.
 

Enron had just been named the Most Innovative Company in the U.S. by Fortune Magazine, for the 6th year in a row, he told me. “But the company is price-gouging!” I objected. “Grandmothers are dying in California,” I said. I would never invest in such an immoral company.
 
He then went on to sing the praises of Global Crossing. As it happened, I worked for a telecom company that purchased wholesale long distance from a Global Crossing competitor. The contract was for 4 cents a minute. However, the company had been overbilling at over ten times that amount for months, and was dragging their feet in adjusting and crediting (even though they kept promising to).  “Telecom is cooking the books,” I said. “I’m in the industry.”
 
I objected to Dot Com for being cash negative for five years running. You can’t borrow from Peter to pay Paul forever, and five years seemed a few years too long. “It’s a New Economy!” the CFP piped up!
 
Al Gore was running on a strong economy, boasting that the U.S. had 8 years of prosperity under his tenure while Vice President – something he vowed to continue. I was pretty sure that eight years was too long to go without a correction. And the country was far too divided. No matter who was elected, almost half of the population was going to be mad about it.
 
Besides, my Dad was complaining that K-Mart never stocked anything he needed, so he’d begun just going to Wal-Mart.
 
The broker-salesman told me how stupid I was to keep my money in a CD earning 4.5%, and lied, saying that was under inflation. (It wasn’t.) When our meeting began, he was all sweet talk and compliments. However, toward the end when he tired of my objections and comments and just wanted to close the deal, he got aggressive and brash, shoving the brokerage application toward me and indicating that it was time to pull out my checkbook. He was making an exception for me, after all.
 
I pretended to have a meeting that I was late for, and vowed to learn more before I made any choice to invest. That process took me on a quite a journey over the next 12 months. In August of 2001, when I saw my favorite technology company drop from $12/share in the pre-IPO roadshow period to under $1/share, I was ready to make a significant bet (for me). That decision paid off in spades just a few months later. However, it would have never happened if I’d allowed the CFP to lose all of my money. K-Mart, Enron and Global Crossing all declared bankruptcy; AOL lost over 80% of its value. I can’t even imagine what would have happened to my son and I in that scenario. I’m pretty sure the CFP left the industry. He couldn’t have returned my money, and he wouldn’t have apologized for wrecking my life. I avoided that tragedy by asserting myself and not letting myself be taken in by his bullying.
 
Successful investing requires a time-proven strategy and a lot of discipline. (It’s called “sticking to your knitting,” in the industry.) However, when you are just starting out, the most important move is to avoid being snared in a sales trap. You are the boss. It is your future at stake. That person across from you might be a salesman rather than a market genius.
If you understand what a sound, diversified plan really looks like, then you’ll rack up gains, prevent losses and accumulate experience as you journey up the path to financial wisdom. If you don’t, you’re going to find blind faith, fear, stomach acid and euphoria guiding your investment decisions – which means that you’ll always be tempted to sell low and buy high.
 
As a young single mom, I saved myself tens of thousands with the best investment decision. Since then, countless investors have saved millions. This year alone, when the markets are flat on the year, A&A have saved almost $60,000 by moving from a “managed” blind faith plan into a truly safe, diversified and hot strategy. At their age knowing that their future is safe from losses is invaluable to their emotional health, and critically important to their fiscal health.
 
*Return on Investment.
 
If you are interested in receiving an unbiased second opinion on your current investing strategy, email info@NataliePace.com or call 310-430-2397. You can learn the ABCs of Money that we all should have received in high school at one of my Investor Educational Retreats. Only 3 seats remain available at the Valentine’s Retreat in Santa Monica. Receive a complimentary private, prosperity coaching session (value $300) when you register for the Colorado Retreat by November 30, 2018. 
​
 

Other Blogs of Interest
Thanksgiving 2018 Stocks Losses.
Black Friday Sales. Get a 2nd Opinion on Your Current Investing Strategy.
What's Safe for Your Cash? FDIC? SIPC? Money Markets? Under the Mattress?
The Real Reason Stocks Fell 602 Points on Veterans Day 2018.
Will Ford Bonds Be Downgraded to Junk?  
6 Risky Investments. 12 Red Flags. 1 Easy Way to Know Whom to Trust With Your Money.
Whom Can You Trust? Trust Results.
October Wipes Out 2018 Gains.
Will There Be a Santa Rally in 2018?
The Dow Dropped 832 Points. What Happened?
​Bonds are In Trouble. Learn 5 Ways to Protect Yourself.
Interest Rates Projected to Double by 2020. 
5 Warning Signs of a Recession.
How a Strong GDP Report Can Go Wrong. 
Should I Invest in Ford and General Electric?

Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.

On November 19, 2018, the NASDAQ Composite Index dropped 3.03%. (The Dow Jones Industrial Average lost 1.6%.) Some of the Top 10 sell-off volume leaders were elite members of the coveted FANG*, where the most outstanding returns over the past few years have been. Today, Wall Street dropped again, this time losses were more concentrated in the Dow, with losses of over 2%. What’s going on, and, more importantly, what should you do about it? 
​

The simple truth is that stock prices were too high. The big money knows that, and VIP leaders, including former Federal Reserve chairman Alan Greenspan, billionaire Warren Buffett and Nobel Prize winning economist Robert Shiller, have been warning about bubbles for over a year.
 
Here’s where buy low, sell high becomes an emotional game. For the last few years, many folks have wanted to jump into stocks, i.e. buying high, after hearing of the extraordinary gains investors have enjoyed since 2009. Meanwhile, the smart money is looking for every opportunity to sell high and capture gains. That’s why it is so important to use wisdom, information and time proven strategies, and minimize your reliance on headlines, articles, talk shows and salesmen. Below I’ve highlighted some of the data and information you need to be aware of, and below that tips to what is needed for you to get safe, diversified, protected and hot now, before a more severe correction.
 
Here are 10 Key Elements to Wall Street’s Rise and Fall in 2018
 
1.Price.
2.Earnings.
3.Average P/E.
4.Financial Engineering. (Buybacks, Dividends.)
5.Quiet Periods.
6.Interest Rates.
7.Trading.
8.Deleveraging.
9.Rhetoric and MSM Language.
10.Bubbles.
11.Catastrophic Events.
 
And here is more information on each point…
 
1. Price. Stock prices are at an all-time high. So are real estate, bonds and debt. The recent weakness doesn’t put things into buying territory, unless 2019 is going to be a gangbuster of a year in terms of earnings growth – something that is not predicted currently.

 2. Earnings. Earnings were boosted in 2018 with the Tax Cut. While lower taxes should help companies with their profitability, the one-time boost to earnings growth in 2018 could be hard to match in 2019. The 4th quarter 2018 GDP growth is predicted to just 2.6%, much lower than the 3.5% in the 3rd quarter 2018. 2019 estimates are coming in between 2.4-2.7% (source: Federal Reserve Board).

3. Average P/E. The average P/E for stocks today is 22.19 (as of June 2018). The historical average (since 1936) is 17.18. That’s almost a third higher than normal. The FANG stocks were much pricier. In April of this year, Amazon’s P/E was 227. Netflix’s was 233. Google was 56. And Nvidia’s P/E was 44. These are very lofty prices, even given the outstanding sales growth of these companies, which was 38%, 33%, 24% and 34%, respectively. Today, even with the price pullback on these companies, the P/Es are still much higher than the average, with the exception of Apple with a P/E of 15.60. If earnings soften in 2019, this will increase the P/E, unless prices keep going down. 

4. Financial Engineering. Many companies, particularly those with very high debt and pension obligations, have been borrowing money for almost free, and using it to buy back their own stock and to pay dividends. As of Nov. 16, 2018, corporate buybacks are setting an all-time record of almost $200 billion for the 3rd quarter 2018. Apple has been on the largest buyback spree.When a company buys back its own stock, it increases the earnings per share (by reducing the share count), which makes the P/E look lower (by increasing the EPS). All of this keeps investors interested. However, with interest rates rising, and debt rising, the cost of buybacks and dividends is getting to be too high. Too much debt puts a company at risk of a credit downgrade, and rising interest rates make borrowing more costly. Currently over 50% of the investment-grade companies in the U.S. are at the lowest rung before junk bond status.

5. Quiet Periods. Two weeks before a company releases its earnings, the buybacks are suspended. Quiet periods have been associated with the most massive downturns this year, largely because the current bull market has been fueled to a very large extent on corporate buybacks.

