An economic disruption is coming like we haven’t seen since 1932…
When 9,000 banks disappeared forever and took the life savings of 9 million American families.
The good news is that we’ll almost certainly never see another economic cataclysm like the Great Depression.
The bad news is that five economic headwinds are converging in the next five months that will create chaos few investors are prepared for.
Here at the Intelligent Income Daily, we’re focused on finding the safest income-producing investments on the market. And we want to ensure your portfolio will survive and thrive through the worst of anything the economy and stock market can throw at us.
Today I’ll show you what economic disruption is likely coming due to five money-constricting headwinds… and how two high-yield ETFs can help you cash in on the meltdown.
This Economic Disruption Is Likely 5 Weeks Away
The economic disruption I am talking about is the upcoming recession.
But unlike most recessions, there are far too many incompetently unique stances that the government and Federal Reserve are taking that in combination will disrupt the economy far more than previously anticipated.
Usually, the government and Federal Reserve do four things in almost every recession.
First, the government stimulates the economy with increased spending on things like infrastructure and second, it usually cuts taxes.
Third, the Fed cuts interest rates an average of 5%. And finally, if the recession is severe enough, the Fed prints money to buy government bonds and thus increases the money supply.
But in most recessions, we don’t have an underlying banking crisis, which can cause credit to consumers and businesses to constrict, leading to a potential credit crisis.
So in the next few months, these five headwinds occurring simultaneously and set in motion by the government and the Fed, will increase the instability of the U.S. economy:
1. The regional banking crisis is likely to continue – and keep getting worse.
Stanford estimates that 190 regional banks are at risk of failing because their funding costs are 1.5% higher than before the Fed started hiking.
2. The Fed intends to keep rates high.
Two Fed presidents just said they might favor more hikes and no cuts in 2023, even if we have a recession.
3. The Fed is constricting the money supply via reverse money printing at the fastest rate in history.
In fact, the money supply fell 10% last week compared to the same time a year earlier – a level not seen since the “bankpocolypse” of 1930.
4. This October, the new government budget is going to cut spending.
Moody’s estimates that if the GOP debt ceiling proposal were put into law, it would reduce growth by about 0.7% in the following year.
5. Finally, in October, 43 million Americans with student debt they haven’t been paying for three years will suddenly have to start paying again.
According to the Federal Reserve, the average person with student loans pays $3,000 per year. This is equal to a tax hike that will effectively reduce consumer spending by about $125 billion per year and reduce US growth by another 0.5%.
Based on these headwinds, my prediction is that the economy is likely to contract worse than economists currently expect by approximately 0.8%.
That works out to a 1.7% GDP recession that’s likely to last nine to 12 months.
To put this in perspective, economists originally expected a 6-month 0.9% GDP recession, and the average recession since WWII has been a 1.4% GDP recession that lasts nine months.
Now, this slightly worse-than-expected recession that I am predicting is not going to sink the American worker. But it will turn the stock market into a house of horrors that few people can imagine today.
The stock market will likely fall 22% to 45% in the next few months, depending on how bad this economic disruption is.
Taking all the above into account, a recession seems to be about five weeks away, and will peak in severity by the end of the year.
That means the results of all five headwinds colliding will be felt by the U.S. economy in late June.
So how should you prepare?
2 ETFs That Could Help You Mint Money During and After the Market Disruption Passes
Last week, I showed you how the iShares 20+ Year Treasury Bond ETF (TLT) was a great choice for a high-yield stock likely to go up in a debt ceiling crisis just like it did in 2011.
So today, I want to continue building your portfolio protection and share why managed futures are great hedges for economic disruptions like the unique recession that’s on its way. And how combined with long duration bonds, managed futures can help you stay above water, with minimal losses, even in the worst bear markets…
As you can see, this winning combo only fell 5% during the 2022 stagflation crisis, the worst year for bonds in history.
So today I am recommending the winning combination of TLT and the managed futures ETF, Simplify Managed Futures Strategy ETF (CTA).
CTA is the only managed futures ETF that pays monthly dividends. It paid 7.2% in dividends just last year.
Since its inception in April of 2022, it is up 9% per year while the market is down 6%. And when the market bottomed at -28% in October 2022, it was up 25%.
With inflation still sticky and possibly set to remain elevated for the next year, owning both long bonds and managed futures is a great way to maximize the chances of being able to cash in on the coming market mayhem.
And, if stocks fall 20% further, and this hedging combo soars 20%, you can sell your excess hedges and buy quality stocks at the most discounted prices before they return to fair market value.
According to the Joint Economic Council, stocks could fall as much as 45% if the recession worsens. In other words, the more the market crashes, the more TLT and CTA will likely soar in a worst-case scenario.
This creates infinite dry powder (cash on hand) to buy the world’s best dividend blue-chips. Ever wonder why Warren Buffett gets excited in bear markets? Because he always has the money to buy undervalued stocks at the best valuations in years or even decades.
And if you add TLT and CTA to your diversified dividend portfolio, so can you.
Safe Investing,
Adam Galas
Analyst, Intelligent Income Daily
Source: Wide Moat Research