The map below tells the story best. Few countries will be exempt from the economic toll of the pandemic.
Only a few countries in Asia and Africa are expected to have any economic growth in 2020. North and South America, Europe, Russia, Australia, the Middle East and New Zealand have been hit very hard. The worst contractions are predicted for New Zealand, Australia, Europe, North America, Norway, Israel and Russia – ranging from -5.5% to -7.5% in annual GDP. South America isn’t much better. See below for IMF GDP growth projections, alongside other country-specific data.
As you can see from the above comparison chart, those countries that were able to contain COVID-19 are faring better than those that are still embroiled in the pandemic. Vietnam, China and Indonesia are all expected to stay in the black for 2020. Guyana, a small, coastal South American country known for sugar, rice and timber, has recently become a producer of gold and oil (as of March 2020). GDP growth for Guyana is predicted to be a whopping 52.8% in 2020. Nothing else comes close.
Liquidity Risk (i.e. you might be denied access to your money)
Recently, there have been a number of redemption suspensions in global mutual funds, according to FitchRatings.com. According to Fitch, “Liquidity mismatches are most acute in funds investing in less liquid assets. Regulators have identified property, high-yield bond and emerging market debt funds as most vulnerable to liquidity risk.”
However, liquidity stress has also been heightened in money market funds, Treasury bills, funds and even the U.S. dollar. The Federal Reserve has been purchasing Treasuries, mortgage-backed securities and junk bonds, and is printing money as fast as it can. However, in a speech on May 13, 2020, Jerome Powell admitted, “The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II.”
What’s Hot in a Global Recession?
It’s a lot easier to lose money in a recession than it is to earn gains. So, first and foremost, you want to make sure that you are:
The redemption suspensions in mutual funds further complicate things. As Fitch Ratings noted in their report of June 21, 2020, “Redemption suspensions will force a fundamental investor re-appraisal of the liquidity that mutual funds can truly provide.” If the funds start losing value that will turn frustration into anger.
See the sample pie chart below for an example of a personalized diversification strategy, based upon your age. Read my blog, “21st Century Solutions for a Post-Pandemic World” for additional information on how to get safe, protected, hot and diversified in a worldwide pandemic and recession. The ABCs of Money 3rd edition has important information on Debt, Budgeting, Real Estate, Stocks, Bonds and more.
You can create your own personalized pie chart on the home page at NataliePace.com.
There are industries that can hold up in the pandemic. Leaning into them could help to preserve and grow your wealth – provided you do not overpay for the privilege. So, understanding what a good price and price-earnings ratio is will be key for successful investing today. Most equities and funds are trading near their all-time highs and are far above the average P/E (i.e. very expensive).
Gold has been strong. The current price per ounce of $1755 is near its all-time high of $1895, which was set in September 2011, after the U.S. was stripped of its AAA status by Standard and Poor’s (on August 5, 2011). Gold miner ETFs like RING (iShares) have rallied, while NUGT (Direxion) sank like a rock. What happened? It’s likely that Direxion was caught in a liquidity crisis. Direxion’s 3X bull fund was designed to increase at three times the speed of RING. However, instead, the fund sank like a rock on March 13, 2020, losing 87% of its value between February 24, 2020 and March 20, 2020. In the Spring rally, when RING shares doubled, NUGT was still in the red by 67%. Clearly the fund is not performing in the manner it is advertised.
Though gold can perform well when people lose faith in stocks and the dollar, there is additional risk that the gold miners will have a terrible earnings report in 2Q 2020, due to mine closures. So, a safer bet at this time is an index that tracks the price of gold, like GLD (SPDR Gold Shares). With fund companies having liquidity issues, it’s important to invest in long-standing, reputable financial services corporations, rather than companies that you know little or nothing about. They may have other products that affect the liquidity of their company.
Check out my interview with Rob McEwen, the chairman and Chief Owner of McEwen Mining on my YouTube.com/NataliePace channel. Subscribe there to be sure you don’t miss upcoming interviews and free videoconferences.
