⚠️ PREPARE NOW: A HUGE Stock Market Crash Is Coming - YouTube

If you're a fan of growth stocks, the stock market is about to get very rocky.

The federal reserve is talking about raising interest rates over the next several months,

while the World Health Organization is talking about a new pandemic variant of concern, called

Omicron.

In my opinion, we're about to enter a big tug of war [squid game clip].

On one side, we have inflation pushing growth stocks down, which happens because their risk

to reward ratio goes up when bonds offer better returns.

On the other side, we have another round of the pandemic which forces companies and individuals

to move more of their routines online and adopt new technologies as a result.

So in this episode, I'll tell you exactly what I'm watching out for, how I'm preparing

in my own portfolio, and how you can do the same.

Your time is valuable so timestamps are enabled for your convenience and we can get right

into it.

The first thing I'm watching is the Federal Reserve's plan to taper their quantitative

easing program.

If you don't know what quantitative easing is, it's this [money printer gif].

Quantitative easing is actually where the Federal Reserve increases the money supply

to encourage investing and borrowing by buying bonds on the open market.

So, when you hear big news channels talking about tapering, what they're talking about

is the Federal Reserve slowing down how many bonds they're buying month over month until

they're no longer buying any bonds at all.

Once that happens, the Fed can begin raising the federal funds rate, which is also called

the overnight lending rate.

Currently, that rate is close to zero.

The federal funds rate is the interest rate that banks charge each other when they borrow

money, which in turn determines the short-term interest rates that banks and other lenders

charge companies and individuals to borrow that money from them.

Rising interest rates are bad for small-cap growth companies because it now costs them

more money to borrow money which they sometimes do to reinvest into their growth.

Also, when interests rates rise, bond prices usually fall relative to their returns, making

them much more attractive investments.

When that happens, risky growth stocks look riskier, since they have to provide an even

bigger return to outperform bonds that just got cheaper.

Inflation and interest rates are a real double-whammy for growth stocks, which is why ARK Invest's

funds are so sensitive to them and why they've been underperforming the market all year.

If you're looking to get rich quick, you are in the wrong place.

That said, I'm paying a lot of attention to how exactly the Fed plans on tapering and

when exactly they plan on raising the overnight interest rate as a result.

The Fed is buying $120 billion dollars worth of bonds per month, so if they begin tapering

that by $15 billion a month, it will take them 8 months to stop printing money.

That puts us around July 2022 IF the Federal Reserve keeps that pace of tapering the whole

time.

Based on comments from a number of Fed officials, market pros now expect the central bank to

discuss at the Dec. 14-15 meeting whether they should move even faster to end their

quantitative easing program, which would mean interest rates could start rising earlier

than July of next year.

The market isn't pricing that in right now, but I bet it will start to by, say, March.

Since we know this is going to happen by next summer, if not sooner, I'm going to get more

cash together than I normally would and slow down my buying in the immediate term unless

one of my favorite stocks dips very hard.

I'm looking at you, Stone stock.

Yeeesh.

I'm not a financial adviser and this is not financial advice, but in my opinion, you shouldn't

be afraid to keep cash and cash-like positions on the sidelines over the next few months.

What is a cash-like position, you ask?

I'll explain in a minute because this idea also has to do with the second thing I'm watching,

which is the pandemic's new Omicron Variant.

The World Health Organization assigned the greek letter Omicron to a newly identified

Covid variant in South Africa, previously referred to as the B 1 1 529 variant.

Here's what we know so far.

According to CNBC, the Omicron variant contains around 50 mutations, more than 30 of which

are in the spike protein, which is the part that lets it enter human cells and cause infection.

The issue here is that the spike protein is the target of most vaccines, so mutations

in that protein raise concerns that this variant may be less affected by vaccinated populations.

There are lots of things no one knows about this Omicron variant yet, including the full

impact of these mutations and how severe the symptoms could be for those infected.

I'm not here to tell you what the right government response should be or even if there should

be one.

What I AM suggesting is that we remember what happened to the stock market and the underlying

companies last time this happened.

Big market overreactions to headlines.

Travel restrictions.

Supply-chain issues.

Consumers stocking up on goods and capacity limits for in-person services experiences.

Think about what this could be mean for a stock like Disney.

Will it go down because of their theme parks or will it go up because of Disney plus and

their other online offerings?

What about all the companies that already grew a ton because of the lockdowns last time?

Do we really think they have room to grow that much again?

That's the tug of war I'm talking about.

I'm not saying I have the answer, but I am saying that asking these questions for every

stock you care about right now could pay off big time in the near future.

It's also important to understand what will be different this time, for example, the money

printer won't be going brrrrrr because of the whole tapering thing I just talked about.

