Real estate investor Grant Cardone issued a warning regarding the stock market on May 5th, posting “How to invest in the stock market at this level?”
Cardone points to the history of the yield curve, which has been inverted for over 500 days. This scenario has only occurred three times since 1920 – 1929, 1974 and 2009. After each of these periods, the market experienced a decline of more than 50%. He highlights the increased financial threat by pointing out that a 50 percent loss in retirement accounts, compounded by inflation, could equate to a total loss of purchasing power of 75 percent.
To mitigate such risks, Cardone recommends switching retirement investments from the stock market to real assets that generate monthly cash flow. He mentions that he has helped thousands transfer their retirement accounts into real assets-backed investments without penalties.
This allows individuals to rely on a regular income from these assets in retirement rather than depleting capital.
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Cardone’s concerns are actually supported by historical data and economic theory. There have been seven instances of the yield curve inverting over the past five decades. Historically, these reversals were followed by a recession within 6 to 24 months, demonstrating the predictive accuracy of this economic indicator. Since 1955, there has only been one instance in which an inverted yield curve did not result in a recession, underscoring its reliability as a forecasting tool.
Each U.S. recession during this period was preceded by an inversion of the yield curve between the 10-year Treasury yield and the 3-month Treasury bill rate. This relationship suggests that yield curve inversions can actually be a sign of economic downturns, as higher short-term interest rates compared to long-term interest rates often reflect investors’ pessimism about future economic growth.
However, the direct connection between an inverted yield curve and recessions depends on complex factors, including Federal Reserve monetary policy actions and market expectations. If the Fed raises short-term interest rates, it can result in an inverted curve if long-term interest rates do not rise at the same pace, influenced by investors’ expectations of slower economic growth and lower future interest rates.
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Although the predictive power of the yield curve is strong, it is not infallible. Economic conditions, monetary policy and market dynamics have evolved, and there are cases where reversals have not resulted in recessions or have been followed by economic slowdowns without resulting in a full recession. This suggests that while an inversion is an important indicator, it should be one of several factors to consider when making economic forecasts and investment decisions.
Investing in real assets like real estate offers several benefits, particularly as a stabilizing force during economic fluctuations. These assets often have a low correlation with movements in the stock market and provide a form of diversification that can protect investors from market volatility.
Cardone’s focus on real assets reflects a valid strategy for those looking to reduce their risk in the stock markets. His approach emphasizes the importance of tailoring investment decisions to personal financial goals and circumstances and proposes a tailored financial plan that includes physical assets to ensure stable, long-term returns and improved financial stability.
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This article “Millions of Households Will Have Their Retirement and Savings Destroyed” – Grant Cardone Predicts Devastating 50% Stock Market Drop originally appeared on Benzinga.com
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