Facebook, Amazon, Apple, Nvidia, Netflix and Google have continued to be super stock performers. Getting hot in a FANG-heavy technology fund like TECB (iShares.com) is an easy way to add heat. However, the fund is trading near an all-time high. If you don’t have a hot slice of FANG, then you might consider a dollar-cost-averaging approach over the next 12-18 months, to ensure that you get exposure at a better price.
All large-cap growth funds are not created equal. It would also be a good idea to check the holdings to make sure that you are FANG-rich there.
Companies that deliver basic needs have been faring well, such as Amazon and Wal-Mart. However, many of these stocks are trading at very frothy prices. Amazon’s P/E is 128! Read my interview with Howard Silverblatt, the senior index analyst of S&P500® for additional information. I’ve noticed that many value funds are light on consumer staples, so it could pay to just add in your own consumer staples ETF, such as IYC (iShares.com). Again, consider dollar-cost-averaging to avoid buying high. Learn more in my Price Matters blog.
Semiconductors are typically harbingers of recessions. So, not all tech stocks are created equal. With ETFs, it is pretty easy to lean into subsections of an industry, such as a FANG-rich or artificial intelligence focused fund. Doing a Stock Report Card on companies/industry segments that you are interested in can reveal which companies are soaring and which are positioned to sink. (I teach this in my Investor Educational Retreats.)
In February of 2020, we featured Veritone at the Investor Educational Retreat as an example of a company at the forefront of AI. Veritone was partnered with Microsoft and Oracle to address the defense industry with its facial recognition product. Veritone’s stock popped from $2/share to $18. If you’re interested in learning more about finding hot stocks like Veritone, consider joining me for my Stock Master Class this Saturday, June 27, 2020. Email info@NataliePace.com to learn more. FYI: I also mentioned Veritone in my January 2020 Artificial Intelligence blog.
Cannabis has been destroyed by investors. However, the industry is still popular with its clients. Revenue growth at companies like Aphria and Tilray were still 96% and 126% year over year, respectively. Aphria’s price to book value is currently 0.89 (under 1.00). Aphria’s CEO is Irwin Simon, who steered Hain Celestial’s growth for 25 years as the founder/CEO/chairman. Walter Robb, the former co-CEO of Whole Foods, is on the board. There is no legacy fund company that offers a cannabis fund at this time, so you have to create your own fund with top-notch companies.
Get additional information in my Cannabis blog.
Utilities and Communication
With so many of us Working From Home, you might be tempted to think that utilities are going to have a heyday. However, many of those office buildings have the air conditioning turned off. I just walked through a food court in a marquise mall in one of the most beloved destinations of the world, and it was a sauna, even though it was open and had one vendor selling food. Nonetheless, utilities and communication are a high priority, and most of us are going to put this bill on the top of the pile. This is an industry that might stay a little more buoyant, should stocks decide to test the lows we saw in mid-March (or worse, the lows we saw on February 9, 2009).
Learn more in my Work From Home blog.
Entertainment and Gaming
Take Two: Grand Theft Auto
Tencent: League of Legends & Fortnite
Electronic Arts: Star Wars
Zynga: Game of Thrones & Words with Friends
Activision/Blizzard: Candy Crush & Call of Duty
All of these companies increased sales in the last quarter, with the exception of Activision.
Zynga and Take Two experienced the greatest revenue growth at 41% and 52%, respectively. The companies are also trading at high multiples. The good news is already priced in. It doesn’t hurt to put your favorite gaming companies on a Stock Shopping List, in case the Back to School Stock Sales in September offer up some deals.
Full Disclosure: I have owned or currently own shares of companies and ETFs mentioned in this blog.
If you don’t know what you own, or how protected your wealth and retirement are, the retreat or an unbiased 2nd opinion can offer you the information and wisdom you need now. Call 310-430-2397 or email info@NataliePace.com to learn more now.
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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.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.