Will the Global Market Crash of 2018 Turn Out to Be the Beginning of the Greatest Financial Crisis the World Has Ever Seen?

The global selloff has erased $5 trillion from stock and bond markets in October alone! October is a historically bad month for stocks. Many of the most dramatic crashes have begun during this month. The global market crash of 2018 seems to be in line with this trend and the crash is indeed global.

This same trend has occurred prior to other major historical market crashes, whereby other countries were already crashing and in depression prior to the crash hitting the United States. Nothing happens in isolation. This holds true between markets and throughout time.

In February of this year, there was a huge stock market sell-off. What caused it?

In short, the “smart money” was taking profits. Huge profits. Trading whales sensed that the top was near and decided to withdraw major portions of their funds. And looking back, it appears they were right.

Over the next 8 months or so, “the little guy” began piling into stocks. This is a classic indicator of a true top being reached in equity markets. Falling victim to FOMO (fear of missing out), average retail investors pile into stocks when there has been such an epic bull run that everyone thinks the party will never end.

In other words, most of the stock market rally since February has been the result of retail investors entering the market. Everyone knows this is the final nail in the coffin for any long-term bull market.
So, the question becomes, why now?

Global Market Crash 2018 Explained

The causes of a crash like this are many and varied. While most media sources tend to report on things in terms of a simplistic dichotomy (this or that), reality tends to be more complex.

The recent trade war between America and China is only one recent event that seems to be precipitating this crash. And while mainstream media loves to point this out over and over again, they remain silent on the actions of central banks and governments that have put the world economy in such a vulnerable position in the first place.

In this case, flooding the market with trillions of new fiat currency units and pushing interest rates to zero for the greater part of a decade made a new crisis inevitable.

In February of this year, I wrote an article on Blasting News about the coming crash that would be blamed on Trump’s trade war. I asked the rhetorical question, “Will the next credit crisis and financial failure begin in 2018?” as it became more and more clear that the answer would be yes.

In the article, I describe the historical basis for central banks setting the stage for financial crises. By unilaterally manipulating interest rates and the money supply, central banks create the monetary conditions leading to economic booms that become economic busts. And they do a great job of concealing the fact that they usually initiate the bust through their own actions as well.

Of course, it’s not a coincidence that the timing of this crash happens to fall in line with The Federal Reserve raising interest rates. This action has caused the USD index to rise, which has weakened other fiat currencies.

Emerging market (EM) economies have tons of dollar-denominated debt that they must service with their own fiat money. A stronger dollar means they need more of their own currency to pay their debts. This is an oversimplification of the issue but is basically why we see economic turmoil fueled by currency collapse in countries like Argentina, Turkey, Iran, India, and so on, as we have previously covered at GSB.

As I mention in the Blasting News article, these financial conflicts almost always lead to military conflicts at some point, but that’s not our concern here. The question investors face at the moment is “how do I prepare for the deepening crisis ahead?”

Preparing for the Next Phase of the Global Market Crash 2018

The crash that is coming will be unlike anything the world has ever seen. Put simply, there has never been this much debt in the system (hundreds of trillions worldwide), so there will be no historical precedence for the crash.

And that debt doesn’t even include the hundreds of trillions worth of derivatives held by big banks. If those go bad, it’s game over for the global economy.

So, while holding some cash is always good in uncertain times, you can’t depend on fractional reserve banks to provide access to your funds during a crisis.

As occurred during the last crisis, we are likely to see some traditional financial institutions and even national governments become insolvent. They can print money in an attempt to stop the bleeding, but this inevitably leads to high inflation or hyperinflation.

Stocks

While most stocks should be avoided during a crash, gold mining stocks tend to do well after the initial take down. They bounce back first and rise the fastest as investors start fleeing to safe-haven assets, which the mining companies own.

Cannabis stocks are not immune from a market crash, but could hold up better than other sectors, as those using it for medical purposes and unlikely to cut back. And like alcohol, we could see sales hold steady or even rise, as people seek relief from the economic strife that unfolds.

At Gold Stock Bull, we help our subscribers pick top-performing stocks no matter which direction the market is moving. You can also purchase shares of an ETF like GDAX (gold mining) or MJ (cannabis) to get exposure to these sectors.

