⚠️ PREPARE NOW: A HUGE Stock Market Crash Is Coming

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If you're a fan of growth stocks, the stock market is about to get very rocky.
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The federal reserve is talking about raising interest rates over the next several months,
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while the World Health Organization is talking about a new pandemic variant of concern, called
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Omicron.
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In my opinion, we're about to enter a big tug of war [squid game clip].
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On one side, we have inflation pushing growth stocks down, which happens because their risk
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to reward ratio goes up when bonds offer better returns.
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On the other side, we have another round of the pandemic which forces companies and individuals
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to move more of their routines online and adopt new technologies as a result.
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So in this episode, I'll tell you exactly what I'm watching out for, how I'm preparing
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in my own portfolio, and how you can do the same.
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Your time is valuable so timestamps are enabled for your convenience and we can get right
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into it.
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The first thing I'm watching is the Federal Reserve's plan to taper their quantitative
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easing program.
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If you don't know what quantitative easing is, it's this [money printer gif].
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Quantitative easing is actually where the Federal Reserve increases the money supply
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to encourage investing and borrowing by buying bonds on the open market.
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So, when you hear big news channels talking about tapering, what they're talking about
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is the Federal Reserve slowing down how many bonds they're buying month over month until
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they're no longer buying any bonds at all.
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Once that happens, the Fed can begin raising the federal funds rate, which is also called
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the overnight lending rate.
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Currently, that rate is close to zero.
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The federal funds rate is the interest rate that banks charge each other when they borrow
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money, which in turn determines the short-term interest rates that banks and other lenders
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charge companies and individuals to borrow that money from them.
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Rising interest rates are bad for small-cap growth companies because it now costs them
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more money to borrow money which they sometimes do to reinvest into their growth.
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Also, when interests rates rise, bond prices usually fall relative to their returns, making
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them much more attractive investments.
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When that happens, risky growth stocks look riskier, since they have to provide an even
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bigger return to outperform bonds that just got cheaper.
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Inflation and interest rates are a real double-whammy for growth stocks, which is why ARK Invest's
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funds are so sensitive to them and why they've been underperforming the market all year.
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If you're looking to get rich quick, you are in the wrong place.
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That said, I'm paying a lot of attention to how exactly the Fed plans on tapering and
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when exactly they plan on raising the overnight interest rate as a result.
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The Fed is buying $120 billion dollars worth of bonds per month, so if they begin tapering
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that by $15 billion a month, it will take them 8 months to stop printing money.
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That puts us around July 2022 IF the Federal Reserve keeps that pace of tapering the whole
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time.
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Based on comments from a number of Fed officials, market pros now expect the central bank to
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discuss at the Dec. 14-15 meeting whether they should move even faster to end their
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quantitative easing program, which would mean interest rates could start rising earlier
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than July of next year.
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The market isn't pricing that in right now, but I bet it will start to by, say, March.
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Since we know this is going to happen by next summer, if not sooner, I'm going to get more
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cash together than I normally would and slow down my buying in the immediate term unless
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one of my favorite stocks dips very hard.
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I'm looking at you, Stone stock.
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Yeeesh.
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I'm not a financial adviser and this is not financial advice, but in my opinion, you shouldn't
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be afraid to keep cash and cash-like positions on the sidelines over the next few months.
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What is a cash-like position, you ask?
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I'll explain in a minute because this idea also has to do with the second thing I'm watching,
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which is the pandemic's new Omicron Variant.
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The World Health Organization assigned the greek letter Omicron to a newly identified
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Covid variant in South Africa, previously referred to as the B 1 1 529 variant.
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Here's what we know so far.
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According to CNBC, the Omicron variant contains around 50 mutations, more than 30 of which
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are in the spike protein, which is the part that lets it enter human cells and cause infection.
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The issue here is that the spike protein is the target of most vaccines, so mutations
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in that protein raise concerns that this variant may be less affected by vaccinated populations.
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There are lots of things no one knows about this Omicron variant yet, including the full
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impact of these mutations and how severe the symptoms could be for those infected.
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I'm not here to tell you what the right government response should be or even if there should
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be one.
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What I AM suggesting is that we remember what happened to the stock market and the underlying
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companies last time this happened.
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Big market overreactions to headlines.
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Travel restrictions.
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Supply-chain issues.
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Consumers stocking up on goods and capacity limits for in-person services experiences.
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Think about what this could be mean for a stock like Disney.
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Will it go down because of their theme parks or will it go up because of Disney plus and
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their other online offerings?
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What about all the companies that already grew a ton because of the lockdowns last time?
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Do we really think they have room to grow that much again?
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That's the tug of war I'm talking about.
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I'm not saying I have the answer, but I am saying that asking these questions for every
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stock you care about right now could pay off big time in the near future.
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It's also important to understand what will be different this time, for example, the money
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printer won't be going brrrrrr because of the whole tapering thing I just talked about.
