February 14, 2015: A St. Valentines Day Massacre?

An impending correction doesn’t have to spell doom

by Steve Selengut

Mr. Selengut is a private investor and a contributing editor to LIFE&Health Advisor. He is the author of the book ‘The Brainwashing of the American Investor: The book that Wall Street does not want you to read.’ He can be reached at [email protected]

Most experts agree that a correction is looming. So, which scenario will you experience?

  • Alternative A
    Valentine’s Day Massacre Highlights Frenzied Five Month Downturn!
  • Alternative B
    Valentine’s Day Champagne Toasts Spectacular Six Year Rally!

No matter which of these scenarios plays out, your primary concern should be preparedness… a case could certainly be made for either. (Market Cycle Investment Management [MCIM] investors have little reason to worry.)

Equity Portfolios are lean and mean, augmented in recent months by a selection of “defensive” issues whose higher yield and business models make them less likely to erode as seriously as overpriced, lower yielding derivatives.

As usual, absolutely no reasonable profit has been allowed to go unrealized, and several non-performers have been removed from portfolios. Equity Bucket cash positions are abnormally high as a result of profit taking and a shorter than normal “buy list”.

Income levels in all portfolios are at an historical high for two reasons: the Equity Bucket REIT (Real Estate Investment Trust) and MLP (Master Limited Partnership) additions mentioned above and the continued cash flow dependability of both Income and Equity Closed End Funds.

If there is any portfolio where you have not harvested at least some of your profits (particularly in your 401ks and other self-directed retirement vehicles), why not do so while you can still obtain Tax Free 6% and Taxable 7.5% CEFs?

The fact that income purpose securities are at lower market valuations (while generating about the same level of income) is an excellent income investing opportunity, but you need to add to your holdings to take advantage of it.

If you have a 5 year or less retirement window, please let me know right away.

If there is any portfolio where you have not harvested at least some of your profits (particularly in your 401ks and other self-directed retirement vehicles), why not do so while you can still obtain Tax Free 6% and Taxable 7.5% CEFs?

If you have been holding money in low yield guaranteed vehicles, it’s time to smell the roses… you’ve seen your CEFs pay their normal distributions, month after month after month… regardless of market conditions. Talk to your 401k advisor and insist upon higher yielding, Collective Trust income options.

Which scenario will it be?

So which of the headliner scenarios is more likely? and should you really care?

No one really knows when the correction will begin, but again,  most experts agree that it will… eventually, and stealthily. And no, it shouldn’t really upset an MCIM user’s plans significantly.

Whenever the correction happens, your income purpose securities are likely to fall much less than in the financial crisis. Your equity positions (Investment Grade Value Stocks, REITS, and MLPs) historically do not fall as far as stocks of lesser quality… during the dot-com fiasco, they didn’t fall at all.

…and, after both the October ’87 “crash” and the more recent financial crisis, IGVSI stocks rebounded to new highs years before the S & P 500.

So… your 401k is not ready. And tell your friends… theirs are not ready either.