New Harbor: How To Invest When the Bull Is Shaking Out All The Bears

The stock market has been on an upward streak for the past two years, and the Dow and S&P have returned to hitting all-time highs, despite the precarious outlook for equities laid out in this week's earlier report: The Stock Market's Shaky Foundation.

At the same time, unrest in an increasing number of markets around the world (Venezuela, the Ukraine, Turkey, Argentina, to name just a few) threatens contagion risk. And looking at the big picture, interest rates remain elevated from their 2012 lows and are likely to move higher, not lower, from here. 

For these (and other) reasons, the current environment is extremely challenging for investors. The pick-a-sector-and-then-buy-and-hold strategy that has worked well for many of the past several decades is no longer prudent. Investing in today's markets requires more fundamental analysis at the individual company level, as well as a willingness to defensively build up "dry powder" reserves to deploy if indeed (as we expect) a major downward market correction brings assets prices down to much lower levels.

In this week's podcast, Chris talks with the team at New Harbor Financial about the current outlook for the market and what they think investors should be prioritizing:

Maintaining discipline and patience here, is very, very important whether you are a money manager or an individual investor. It is times like this that it is really truly the hardest thing to do—to sit out, to remain in cash to a large degree, to watch others brag about the easy gains that are being made—when the data set that you are looking at is telling you to be extremely cautious, as it has been telling us for some time. Human behavior never changes. We are seeing—amongst not just our clients but people that we talk to—we are seeing a lot of frustration. Not necessarily frustration with either how they are managing their money or how we are managing their money. They just feel frustrated that they cannot, in a safe way, take part in more of the gains that they perceive others are taking.

So you know, the sense is that everyone is partying except them, and that can be very mentally distracting. I think a lot of your listeners out there that are managing money for themselves are battling this.

So the prevailing sentiment out there for people that are in the stock market that have made good gains in the last year or so, even if it has been a risky environment that whole time, is that they can get out whenever they want to. And history has shown that it is often difficult to do that. If you look at the nature of the market, it went literally almost straight up last year. And we are seeing a little bit of a change in character early this year, a little more volatility. We had about a 6% drop about a month ago, a few weeks ago, January. We came right back to the highs. And it is the self-reinforcing behavior in the market that when people go in and buy dips, it keeps coming right back and that is—eventually when a bear market develops, that is what causes so much damage because people have been lulled into complacency and they think, "well, I have been buying each and every drop, I will just buy each and every drop all the way down," until, of course, they do not want to look at their statement to their accounts anymore and then a bottom forms some years later.

But right now in the community, we are seeing more pressure psychologically, really, than I think we have ever seen in our business. Certainly more so than in the 2007/2008 timeframe. So most of our job these days is essentially counseling people to remain patient and not get tempted into these risk markets. The job of this bull market is to shake every bear off and to suck every last bull in. And the data set just does not support that. 

The discussion then continues, focusing on risk management strategies investors can consider such as raising cash, taking advantage of stable value funds (if your retirement plan offers them), taking short-term high-quality bond positions, deploying options such as covered calls and puts (but be sure to do so under the direction of your a professional financial adviser if you don't have prior experience with options), and others. 

But perhaps even more important, the New Harbor team advises investing in grounding yourself emotionally. Focus on the data and don't let emotion cloud your decision-making. Decide on a plan that makes rational sense to you, and stay disciplined in carrying it out over time - no matter what temptations or taunts the market, or your neighbors, may serve up in the short term.

If after listening to this podcast, you find yourself interested in connecting with Mike, John, and the rest of their team to learn more about their advisory services, please use the form here to do so.

Transparency note:  As a result of our public endorsement, Peak Prosperity has a commercial relationship with this firm. The details of this relationship are clearly presented in writing during the referral process -- but the punchline is, our relationship does NOT result in any increased fees to those who become clients.


It should go without saying: this discussion should not be construed as individual financial advice by those listening to it. The content should be taken as informational and educational in nature only. Investment advice must be tailored to your specific personal situation (which Chris and his guests are obviously unaware of) and should be obtained directly from a financial adviser you trust. Before acting on any of the statements made in this podcast, we advise you do just that.

Click the play button below to listen to Chris' interview with New Harbor Financial (30m:14s):

This is a companion discussion topic for the original entry at

Aloha! I can attest to what John says here about annuities and how they are marketed to those entering retirement. Autopilot indeed …
Yeah, another category there, some folks own variable annuities, for example. They have been very popular products that folks have bought over the last bunch of years and that is another class. If folks own variable annuities, they often forget about it. They are oftentimes on autopilot. Many of them have very substantial stock market exposure and many folks are not aware—much like in the retirement accounts—you can oftentimes get access to a fixed interest account in those variable annuities that might pay upwards of 3%, as Mike alluded to.