Large market cap, high-dividend-yielding stocks and utility stocks in developed countries like China, Russia, and many European nations also tend to hold up relatively well during market crashes.

Fixed-Income

There are also fixed-income investments, which are among the most conservative options. Certificate of Deposit (CD) accounts will become more attractive as interest rates rise, although they don’t even beat inflation at present rates. The same goes for money market funds.

But while these assets are typically viewed as having no risk, we think that the next market crash could call into question the safety of assets that have long been viewed as having zero risk. This is especially true when they are backed by governments that are deep in debt themselves and rely on other nations buying their debt in order to pay the bills each year.

Gold and Bitcoin

Many experts believe the most significant hedge against this kind of uncertainty to be physical gold securely held in your possession or in vaults outside the USA.

A potential newcomer to the safe-haven assets is bitcoin, ideally held in a hardware wallet or cold storage. For those who choose to hold a crypto portfolio, it’s wise to keep a significant portion of those holdings in bitcoin, which is the gold standard of crypto, has a strictly limited supply, the highest encryption strength and a perfect track record of never being hacked.

The great thing about bitcoin (and other cryptocurrencies) is that you own it. With a hardware wallet, you own your private keys. A third-party doesn’t have to provide custody and can’t abscond with your funds due to fraud or a national emergency.

Goldmoney

Goldmoney provides custody and liquidity for those who want to own gold, silver, platinum, and palladium in tradeable form.

At a minimal premium and for small monthly storage fees, users can hold precious metals in Brinks vaults in countries like Canada, Switzerland, Singapore, and more. The metals can be sent to anyone else with a Goldmoney account or loaded onto a pre-paid debit Mastercard for daily transactions.

If you hold some gold and bitcoin as a safe haven bid in addition to mining stocks and cannabis stocks for considerable long-term gains, you will be shielding yourself against the harshest effects of the storm. More speculative assets like altcoins, junk bonds, penny stocks, etc. should be limited to single-digit percentages of a total portfolio at times like this.

Real Estate

The real estate market is currently overvalued in our view and due for a correction. As interest rates rise and economic growth slows, we could see a repeat of the last housing market crisis. Households are back to spending the same percentage of their income on housing as they were just prior to the last crash.

Governments are also back to pushing for more lenient loan requirements. These are both troubling signs, as we tend to see this happen at or near tops.

But real estate is a great long-term investment and inflation hedge. High net worth individuals should consider scooping up real estate bargains during crashes. People who bought property in 2009, for example, have profited quite handsomely since then.

Short Selling

Sophisticated, risk-tolerant investors might consider buying put options or selling call options to hedge their portfolios during major corrections.

Like many other market observers, I recently mentioned that tech stocks were overvalued. While they have since corrected, there might still be an opportunity to short stocks like Tesla, Netflix, Amazon, and many others in the tech sector if the current correction continues.

But again, acquiring gold and bitcoin should be your first priority. In fact, for the average person with limited resources and little appetite for risk, it may be the only thing that really matters.

The only thing that really has value in a big #stockmarketcrash is successfully programmed #blockchains with huge application possibilities. An example among a few? #DYOR $IOC pic.twitter.com/81AFNKworf

— Swiss IOC-Forever (@SwissIOCForever) October 25, 2018

Global Market Crash 2018: How Bad is it, And Will it Continue?

It’s tough to measure the severity of this global market crash in 2018 as it may only have just begun.

With that in mind, Wednesday was definitely a terrible day for markets and the major indices are dropping again on Friday. It’s shocking to see an exchange like the Nasdaq (the second-largest stock exchange in the world) down over 4% in a single trading session. This marked the worst day for the NASDAQ since 2011. While stocks in the US rallied on Thursday, they still didn’t quite erase the previous days’ losses.

Several variables are pointing toward further volatility and declines, though. Here are just a few…

VIX Has Been Climbing

A good indicator to look at is the volatility index (VIX). VIX has been skyrocketing the last few weeks. This measure of overall volatility in the market has peaked at 25. Four weeks ago it was barely above 10. In other words, volatility has increased by almost 150%.

Extreme Fear Plaguing the Markets

Another indicator is the global fear/greed index. It has turned toward “extreme fear,” whereas just two months ago it was at “extreme greed.”