6. Interest Rates. The Federal Reserve Board has indicated that they would like to take interest rates to at least 3.4% by 2020. That is double from where rates started 2018. Rising interest rates have meant that bonds have lost value in 2018. Bond funds are losing money. Any company with high debt and high leverage is vulnerable to rising interest rates.

7. Trading. Any big move on Wall Street is subject to high speed due to the amount of high-frequency traders and options traders that are in the market. In the Dot Com Recession, it took NASDAQ 31 months to hit rock bottom, with losses of up to 78%. In the Great Recession, the colossal drop of 55% occurred over a 17-month period. Cryptocurrency has been in a rout for over a year since the high of $20,000 for Bitcoin, with losses of 77%. Is this the beginning of a more severe downturn in stocks, bonds and real estate that will play out in the coming year(s)? It’s better to be safe than sorry… A good plan will allow you to profit from rallies and will protect you from downturns.

8. Deleveraging. The Big Money knows that if they sell all at once, they will end up selling low. Selling a large amount high requires a careful strategy that includes optimizing your sales during market rebounds. That’s why Wall Street looks like a rollercoaster this year (and since 2000).

9. Rhetoric and MSM Language. You’ll hear a lot of pundits in the mainstream media say that stocks have hit “bear” territory. This implies to a lot of less-sophisticated investors that they can buy low now. Broker-salesmen use this kind of language to their advantage, enticing clients to buy into a plan that is not diversified, hot or properly designed for safety. Investor beware.

10. Bubbles. Low interest rates create asset bubbles. Today, we have bubbles in stocks, bonds, real estate and debt. Earlier this year, we had a bubble in cryptocurrency. 

11. Catastrophic Events. The wildfires in California were heartbreaking and monumental. The cost of the fires could negatively impact GDP growth. It will also hurt the utilities sector, particularly PG&E and So Cal Edison, which were already struggling under high debt, slow earnings growth and massive liabilities before the fires. Both companies have already experienced a sell-off in stocks, losing more than half their value since the fires began. Recent legislation limits the liabilities of utilities in California. However, it won’t mitigate all of the financial costs of the fires that will have to be borne by these companies. 

Crystal Ball 2019
Essentially, there are 11 reasons why stocks, bonds and real estate prices are poised to soften in 2019. Which means it’s time for you to get your defensive game on, while keeping some targeted offensive action in play.
 
Solutions
The solution to the weakness on Wall Street isn’t to just sell everything. It is to:
 

• Be properly diversified,
• Have some exposure to other countries and to industries that can increase in value when the economy hits hard times,
• Have enough safe and protected that is sure to keep its value,
• Know what is safe at a time when both stocks and bonds are vulnerable.

 
You can’t just trust that your broker-salesman is doing this for you when all of the products that they have to sell you are trading near all time highs and are vulnerable to capital losses. It’s time to be the boss of your money and to understand clearly what your exposure is and what a healthy plan looks like. Wisdom is the cure.
 
If you are interested in receiving an unbiased second opinion on your current investing strategy, email info@NataliePace.com or call 310-430-2397. You can learn the ABCs of Money that we all should have received in high school at one of my Investor Educational Retreats. Only 3 seats remain available at the Valentine’s Retreat in Santa Monica. Receive a complimentary private, prosperity coaching session (value $300) when you register for the Colorado Retreat by November 30, 2018. 

*Facebook, Apple, Amazon, Netflix, Nvidia, Google.
*BAT is the Chinese equivalent: Baidu, Alibaba, TenCent Holdings
 
 
Other Blogs of Interest
Black Friday Sales. Get a 2nd Opinion on Your Current Investing Strategy.
What's Safe for Your Cash? FDIC? SIPC? Money Markets? Under the Mattress?
The Real Reason Stocks Fell 602 Points on Veterans Day 2018.
Will Ford Bonds Be Downgraded to Junk?  
6 Risky Investments. 12 Red Flags. 1 Easy Way to Know Whom to Trust With Your Money.
Whom Can You Trust? Trust Results.
October Wipes Out 2018 Gains.
Will There Be a Santa Rally in 2018?
The Dow Dropped 832 Points. What Happened?
​Bonds are In Trouble. Learn 5 Ways to Protect Yourself.
Interest Rates Projected to Double by 2020. 
5 Warning Signs of a Recession.
How a Strong GDP Report Can Go Wrong. 
Should I Invest in Ford and General Electric?
Interview with Liz Ann Sonders
 