My father opted into an annuity in 2004 when he visited Merrill Lynch. When he died in 2006 my mother had no idea what he did with his money so she called me to look into his holdings. I looked into the annuity which was then managed by American Fund and I noticed a large portion was invested in Fannie and Freddie and GM and other stocks with a smattering of bonds. Mostly the annuity was overweighted in unperceived risk! I really did not like the overweighted FNM and FRE exposure. I went to Merrill Lynch in Oct 2006 and told them to cash out the annuity. As I anticipated the Merrill Lynch broker did his best to convince me to leave the annuity in their capable expert hands, in so many words. 

If you recall FNM and FRE were touted as top rated secure GSE vehicles, but unfortunately that lulled everyone into a false sense of security and while the government did guarantee that FNM and FRE would survive the government did not guarantee their stock price would survive, which during the time of July 2008 both GSEs lost half their value. Recall back then that even Merrill Lynch would have failed if Bank America did not step in. However I seriously doubt that my father would have researched what Merrill did with his $1mil annuity anyway. Actually in 2009 I got an email from that same Merrill Lynch broker and he said my decision to cash out was "spot on"! Wow … how often does a Wall Street broker get that honest?

I love how the government has made FNM and FRE into these hugely profitable success stories now. If I controlled 80% of the market and had the pockets of the US taxpayer in anything I would be a success also! In layman's terms its called a "monopoly"! Which is what US Debt is … 

As an electrician,
When bankers start describing parabolic curves out of windows that is evidence for me that they have seen the Stygian darkness. (It is a mark of the triumph of the Models that a man can confuse the models so badly with Reality that he is prompted to take his own life. Or even worse- to take someone else's.)

I am going to take my own advice and invest in myself. Capitalism is going down. Distributism rulz.


Don't expect Congress to privatize Freddie and Fannie.  They are an integral part of the Debt Game now providing cash flow.   We are certainly moving to fascist servitude.  It is right in front of us but the optics are blurry due to MSM propaganda.

As of 2/28/14 Russell 2000 TTM P/E is 81.22 (wait over 80 years for return of capital).  Record margin debt, collapsing housing, fraudulent accounting in S&P 500 companies, bankers rigging every market.   All in!!!

I see that Mitsubishi has made a big break through in Cold Fusion. The profits will be diluted by the size of Mitsubishi, but then again we are talking about something to rival Big Oil.
(Unless of cause Big Oil sees to it that more bodies drown while taking a bath.) I wonder how the Yakuza stand on this issue? Let us hope that they are honorable Japanese.

Toyota is also in it to win it.

Recently Toyota replicated a key experiment of Mitsubishi, showing the massive opportunities in LENR energy as well as LENR transmutation.  Toyota is a huge company and would be best for a long term invesment.
And then there are a lot of more intimate companies.

Don't say you did not know. You know now.

If you had read my missive from the ICCF 17 in Daejeon You will remember that I said that Mitsubishi were experimenting with transmutation of elements.
Well they have been given a patent.

What else do they need to gain credibility? You make your own list.

Real cold fusion would be a game changer.  Mr. Fusion, power anywhere  anytime anyplace!!! 

[quote=Arthur Robey]If you had read my missive from the ICCF 17 in Daejeon You will remember that I said that Mitsubishi were experimenting with transmutation of elements.
Well they have been given a patent.
What else do they need to gain credibility? You make your own list.
Given the parlous state of the oceans, and the biological desire to expand up to if not through all the available energy limits, what do you suppose humans would do if we came across virtually unlimited and concentrated energy?
Don't forget, even a 3% yearly expansion in energy use produces enough residual waste heat so that within 400 years the planet is 100 degrees centigrade at the surface.
Show your work.  ;)

I see humans as a very fragile hybrid who has difficulty breeding. As Eugene M McCarthy (Phd Genetics) points out other animals are much more fecund. How often does a bitch need to be covered to produce a litter?All the Romans  added to their environment was lead in their Plumbing and what a difference that made to their state of health. We are adding endocrine disrupters to the environment with gay abandon.
To a fragile breeder like H.Sap I envision a future with a desperate effort to produce any offspring at all. But let us not be too pessimistic and say that evolution works it's magic and we survive, this would be a reset of civilization and culture. Nothing would be the same again.
I have deliberately left out all ideology.
Edit: If you don't like that black swan I have plenty of others.

Hi ArthurI love your posts, but speaking as one who has his name on over 10 issued patents and over 60 applications, I'll just say that getting a patent through the USPTO really doesn't mean much.  These days you can patent something without demonstrating that it works.  It's called "advanced inventing" and most companies do this today, writing up every concept they have on the chance that it MIGHT one day work (hopefully in less than 17  years, the life of the rights to enforce).
But, I'll be reading the transmutation papers.  I love that kind of stuff!

I would like to get opinions on counter-party risk as relates to insurance company stable return funds that some 401K plans offer including mine.   If munis implode, what does this imply for stable return funds paying out long-term?  What other factors could be threats to this vehicle?  I cannot forgot about AIG and think the next down leg will reveal even more casino plays that will astound us as relates to bonds/stocks/swaps/insurance.