 Good day, fellow investors. A lot of interesting things have been happening lately. Unfortunately, a little bit towards the negative side. We have the inverted yield curve that signals a recession or has signaled a recession over the last 40 years, always without error. Then we have trade wars, we have emerging market crashes, Argentina 55% in one day, fear in contagion, the Fed is lowering rates, now it is expected to lower more rates, stimulus in Europe. So a lot of things that show how the market is very, very risky. We're going to go through those things, explain why stocks are down 5% for the month, 3% over the last 5 days. And then I will give you two common sense investing tips that you can apply to your investing style that can help you navigate this uncertain and also, let's say, from a historical perspective, unchartered waters. So let's start with the summary overview of what's going on, explaining the implication of the inverted yield curve, for example, and then see what you can do about it. Let's start. News, of course, US-China war. It's not just about the trade war now. The markets fear an escalation. We have retaliation, fearing a financial war, and then that could also lead to a currency war. Listen to Bridgewater Associates YouTube video, and they are also fearing really supply chain disruptions or things like that that could happen because China, as a growing power, is clashing with the old power, which is the US. There has been emerging markets, stock market crashes of 50%, shock in Argentina, Hong Kong erupted again. There is also protests, fear of contagion, Singapore cuts its growth outlook to 0%, from 1.5% to 2.5%, industrial output in China has been the lowest since 1990. Still very, very good, 4.8%, but in a negative trend. If we look at Europe, it's a mess. Germany had a negative growth quarter for the GDP. Italy is also stagnating, lower than expected results in the rest of Europe, and now everybody's talking about new monetary policy stimulus to get the engine going. But Europe is very, very risky as a whole. From a political perspective, you see what's going on in Italy, but also from a financial, economic, demographic, whatever perspective. So there are certainly risks. When we switch to the US, the deficit in 2019 is already higher after just 10 months than 2018. This is really crazy. And this is also a stimulus, so fiscal stimulus, monetary stimulus. And despite the stimulus, there is no stellar economic growth. And what happened on Wednesday, the inverted treasury yield. This means that investors require higher interest rates to lend money on a shorter term than on a longer term. This means that they are betting on lower interest rates for the longer term and therefore are happier to pay more for longer term bonds rather than shorter term bonds. And this happens so the two year treasury yield and the 10 year treasury yield have now inverted. The two year treasury yield is higher than the 10 year treasury, which is not economically logical. If you lend for a longer period, you should expect a higher interest rate. To put this into a better perspective, US 10 year minus two year government bond spread. This is from the Wall Street Journal, The Daily Shot, a very interesting newsletter. You see that it has inverted while in 2014 the spread was two percentage points, of 200 basis points, how they would say. What's very interesting also is that the 30 year treasury, so if you lend to the US government for 30 years, you only get 2.15%. That's just slightly above inflation. This means that investors are betting that interest rates will go even lower and thus the value of the bond, the 30 year bond will go even higher. But we have seen, if we look at this over the past five years, we see that such sharp declines in yields have happened in 2014-15, 2016 and then quickly the yield returned to 3%. So it could be again something like that as speculators are entering and chasing those bonds, betting on things that they don't know will happen. Nevertheless, if we look over the last 40 years, recessions have always been preceded by the two year and the 10 year yield curve inversion. So we have 2007, 1999, 93, okay, it's a soft landing, not really a recession, but still, and then also the 90s. So when that happens, as smart money chases safety in bonds, longer term bonds, it is a signal that there might be a recession. We will see whether it will really come to that because stimulus is on its way. The Fed has already cut its rate a few weeks ago, we made a video on that, and it is expected that it will cut four or more times in 2009. Which was something crazy to think about a few weeks ago or a few months ago. So when you put all this into perspective, we have crazy risks in Europe, deficits in the US, trade wars affecting global trade, slower global growth. You would say it is crazy to invest in stocks. Plus, if we take a look at fundamentals, ratios and valuations are sky high. Just take a look at the SAP 500 price earnings ratio. It is 21.4, it is much higher than the historical average. And we have seen Warren Buffett saying that prices are sky high for businesses. And that is why he has 122 billion in cash. So we have a lot of risks piling up and we have high valuations. Combinations that you would say, OK, I should sell everything and retreat in panic. However, that might not be the smartest thing to do. And I'll explain why and I'll give you now why you should have a part of your portfolio in cash to manage what might happen in the future. We don't know what will happen. And then secondly, why you should think about diversifying from Europe, from US, especially if you live there. You're already so long those countries diversifying elsewhere into the world, into emerging