USD Index Rising

Brian Kelly of CNBC wrote an op-ed piece for Forbes this week in which he talked about the US Dollar as the new VIX. His main point was that a rising dollar creates greater global risks than the VIX can account for.

Kelly also mentions that although many countries are making moves away from the dollar, it still makes up 62% of all foreign currency reserves. So, while no fiat currency is safe in the long-term, it does make sense to hold some cash for now.

After all, the USD index has been strengthening. And while this may be the final top ever for the dollar, it will stay strong in the near-term. As long as you have gold and bitcoin to hedge against it, you’re okay holding some fiat.

In addition, on Thursday, financial advisor Mitch Goldberg said in a guest post for CNBC:

“With bonds also in negative territory year-to-date, as measured by the benchmark 10-year Treasury, it’s important to remember that cash offers both a stabilizing force within your portfolio and a source of funds for new opportunities that come along… As a financial advisor who likes to assort my clients’ accounts based on time horizons and the timing of cash needs — as opposed to the old way of just based on client age or account value — I can tell you that cash and cash equivalents play a critical role in portfolio composition.”

As Goldberg mentions, a big benefit of holding cash is that it provides the liquidity needed to jump into a new investment the moment it becomes most appealing. Because we are likely in the early stages of this decline, cash is king in a limited sense.

When you look at the above factors, it seems this crash is more likely to continue than not. There are also many other factors at play that are beyond the scope of this article and paint an even more convincing picture that leads to the same conclusion.

Stock Valuations Remain High

While P/E ratios have come down a bit in the past few months, the Shiller PE remains historically high. It is currently at 30, higher than the peak just before the financial crisis and the same level just prior to Black Tuesday. In fact, it has only been higher at one point in history, just prior to the dotcom bubble bursting in the year 2000.

Price earnings ratio is based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted PE Ratio (CAPE Ratio), Shiller PE Ratio, or PE 10.

Don’t Panic During This Global Market Crash in 2018

All things considered, October 2018 could very well be the start of something big. The global crisis that everyone has been warning about for the greater part of a decade appears to be materializing.

One thing is for sure, though. In recent weeks, mainstream sources like CNBC, Forbes, and Business Insider have begun to mimic what sources like Gold Stock Bull have been saying for years with regard to a global market crash. We have reduced risk in our model portfolio, entered a short position against an overvalued biotech company and hold a large position in gold mining stocks and cryptocurrencies.

Sign up to be a GSB subscriber today and put yourself in a position to protect your assets and profit from the challenges and opportunities ahead.

[Originally posted on GoldStockBull.com on October 26h, 2018.]

Panic Selling, Investor Psychology, and Why Contrarians Are the Biggest Winners

So far, 2018 has seen some dramatic panic selling across almost all financial markets.

Metals have tanked. Stocks have become volatile and have declined about 10% from all-time highs. The bond market has taken a hit as central banks have begun slowly raising interest rates (for now). And the total market cap of all cryptocurrencies has fallen by almost $600 billion dollars.

This means that many assets are currently underpriced. While most people perceive catastrophe, successful investors see opportunity.

Q3 2018 might one day be looked back upon as one of the greatest buying opportunities of the decade.

Let’s look at the severity of the recent declines in precious metals, mining stocks, cryptocurrencies, and cannabis stocks.

Precious metals

The quintessential safe-haven bids have provided investors little shelter from the recent market carnage. Rising rates, quantitative tightening, a stronger U.S. dollar and the risk-on trade have contributed to the demise of the metals this year. Gold has broken key support and silver has seen steep declines.

Gold

After trading between $1,300 and $1,400 through May, gold has broken beneath support at $1,200. It dipped as low at $1,167 before bouncing back to the current price of $1,195. Gold needs to reclaim $1,250 and ideally climb back above the 100-day moving average at $1,280 to turn bullish again. The RSI momentum indicator was oversold this past week until bouncing a bit in the past few sessions.

Silver

After appearing to hold steady above $16 for at least nine months straight, silver has fallen below $15 and is rapidly approaching $14. The $13.50 price level should offer strong support if the dip continues. The silver price needs to bounce back above $16 soon for our outlook to turn bullish.

