The World Is Not Ending – But Buy These Four Stocks Anyway

Clearly, the world is ending, and the United States is going to slip into a severe recession or maybe even a depression any day now.

All the instant experts say so.

The ink was barely dry on their nuclear engineering degrees before they graduated Magna Cum Moron with advanced degrees in economic opinions.

After the entirely predictable and long-expected weak jobs report triggered the Sahm rule, indicating that a recession was likely, they all took to the airwaves.

But here's the truth: the economy has not entered a crisis.

At least not yet.

And whether it does or not, here are four stocks to buy to profit either way…

Most of these folks could not pick Claudia Sahm out of a police lineup where the other participants were Paul Krugman, Lawrence Summers, and Janet Yellen, but they understand that someone on the internet said the Sahm rule meant we would have a recession and it was never wrong.

For those at home willing to admit they have no idea what the Sahm Rule is other than a headline: It is an indicator developed by former Federal Reserve and White House economist Claudia Sahm. The rule states that when the three-month moving average of the national unemployment rate is 0.5 percentage points or more above its low over the prior twelve months, we are in the early months of a recession.

It has been very accurate since the 1970s and was triggered last Friday.

The market machines along Charles Street and Atlantic Avenue cranked into high gear with predictions of doom and gloom and the collapse of Western Civilization.

I cannot disagree that there are signs that the economy is slowing. I have been discussing this for months with members of the Benzinga Yield Report.

If it were not for a very loose fiscal policy that regularly injected billions of dollars into the economy, we would have plunged into a recession sometime in 2023.

It is also no secret that tech stocks and the large-cap indexes were trading at nose-bleed valuations and were way overdue for a pullback.

However, it is ridiculous to suggest that we need a 50-basis-point cut in interest rates or that the economy has entered a crisis.

One critical point to remember is that much of last week’s jump in unemployment was not just because of job losses. If you look at the numbers from employment services leader Challenger, Gray & Christmas, job cuts are down 4.4% this year, and July was well below June levels.

The most significant contributor to higher unemployment was increased immigration.

When you look at all the data, it is evident that while the economy is slowing, we are not in recession yet, and there are no signs of a severe recession.

I just took a rare week off for my wife’s 60th birthday earlier this month.

The planes up to Boston and back were full.

The hotels in Maine and Boston were both near capacity.

Restaurants were packed.

Although we cannot entirely rely on anecdotal evidence, I have had almost the same conversations with people from all over the country.

People are still shopping, dining, and traveling.

Looking at financial markets, I note that default rates for leveraged loans and high-yield bonds are falling, not starting to climb as would be the case if the economy was getting substantially weaker.

I have no idea what the economy will do over the next several months.

There is every indication that it may continue to weaken, but any uptick in inflation will keep the Fed on a steady course.

If we do get a rate cut in September, it will be very bullish for banks, BB or better-rated bonds, real estate, and preferred stocks.

Closed-end funds that invest in fixed income and trade at a steep discount to net asset value will also see significant returns.

Banks like Valley National (VLY), Sandy Spring (SASR), and Washington Trust could see significant gains in a declining rate environment. Agency mortgage REITs like AGNC and Annaly (NLY) should also deliver market-beating total returns.

If we stay high for longer without rate cuts, the opportunity to continue accumulating positions in these names, along with BB-rated bonds trading well below par, will continue.

Investors who take a patient, aggressive approach to putting money to work can set up a pay-me-now or pay-me-later situation with banks, REITs, energy stocks, and fixed income right now.

There is a lot of money to be made right now by reacting to what the economy and markets do. Of course, there is also a lot of money to be lost trying to predict what it might do based on incomplete information.

Here are the plays I'm buying.

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