Dear Reader,
This is Dylan Jovine with Behind the Markets.
Happy Tuesday. Today is Tuesday, March 10th.
Last week we talked about being in a risk-off kind of mode.
Now we know why.
The market has sold off, and the primary driver of this sell-off and volatility is the price of oil.
When oil breaks above $110 a barrel, it creates inflation.
It raises inflation expectations from around 3% — already above the Fed's 2% target — up to somewhere between 3.2% and 3.5% depending on who you ask.
And what that does is create drag on the economy.
Think of the economy like an airplane. High oil prices are like adding ice to the wings or loading extra cargo. It just makes it harder to fly. People have less money to spend. Less money to build out projects. Everything gets more expensive and more difficult.
Oil isn't as powerful as interest rates when it comes to its effect on the economy, but it's a close second. Energy is the whole thing, really. You can't do anything without it.
So that's why we've been risk-off. And look, we've been here before.
Those of you who've been with me since 2018 know what makes us different. We don't hide under our desk when things get tough. We don't panic. We keep our cool, we let everybody else in the market start to lose theirs, and we take advantage of that. That's what 35 years in this business has taught me.
Here's how I think about it. There are two columns. Things we can control, and things we cannot control.
In the cannot control column: the stock market, the price of oil, Iran, interest rates, inflation. We cannot control any of it.
What we can control is how we react.
And what we're going to do is exactly what we did in 2018 when they were raising rates. Exactly what we did in 2022 when inflation spiraled to 9%. Exactly what we did on Liberation Day with the tariffs.
We keep our cool.
Now, in the things we can control department, we have four steps. Those of you who've been around a while know these well. I'm going to briefly walk through them here, and you can get them in full detail in the Midnight in America report over at Takeover Targets.
Step one: sell your most speculative stocks and funds.
The most speculative positions are the ones that don't earn money consistently. The stuff you look at and think, what am I even holding this for? These are good times to get rid of it. And remember — the story driving this market is starting to change. Before it was a growth story, an AI story. Now it's a war story. A "maybe the economy isn't as strong as we thought" story. When the master narrative changes, the direction of the market can change with it.
Step two: take that money and park it in short-term Treasury funds.
The safest options are funds that invest in short-term US government securities — T-bills, basically. The Vanguard Federal Money Market Fund is a good one. The symbol is VMFXX.
Step three: prepare a shopping list of stocks.
You've been watching certain companies for years, watching their prices run up, wishing you'd gotten in earlier. If this market actually cracks, you may get your mulligan. Prepare that list now so you're ready when the opportunity comes.
Step four: get ready to pounce.
The great thing about a market sell-off is that you don't have to be Warren Buffett to make great money. You just have to be mentally and financially prepared. Have some cash ready. Have your shopping list. Be the hunter, not the hunted.
Now, we are not there yet. This story could change quickly. If Trump backs off, if the Iran situation de-escalates, the market could find a new narrative and push higher. We don't know.
But get ready. The one advantage we have over the panicking masses is that we keep our cool.
So stay cool and get the full version of our Midnight in America report here.
Anyway, that's all I have for you today. Have a wonderful day. I'll see you tomorrow.
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