Silver is the most volatile of all the metals and has been known to make rocketship-like rebounds. Q1 2016 saw silver soar over 50% in little more than a month. Roughly 50% of silver’s demand comes from industrial applications, so the strengthening economy should increase demand for physical silver.

GDX

Leverage cuts both ways and GDX has been hit especially hard. The gold miners’ ETF is down 6% in the past week and 14% over the past month. The RSI has become deeply oversold, offering an opportunity for short-term traders and long-term holders alike.

The month of August has seen an even more dramatic decline in GDX than the months that preceded it. Value investors now have the opportunity to pick up shares in quality mining stocks that are deeply undervalued. The GSB portfolio is well-positioned in junior and mid-cap mining stocks. We plan to increase exposure over the next few weeks by purchasing a few of the miners currently on our watch list.

Cannabis Stocks

While the marijuana index has seen steep declines over the past six months, a weekly bounce of over 10% from the 6-month low of 224.61 shows how quickly things can turn around. Prior to this bounce, most cannabis stocks had dropped at least 30% from 2018 highs. If this bounce continues a few more sessions, it increases the liklihood that we have seen the bottom for the cannabis sector sell-off.

The cannabis sector is still so young, there’s plenty of time to become an early adopter, even after this bounce. With legalization sweeping the United States and gaining momentum globally, investing in cannabis stocks now could be like buying Microsoft, Apple or Google back when they weren’t yet household names.

Cryptocurrency Panic Selling

The cryptocurrency market as a whole has seen more than half a trillion USD of market cap vanish year-to-date.

Bitcoin, the largest cryptocurrency by market cap, is down more than 60% from its all-time high of over $18,000 in January 2018. XRP, the token of the Ripple network, has collapsed by 90%. Ether, the native token of the Ethereum network, has lost about three-quarters of its dollar value since the year began.

Ethereum

Ethereum has seen very sharp declines amidst this recent sell-off. Panic selling has driven ETH down 75% from 2018 highs around $1,200, all the way to just below $300.

Given that ETH was trading around $7 in Q4 2016, the native token of the Ethereum network still looks to be doing pretty well for early investors.

XRP

XRP has tanked through the floor, falling almost 90% from the high of over $3.00.

The XRP token was truly in bubble territory, having climbed from less than half a penny in early 2017 to its record highs just a year later. We view it as a centralized, pre-mined, bankster coin, that will always be inferior to more de-centralized and fairly-distributed solutions.

BTC

Bitcoin has been the most resilient of the bunch, being the safe-haven bid of the crypto world.

So far, the BTC/USD ratio has kept in line with my previous prediction of holding a narrow trading range close to the $6,000 mark for some time. This could continue for a few more months before a breakout. Historically, the moon months for crypto have always been in the fourth quarter.

While Bitcoin may be down year-over-year, it still represents the gold standard of crypto and has held its own amidst much steeper declines in altcoins over the past few months. In fact, Bitcoin dominance (market share) has rocketed from 35% in May to 52% currently. Bitcoin is currently worth more than all other coins combined. Altcoins are more speculative, so they tend to suffer sharper declines during corrections, but also tend to enjoy greater gains during bull runs.

Investor Psychology 101 and Panic Selling

The average investor gets washed away in the tides of sentiment. When asset prices rise, people tend to take notice and think they just have to get in on the action right away. When asset prices fall, it feels like the sky is falling and it’s time to panic sell.

It’s no secret that this is a loser’s strategy. To make good decisions in finance, it’s necessary to remain calm and act from a place of discipline and rational restraint.

When it comes to mining stocks, cannabis stocks, precious metals, and cryptocurrencies, people tend to have even stronger emotions than usual. They can become mentally “married” to a particular asset class, stock, or token, meaning they refuse to change their position no matter what happens.

This is the definition of delusion.

1a : something that is falsely or delusively believed or propagated. 

b psychology : a persistent false psychotic belief regarding the self or persons or objects outside the self that is maintained despite indisputable evidence to the contrary. 

The sad truth is most investors live in a constant state of delusion when it comes to their assets. Instead of examining trends and evidence in order to come to a rational conclusion, it’s more common to create the desired conclusion and discount any evidence that contradicts that conclusion.