Fintech stocks could get hurt twice: this new Omicron variant could make people tighten

their physical AND digital wallets, while interest rates rise making borrowing more

expensive and their stocks look riskier than they otherwise would.

Again, the idea is to spend more time thinking about the risks we're exposed to right now

and slowly correct them before the market corrects us.

There are a few things I think we can be watching to stay informed and make those corrections.

The things I'm watching for here are the CDC's responses to the mutations of this new variant

AND if the Fed changes their tapering plan at all for it.

For example, if Omicron ends up having a larger than expected impact this winter when it's

colder out, maybe the Fed will take a little longer to taper quantitative easing, buying

businesses a few more months of favorable borrowing conditions.

It could go the other way as well, where all the different mutations and variations of

Omicron don't amount to much and that emboldens the Fed to taper faster and raise interest

rates while the economy is strong.

Since I obviously have no idea what will actually happen, my plan is to build more cash, spend

it slower, and spend it on more cash-like positions.

Cash-like positions are companies that are less volatile because they're more predictable.

Think Apple, Microsoft, Facebook and Google and Amazon.

They're also companies that have high amounts of stable free cash flow and large cash reserves,

so they don't really need to borrow as much money to grow.

They're also pretty defensive stocks -- are people going to use Google and Amazon less

if the Omicron variant ends up being a serious issue?

Or will people use them more?

This is actually one way that Cathie Wood uses big tech stocks to prepare for crashes

and corrections as well.

I actually made an entire episode about it called Cathie Wood Prepares for a Crash.

That episode talks about how ARK Invest's funds spread out among more cash-like holdings

in bull markets and concentrate down to their highest conviction stocks in bear markets.

I'll leave a link to that in the top right-hand corner of your screen right now and in the

description below as well.

So, here are a few things you can watch to keep a pulse on the market week by week.

I already talked about the Federal Reserve's proposed tapering rate, which is currently

set to be $15 billion dollars less per month.

A higher number than that means interest rates could raise sooner than July of next year.

A lower number extends that timeline.

I also talked about the Omicron variant, the number of mutations, and what that could mean

for businesses and keeping up to date on statistics that could give early warning signs for stocks

that rely on selling physical products versus online services versus in-person experiences.

Again, think Peloton versus Netflix versus Disney versus American Airlines.

The third thing you can track is the American Association of Individual Investor's Sentiment

Survey.

The AAII Sentiment Survey asks its members the same question each week: what direction

do they feel the stock market will be in the next 6 months?

If you want to be greedy when others are fearful and fearful when others are greedy, you first

have to know whether people are being fearful or greedy, right?

Lately, according to this survey, expectations have been getting less bullish and more bearish,

so people are getting more fearful.

The final thing I like to track is actually a little sneaky.

Like I mentioned, ARK Invest's funds spread out over more positions during a good market

for growth stocks and concentrate into fewer, higher-conviction positions during big dips,

especially when Tesla or Teladoc or Coinbase trade at steep discounts.

So, I track what I've been calling the Cathie Indicator, which is a count of the number

of stocks in each ARK Invest fund over time.

When this indicator is down, it means Cathie Wood is selling her cash-like positions and

buying her high conviction ones.

When it's up, she's building more cash and waiting for the next deal.

That's not me trying to time the market OR me telling you to go do the same thing.

It's just a good way to keep thinking about your own cash position, including any cash-like

stocks you're holding.

You can go to www.ark-funds.com, download the holdings for each fund daily, and keep

track of the number of positions over time.

When it comes to doing your own research, I always encourage investors to go straight

to the source.

If that sounds like too much work for you, no problem.

I made an absolutely free Google Spreadsheet that automatically updates with ARK Invest's

latest holdings every day.

That's an easy way to see all of their funds in one place and you can just write the number

of holdings down each day.

You can also see how much money Cathie Wood has in every stock across every fund she manages.

I'll leave a link to that ARK ETF Calculator for you in the description below as well.

Or, if you'd like to have access to a plot that tracks this number over time instead

of having to record it for yourself, my patrons on Patreon and channel members right here

on youtube have access to my Cathie Indicator dashboard, which I update myself, each day,

by hand.

Currently, that plot is showing that Cathie Wood concentrated ARK Invest's funds down

a bit through September and October and now they're holding steady.

I'll make an episode updating you on that as soon as I see it changing.

Sometimes, my supporters catch it even before I do.

If you're interested in those updates, consider investing in the like button and subscribing

to the channel with all notifications turned on.

No matter what you choose to do, I hope this episode helped you understand a little more

about the Federal Reserve's plans for tapering, the latest news on the pandemic, how they

each might affect the prices of growth stocks over the next few quarters, and how you can

start preparing today.

After all, this is the channel that invests in you.

Thanks for watching and until next time, this is Ticker Symbol YOU.

My name is Alex, reminding you, that the best investment you can make... is in you.