I’ve now lived through seven financial/market crises in my adulthood:
- The 2000-02 Dot-Com Bubble
- The 2008 Housing Collapse
- The 2011 Debt Ceiling and European Crisis
- The 2015 Chinese Economic Crisis
- The 2018 Bond Spasm and December Collapse
- The 2020 COVID Collapse
- The 2022-23 Valuation and Liquidity Crisis
- The 2023 Financial Crisis?
Every problem has started and ended with cheap money, central bank policies, and wild speculation.
Isn’t it weird that the very thing created to prevent the Boom and Bust cycles of the 19th century (The Federal Reserve), is largely responsible for the Boom and Bust cycles of the 21st century?
The entire system is broken. Markets completely rely on cheap money and low interest rates – and the crises that come when things overheat, end with more cheap money and lower interest rates.
So, why wouldn’t markets experience large bets of a Fed pivot and a shift in monetary policy to prevent yet another financial crisis?
While I’d love to tell you that this time is different, I just can’t. The system is simply too big to fail.
So, if you’re starting to panic about long-term positions, let me walk you through our strategy for the coming months.
Focus on Insiders and Momentum
It can be very difficult to hit the bid when it comes to this market. Even though there are plenty of banks that have traded at 50% to 75% lower than recent 2023 highs, it’s very hard to hit the bid and claim you’re getting value stocks.
With that said, let’s take a look at two tools that you can use to identify opportunities ahead.
The first guide is a list of insiders from large institutions that are buying their stock. Many banks have taken a big hit in recent weeks – especially regional players with lots of deposits and healthy balance sheets.
In a time of behavioral insanity, no one is immune from a bank run. In this situation, it can be very hard to buy some names – even if you’re confident that the worst of this situation is over for that specific bank.
To get a jolt of confidence, I watch the executives at these companies. I pay very close attention to the actions of insiders like the Chief Financial Officer (CFO) and the Chief Executive Officer (CEO).
When they purchase shares with their own money, they must file a Form 4 document with the SEC.
In the last few days, we’ve seen aggressive levels of insider buying at financial institutions like Consumers Bancorp (CUBI), PacWest (PACW), and Charles Schwab (SCHW).
While stocks can still decline, it’s good to see the confidence of the executives putting their own money on the line and suggesting that the stock is a buy at certain levels.
Watching Momentum
2023 Financial Crisis or no, if you’re not brave enough to buy with this uncertainty, the best thing you can do is wait for momentum to turn positive again.
With momentum, we’re simply analyzing the status of capital flowing in and out of the market.
In simple terms, we’re measuring in real time when there are more buyers than sellers to help us recognize when it’s a good time to follow the money back into the market.
When momentum goes positive, we might buy a lot of the stocks listed above.
While we might have missed some of the earlier returns, we can be the second group of investors to buy in – and do so with greater conviction.
In addition, we can use positive momentum conditions to actively trade these names by selling Bull put spreads and other options trades that can maximize our gains and reduce the amount of capital required to trade.
There is a lot of uncertainty right now. But I’m not panicking. I’m expecting more intervention into the system. The very people who caused the problem are now in charge of solving it.
They’ll probably all give themselves a promotion and new job title after this newest crisis has ended.
To your wealth,
Garrett Baldwin
Market Momentum is Red
Momentum remains very negative as concerns about Credit Suisse accelerate, liquidity tightens again, and words like “2023 financial crisis” get bandied about. We’re adequately hedged against a dramatic crisis over at Tactical Wealth Investor. To know what to buy now and how to focus on inflation-busting returns, go here.