Panic Selling is Not the Answer

In order to buy low and sell high, you have to swim against the tides of bearishness and bullishness. August of 2018 represents the best buying opportunity of the year so far for almost all asset classes. But do most people perceive things this way? No. The more common view is that the end is nigh and all hope has died.

Like clockwork, once asset prices begin to rise, the bulls will begin screaming that now is the time to buy. But by then it will already be too late. The bottom may already have been reached by the time you read this, whatever asset class you choose.

Keep in mind that trying to time the absolute bottom or perfect peak is also a mistake. While you want to buy at a low, waiting for the very pit of a dip is impossible. It causes you to wait so long that the inevitable bounce comes before you were able to seize the opportunity.

Likewise, selling near a high is great, but waiting for the tip-top of a meteoric rise leads you into the same trap. By the time you take profits, a correction will already have hit.

Easy Ways to Mitigate Risk

For the sake of this argument, we’ve been discounting two ways to get around the typical herd mentality that causes most people to lose money. These include stop-loss orders and buying and holding.

Stop-loss Orders

First, you can place stop-limit and stop-loss orders. These give you the option to minimize your losses and lock in your gains without having to keep a constant eye on the markets.

Buy and Hold

Alternatively, you can buy and hold for the long-term. This strategy is much easier for the average person and can lead to the largest gains.

Don’t fool yourself into thinking you’re some master day trader that can make millions trading penny stocks in a couple of months. Arrogance is another fatal flaw in this regard.

Case in point. I once had a friend who lost over $10,000 in less than a year because he kept making massive bets on penny stocks based on news reports or a single technical indicator. This never worked. Using this kind of method is not falling victim to the investor herd mentality, but is pure gambling.

A much better method is to take the contrarian perspective and act accordingly.

Panic Selling and the Contrarian Perspective

Contrarian investing involves doing the opposite of what everyone else is doing. Capitalize on the momentum of the herd instead of being trampled by it.

Consider the following definition of contrarian investing courtesy of Wendy Connick of The Motley Fool:

Contrarian investing is the practice of bucking the herd. Contrarians buy stock when everyone else is panicking and selling theirs, because they know that a flood of stock sales means that the market is near, or at, its bottom and will soon begin to recover. They sell whenever investors become extremely optimistic, because when everyone is buying that usually means the market is at or near a peak and is about to take a dive.

Contrarians take action that contradicts prevailing investor sentiment.

For example, the doom and gloom that this article has so far focused on might make you think that now is not the time to get into crypto, stocks, gold, or anything else. But in reality, nothing could be further from the truth.

A buying opportunity like this will probably not come around again for quite some time. While the broader stock market is still mostly overvalued (particularly tech stocks), mining stocks and cannabis stocks still have significant upside potential going forward.

For those who are betting on much greater U.S. stock market gains ahead, please realize just how overvalued the market is currently (it’s worse than in 1929!). The odds are against much further gains. You need to be realistic. https://t.co/UUu9ltAzyw pic.twitter.com/yHDcYofXID

— Jesse Colombo (@TheBubbleBubble) February 14, 2018

Panic Selling is for Weak Hands

In the financial markets, investors or traders have weak hands when they lack either the conviction to stick with an investing or trading plan or they lack the resources to carry them out. Their are usually small speculators exhibiting predictable behavior. They buy near tops and panic sell at bottoms.

Don’t be the weak hands that panic sell at the worst moment. It’s easy to freak out and feel like you’d better cut your losses before they become even deeper. But what you usually wind up doing is depriving yourself of future gains instead. If you are involved in short-term trading, utilize stop-loss orders to take the option of panic selling near a bottom off the table.

When the world is panic selling, take the contrarian perspective. Buy what you can while it’s still undervalued and wait for the bulls to begin running again. Whether you’re trading for short-term gains or holding for long-term profits, it’s times like these that represent monumental opportunities.

Join us now for just $55 to follow our trades, see which stocks we believe will outperform, discover under-the-radar cannabis companies prepping for huge growth, get our take on the cryptocurrency markets and our top crypto picks for the next move higher. 

[Originally published on GoldStockBull.com on 8-21-18]