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Unstable Investment Cliffs

Updated: Aug 5, 2019

Lunada Bay Cliffs, California

A “DANGER DO NOT ENTER UNSTABLE CLIFF” sign is posted at the edge of Lunada Bay. Good advice for investors too.

Last week in “Investment Tectonic Pressure Building” (

I outlined 8 factors on why investors may want to step back from the financial cliff’s edge.

I told readers that “China Phase 3 is a paradigm shift that is a strong candidate to be the pressure point for the next financial tumbler.”

We got that pressure from China today as the RMB weakened above 7 and China threatened new tariffs on US agricultural products.

Stocks in the US down around 3% on the day. A bad day, not a disaster. But what now? Rush back out on the cliff (buy the dip)?

I am not recommending that at this point for several reasons.

The main reason is that the situation between China and the US is not a “trade war” that can be easily fixed. It is paradigm shift that is generational. We will talk more about this in later blogs but suffice it to say right now as markets are on the move, investment strategies need to be fundamentally changed to take into account the evolving situation with China. There will be big winners and big losers. If you view this as a trade war you will be a loser. Getting the China situation correct may be the single biggest driver of portfolio returns over the next 5 years, and as of now, I believe most people have it wrong.

If China were the only factor making for unstable investment cliffs that would be enough to be cautious. But we have 7 other pressure points outlined in “Investment Tectonic Pressure Building”:

1. Deflation/inflation;

2. Negative interest rates;

3. Mismanagement of the financial system by regulators;

4. Concentration of gains in tech stocks;

5. Computer dominated trading systems;

6. Large accumulation of debt and leverage in the financial system;

7. Many risk markets near historical high prices.

What to do?

Follow the sign at Lunda Bay. Danger: Do not enter unstable (financial) ground.

Step back a few steps from the edge, reduce risk, and enjoy the sunset.

The sun will rise tomorrow.

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