As many investors flee to safety during the extreme volatility caused by the trade war between the U.S. and China (and now Mexico, too), I’ve been searching for safe havens for my readers to place their money. As I formed my battle plan to protect us from this geopolitical mess, I was reminded of one of history’s most unorthodox defenses…
The Battle of Alesia.
In the year 52 BC, Julius Caesar was a young commander in the middle of a campaign to conquer the Gauls, a vast collection of Celtic tribes that inhabited modern-day France, Switzerland, Belgium, and Northern Italy. Following a string of clashes with Roman forces, 70,000 Gallic soldiers – including their commander, Vercingetorix – took up a position in the elevated, walled town of Alesia to face the oncoming Roman legions.
Outnumbered by almost 20,000 men, and facing an enemy in a fortified position, Caesar used the engineering expertise of his forces to build a wall completely surrounding Alesia. His plan was to lay siege to the town and starve the Gauls out.
Vercingetorix must have realized the plight he and his men were in, and so ordered his entire cavalry to escape before construction of the wall could be completed. Their mission was to recruit every man that was fit to fight from the surrounding tribes to rescue his besieged forces.
To defend against the possibility of an attack from Gallic reinforcements, Caesar undertook one of the most unconventional strategies the world has ever seen. He ordered his men to build a second wall – this one stretching nearly 14 miles – around the first wall.
Though it was a massive project, Caesar must have been very pleased with his decision when, seven weeks into the siege, a Gallic relief army of over 60,000 men showed up outside his walls. The Gauls immediately launched attacks from both inside and outside of the walls.
After several days of intense fighting, during which the Romans nearly had their lines broken, Caesar himself joined the fray and beat back the Gallic forces. Vercingetorix emerged from inside Alesia and surrendered to Caesar.
Due to his brilliant strategy of setting up additional defenses to protect his forces from outside attacks – which proved to be the decisive advantage – Caesar would soon make all of Gaul a Roman province.
And much like Caesar, I aim to do the same by recommending investments that will help diversify and protect your portfolio from the escalating trade war.
Where to Invest During the U.S. / China Tariff Tantrum
Much like Julius Caesar’s two lines of defense, we’ll use a similar strategy in a market dominated by headline risk – with the lion’s share of those headlines related to the U.S. / China trade troubles. Tuesday in pre-market trading, there was a very modest statement by the Chinese Commerce Ministry:
And the Dow jumped 100 points. The Fed got into the act as well, calling a non-scheduled press confercence where Chair Jay Powell essential said that the Fed would “act as appropriate” to sustain expansion.
All of that, on top of a very oversold market, gave the market fuel for a strong push up on Tuesday. But the volatility is far from over – Monday’s session gave us a whiplash-inducing 9 different reversals of 100 points or more in the Dow:
With the U.S. / China trade negotiations currently at as much of an impasse as they’ve been in the past year, we can expect more jerky rides up and down as the two sides spar in the media (be it of the traditional or social variety). We saw this play out on Tuesday and Wednesday morning with more market turbulence.
With that backdrop – what’s someone with money to invest to do? While there are few if any “safe” places to put money, traders and investors usually look at a few “safer havens” to invest.
Our first “wall” or line of defense is always our stop loss that we use to protect our profits. I’ve written about using these contingency exits many times before, so I won’t belabor that point today.
It’s the “outer wall” that we need to talk about – how we protect against the U.S. / China trade-induced market problems.
There a couple of strategies we can use to form our outer wall. Goldman Sachs just issued a report showing the relative outperformance of companies the provides services vs. those who provide goods (make stuff) during the tariff escalation.
Among the mega-tech service providers, Amazon (AMZN), Facebook (FB) and Alphabet/Google (GOOGL) have recently come under pressure due to the antitrust investigations from the U.S. government. So that leaves Microsoft (MSFT) as my favorite services provider to recommend for a way to navigate the tariff tantrums to come.
Since the most recent trade trouble flare-up, MSFT has outperformed the mega-tech service oriented companies:
MSFT has also fallen less than the broad S&P 500 as well. And with its far superior upside potential vs. the broader index (it has gained almost twice as much as the S&P 500 in 2019) and 1.5% dividend, it makes a great play for new money that you want to put to work.
Setting up alternate income streams has also been a long-standing favorite strategy of mine. One Great Depression era “loophole” could set you up to make thousands every month. Click here to learn how average Americans are using this special class of investments to make a fortune.
Other “outer wall” plays include companies that have no revenue exposure to China, and get few or no raw materials from the Middle Kingdom. Segments that fit this bill nicely include utilities and banks, especially regional banks. Two to consider would be Southern Company (SO), a strong utility with a 4.5% dividend that has been doing very well – and actually gaining in the last month – and PNC Financial Services Co. (PNC), a regional bank from the northeast that has been outperforming the sector.
Using these defensive investments will help to protect your portfolio from the attacks of trade war headlines.
Great trading and God bless you,
D.R. Barton, Jr.