Youâre receiving this email as part of your subscription to Andrew Zatlinâs Moneyball Daily [Unsubscribe]( [Moneyball Economics] 3 Simple Ways to Profit from a Downturn Tuesday, April 19, 2022 The Peopleâs Bank of China just dropped a BIG clue on us. Based on this clue, itâs likely the global economy is about to come to a screeching halt. But just because the economyâs a mess doesnât mean you canât make money in the markets! So today, Iâll give you three simple ways to profit from the coming downturn. [CLICK HERE TO LAUNCH VIDEO OR READ THE FULL TRANSCRIPT BELOW »»]( > ADVERTISEMENT < Moneyball "BUY ALERT" A time-sensitive trade alert is attached to this email... Unfortunately, due to your subscription status, you're missing it! To be able to see today's urgent "buy alert," [click here right now.]( For a transcript of this video, see below. This transcript has been lightly edited for length and clarity. 3 Simple Ways to Profit from a Downturn Donât worry â you wonât hurt my feelings⦠I know youâre not here for my good looks or personality. Youâre here for my investment ideas! Particularly because weâve been crushing the ball lately with our picks. In recent months, Iâve shared profitable plays in industries ranging from defense to agriculture. And just last week, I told you to invest in retail stocks â and theyâve shot up already. So today, I want to keep this momentum going. You see, a recent signal from the Peopleâs Bank of China is giving us a big clue. Simply put, itâs likely that the global economy is about to come to a screeching halt. But just because the economyâs a mess doesnât mean you canât make money! So today, Iâll give you three simple ways to profit from the coming downturn. Hereâs What Banks Do with Your Money To set the stage here, let me briefly explain how banks do business: Customers like us deposit money, and then banks lend out our deposits to others. The thing is, for every dollar a bank gets in deposits, it can lend it out 10 times. In other words, a $1 deposit becomes $10 worth of loans. This helps stimulate the economy. In fact, after money is lent out, it often gets re-deposited â so the bank can lend out the same funds again and again. But banks canât lend out every dollar they get⦠Each countryâs central bank (in the U.S., itâs the Fed) sets whatâs called a Reserve Requirement Ratio, or RRR for short. The RRR is the portion of a bankâs liabilities that itâs obligated to hold onto, rather than lend out or invest. In the U.S., the pre-Covid RRR was 10%. So if a bank had $1 billion in deposits, it could lend out up to $900 million. But during Covid, the rate was dropped to 0%. So banks could lend out every dollar they took in. This policy was aimed at stimulating the economy. But thatâs the U.S. Now letâs take a look at whatâs happening in China⦠The Tail and the Dog Last Friday, the Peopleâs Bank of China lowered its RRR by 25 basis points. That means itâs now at a 20-year low. Why did it do this? Simple. Because it sees a global economic slowdown on the horizon! Chinaâs in an interesting position: As it relates to the worldâs economy, it acts as the tail and the dog. In other words, it relies on global exports (the tail) and domestic consumption (the dog). To explain what I mean, take a look at this illustration of Chinaâs high-speed rail system: As you can see, in 2008, Chinaâs high-speed rail system was almost nonexistent. But by 2020, it covered the entire country. What does this tell us? It tells us that, after years and years of building, China is maxing out. And itâs finally on the down slope of growth. Consumer demand has peaked. Thatâs why itâs lowering its RRR: it wants to stimulate the economy! But hereâs why this signal has me so concerned⦠Either Way, It Looks Like Bad News - Domestic consumption is slowing; or
- Exports are tapering off. Either way, this is bad news for American companies: The U.S. exports a lot of products to China. So if domestic consumption in China is slowing, thatâs bad for American companies that are exporters. And if demand for Chinese exports is cooling, that means a global economic pullback almost certainly lies ahead. But donât fret: Now that we know about the bad news, we can start planning for it. Hereâs how⦠3 Simple Ways to Profit from a Downturn First, be sure to avoid companies that depend on exports for their livelihood. Those companies are about to take a hit. And now, without further ado, here are three simple ways to profit from a downturn. - Bet against the U.S. stock market by shorting it.
- Focus on sectors or companies that do well during slowdowns â for example, pawn shops, or companies that do repossessions.
- And if youâre so inclined, you might also consider the gun sector. As you can see in the chart below, over the past 20 years, the stock price of firearms manufacturer Smith & Wesson (Nasdaq: SWBI) has experienced three surges. And each one was tied to a time of economic strife and/or political turmoil. Based on Chinaâs RRR reduction, itâs likely weâre headed for a downturn. Furthermore, weâre heading into midterm elections. So this companyâs stock could be set for another pop. If youâre a âProâ subscriber, Iâve got details on a pick for you that I believe could more than double in the next 12 months or so. For now, Zatlin out. Talk to you soon. FOR MONEYBALL PRO READERS ONLY
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