​Dear Natalie,
I had a session with you, and you said to make sure my cash accounts were guaranteed by FDIC. I found out that several of my accounts are covered by SPIC (or is it PIDC?), which my broker said was better because it will cover up to $500,000 in cash and covers stock and bond losses up to $250,000. Seems like a better deal than FDIC. Would you agree? Signed, The Acronyms Are Confusing 
​

Dear Acronym Sleuth,
 
We’d all love to put our accounts with a brokerage that covers stock losses! However, sadly, that’s a pretty big misrepresentation of what SIPC insurance covers. That is why it is so important to read the fine print, and not just trust what the broker-salesman tells you. Have you ever heard the joke, “What do you call the person who got Cs in medical school?” (Doctor.)
​
Below is a general breakdown of what some brokerages offer, with more color on what the acronyms themselves mean. Consult the fine print of your personal brokerage agreement to know exactly what your brokerage does and does not offer.
 
FDIC-insured. The Federal Deposit Insurance Corporation is an independent federal agency that insures cash held in FDIC-insured banks. Many brokerages and banks now offer a bank sweep program where you can actually be insured above the $250,000 maximum individual coverage. For instance, my brokerage offers FDIC coverage up to $500,000 for individuals and $1,000,000 for join accounts.
 
SIPC-insured. The Securities Investor Protection Corporation is backed by a fund with assets of about $3.1 billion. The fund ensures against brokerage default (not stock losses). So, if you have the misfortune of investing with Bernie Madoff or MF Global, then SIPC would work with the bankruptcy trustee to restore as much of your principal as possible. FYI: Most of Madoff’s clients were invested for years, thinking they were earning 12% annualized and compounding. So, even though the trustees and SIPC boast of returning 75% of the principal lost in the Madoff Ponzi scheme, it is a much smaller amount than most investors believed they were owed. One important consideration is that when you own stock in a company or a fund, you still own that equity, even if a brokerage goes belly-up (unless, the fund is owned by the brokerage, as was the case in the MF Global insolvency). FYI: the SIPC cash coverage is limited to $250,000 (not $500,000).
 
Money Market Funds. Money market funds are not guaranteed by the government or by any bank. It is possible to lose money in a money market fund. There can be hidden charges and expenses. Under certain circumstances, the money market fund can impose liquidity fees and redemption gates (in other words, charge you to access your money, or limit the amount you can redeem). Those are some of the reasons why FDIC-insured cash can be a better choice, particularly in the 10th year of a bull market.
 
Money Under Your Mattress. There’s an old joke in my family that someone buried their cash during the Great Depression, and the chickens dug it up and ate it! Keeping cash on hand is very risky. Wolves and chickens abound.
 
So, what is safe in a world where bonds are losing money and you have to be careful about the acronym you choose for your cash account? In today’s world of very high-leverage (i.e. a lot of debt), FDIC-insured cash is just the first step in a two or three step process to make sure that you protect your assets and are positioned to earn an income on your wealth in the years to come. Protecting your assets is so important today that I spend one full day on this topic at my Investor Educational Retreats. Call 310-430-2397 to learn more now.
 
Don't be caught unaware. Don't be complacent. Don't rely upon others to do it for you. It's time to know what you own and be the boss of your money. 

​If you are interested in receiving an unbiased second opinion on your current investing strategy, email info@NataliePace.com or call 310-430-2397. You can learn the ABCs of Money that we all should have received in high school at one of my Investor Educational Retreats. Only 3 seats remain available at the Valentine’s Retreat in Santa Monica. Receive a complimentary private, prosperity coaching session (value $300) when you register for the Colorado Retreat by November 30, 2018. 

​
Other Blogs of Interest
The Real Reason Stocks Fell 602 Points on Veterans Day 2018.
Will Ford Bonds Be Downgraded to Junk?  
6 Risky Investments. 12 Red Flags. 1 Easy Way to Know Whom to Trust With Your Money.
Whom Can You Trust? Trust Results.
October Wipes Out 2018 Gains.
Will There Be a Santa Rally in 2018?
The Dow Dropped 832 Points. What Happened?
​Bonds are In Trouble. Learn 5 Ways to Protect Yourself.
Interest Rates Projected to Double by 2020. 
5 Warning Signs of a Recession.
How a Strong GDP Report Can Go Wrong. 
Should I Invest in Ford and General Electric?
Interview with Liz Ann Sonders