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Fintech stocks could get hurt twice: this new Omicron variant could make people tighten
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their physical AND digital wallets, while interest rates rise making borrowing more
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expensive and their stocks look riskier than they otherwise would.
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Again, the idea is to spend more time thinking about the risks we're exposed to right now
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and slowly correct them before the market corrects us.
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There are a few things I think we can be watching to stay informed and make those corrections.
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The things I'm watching for here are the CDC's responses to the mutations of this new variant
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AND if the Fed changes their tapering plan at all for it.
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For example, if Omicron ends up having a larger than expected impact this winter when it's
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colder out, maybe the Fed will take a little longer to taper quantitative easing, buying
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businesses a few more months of favorable borrowing conditions.
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It could go the other way as well, where all the different mutations and variations of
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Omicron don't amount to much and that emboldens the Fed to taper faster and raise interest
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rates while the economy is strong.
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Since I obviously have no idea what will actually happen, my plan is to build more cash, spend
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it slower, and spend it on more cash-like positions.
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Cash-like positions are companies that are less volatile because they're more predictable.
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Think Apple, Microsoft, Facebook and Google and Amazon.
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They're also companies that have high amounts of stable free cash flow and large cash reserves,
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so they don't really need to borrow as much money to grow.
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They're also pretty defensive stocks — are people going to use Google and Amazon less
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if the Omicron variant ends up being a serious issue?
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Or will people use them more?
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This is actually one way that Cathie Wood uses big tech stocks to prepare for crashes
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and corrections as well.
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I actually made an entire episode about it called Cathie Wood Prepares for a Crash.
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That episode talks about how ARK Invest's funds spread out among more cash-like holdings
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in bull markets and concentrate down to their highest conviction stocks in bear markets.
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I'll leave a link to that in the top right-hand corner of your screen right now and in the
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description below as well.
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So, here are a few things you can watch to keep a pulse on the market week by week.
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I already talked about the Federal Reserve's proposed tapering rate, which is currently
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set to be $15 billion dollars less per month.
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A higher number than that means interest rates could raise sooner than July of next year.
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A lower number extends that timeline.
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I also talked about the Omicron variant, the number of mutations, and what that could mean
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for businesses and keeping up to date on statistics that could give early warning signs for stocks
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that rely on selling physical products versus online services versus in-person experiences.
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Again, think Peloton versus Netflix versus Disney versus American Airlines.
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The third thing you can track is the American Association of Individual Investor's Sentiment
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Survey.
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The AAII Sentiment Survey asks its members the same question each week: what direction
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do they feel the stock market will be in the next 6 months?
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If you want to be greedy when others are fearful and fearful when others are greedy, you first
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have to know whether people are being fearful or greedy, right?
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Lately, according to this survey, expectations have been getting less bullish and more bearish,
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so people are getting more fearful.
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The final thing I like to track is actually a little sneaky.
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Like I mentioned, ARK Invest's funds spread out over more positions during a good market
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for growth stocks and concentrate into fewer, higher-conviction positions during big dips,
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especially when Tesla or Teladoc or Coinbase trade at steep discounts.
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So, I track what I've been calling the Cathie Indicator, which is a count of the number
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of stocks in each ARK Invest fund over time.
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When this indicator is down, it means Cathie Wood is selling her cash-like positions and
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buying her high conviction ones.
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When it's up, she's building more cash and waiting for the next deal.
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That's not me trying to time the market OR me telling you to go do the same thing.
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It's just a good way to keep thinking about your own cash position, including any cash-like
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stocks you're holding.
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You can go to www.ark-funds.com, download the holdings for each fund daily, and keep
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track of the number of positions over time.
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When it comes to doing your own research, I always encourage investors to go straight
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to the source.
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If that sounds like too much work for you, no problem.
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I made an absolutely free Google Spreadsheet that automatically updates with ARK Invest's
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latest holdings every day.
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That's an easy way to see all of their funds in one place and you can just write the number
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of holdings down each day.
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You can also see how much money Cathie Wood has in every stock across every fund she manages.
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I'll leave a link to that ARK ETF Calculator for you in the description below as well.
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Or, if you'd like to have access to a plot that tracks this number over time instead
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of having to record it for yourself, my patrons on Patreon and channel members right here
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on youtube have access to my Cathie Indicator dashboard, which I update myself, each day,
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by hand.
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Currently, that plot is showing that Cathie Wood concentrated ARK Invest's funds down
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a bit through September and October and now they're holding steady.
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I'll make an episode updating you on that as soon as I see it changing.
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Sometimes, my supporters catch it even before I do.
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If you're interested in those updates, consider investing in the like button and subscribing
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to the channel with all notifications turned on.
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No matter what you choose to do, I hope this episode helped you understand a little more
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about the Federal Reserve's plans for tapering, the latest news on the pandemic, how they
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each might affect the prices of growth stocks over the next few quarters, and how you can
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start preparing today.
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After all, this is the channel that invests in you.
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Thanks for watching and until next time, this is Ticker Symbol YOU.
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My name is Alex, reminding you, that the best investment you can make… is in you.