markets. And on Sunday, I'll discuss Ray Dalio's view on China, give you some important investing inputs to see whether you should expose yourself and your portfolio to the Chinese stock market. The intuitive thing, as I said, would be to sell everything based on the news that we have just discussed because the risks are really there. But if we go back to 2015-16, the situation was similar. We had deficits, people were fearing China entering into a recession and contagion the whole world, slow growth. So those that sold in 2016, based on similar fears that are around now, have made a huge mistake. Stocks are up almost 50% over the past few years. So selling everything is not really the smartest idea. Plus, if we look at Dr. Copper, they call it Dr. Copper because it projects what will happen to an economy. In 2016, the price of a pound of copper was below $2 and was declining during 2015. But then the situation changed and it spiked back to highs above $3 in 2018. And now it's trending down again. So lower demand for copper signals slower economic growth, global economic growth. But then again, if you sell now like it was the smart thing to do in 2016, you would have missed out on huge global growth. I recently received an email from a viewer asking whether we can time the market. If you want to send me an email, you can always do it, feel free to do it. And the question was, can we time the market? Now, I think we can't time the market because if you miss the five best days, your returns over the long term are halved. Of course, if you miss the worst days, your return skyrocket. But the thing is that if you miss the five worst days, you're probably going to miss also the best days. Because if you look at this, the best and the worst days all happened in a very short period of time in 2008, 2009. October 2008, we had crazy up and down days. So it would be selling your whole portfolio on Monday and buying the rest of the portfolio again on Tuesday. So that's something practically nobody can do. And therefore I advise against market timing, against exiting with a portfolio. What you can do is what Buffett does, having a dedicated allocation of your portfolio in cash and then buying more or selling depending on the valuation or where the stocks are. For example, you say, OK, I'm invested in SAP 500 index fund at 3,000 points. I'm 80% invested with a 21 P ratio at 2,500 or better to use the caper ratio cyclically adjusted. 2,500 I'll be 85%, 2,000 I'll be 90%, 1,750 I'll be 95, 1,500 I'll be 100% invested. And when you have something like that, if it goes down, you are happy. You can buy more on the chip. If it goes up, you're happy because you made money. So you're balancing your risk and reward with cash exposure. The key is that you buy when there is a crash, a dip, and then then you sell again when there is exuberance like it was the case two weeks ago. But everybody expected more and more growth from stocks and they didn't sell, they didn't rebalance. It's always hard to do the opposite than what the market does. And then there is something else when it comes to market timing. Everybody is talking about stimulus. So Germany is struggling, euro area economy slowing down. And then ECB policymakers are considering launching new stimulus boosts. The European area has had stimulus for the last 12 years. And now they're already discussing new stimulus, new more money, more money. So no policymakers might not allow the market to crash more. And that's also the biggest risk to market timing. If perhaps you might sell and the market never, ever comes back to those levels. That happens, that happened to those that sold in 2011 because stocks rebounded. So I would advise against market timing. I would advise for cash portfolio balancing. Look at this, look at what happened to the household network. So it might have been smart to sell in 2007, but the world, in this case, the US is almost two times richer now, 10 years later, rather than 2008. So staying out of the market, you might miss huge upsides that come over time. The second point I want to discuss is diversification. So if you live in Europe, if you live in the United States, Canada, you're already long developed markets and developed markets has relatively high price earnings ratio ratios because of free money that's being printing and stimulating the economy, deficits and everything. So if you want better investment returns, you might want to look for lower price earnings ratio. Let me show you. So as we said, the SAP 500, in this case, the SAP 500 ETF has a price earnings ratio of 20, 21. Now, if I look at the China ETF, it has a price earnings ratio of 11. OK, so lower the P ratio, the return could probably be over the long term, twice as large as what the SAP 500 offers. But you have to dare to invest in China. And as I said, on Sunday, I'll make a video to put a better perspective on what are the risks and rewards of investing in China now. And then to spook everybody now, I'm going to give you a price earnings ratio of five with a high dividend yield. What if you diversify into Russia? Nobody wants to go into Russia. Are you crazy to invest into Russia? But the price earnings ratio is around five. The dividend yields are extremely high and nobody wants to touch that. So you might want to think about diversifying. If you don't want to go into Russia, I'm invested in Russia. I'm invested in China. I'm invested in the United States. But by diversifying, you are balancing out what's going on in the world. We don't know whether the US will win the trade war. Perhaps it will be China. Perhaps Russia will benefit from the emergence of China. And then if you are diversified, you win, win, win whatever happens. If you have cash, you win, win, win whatever happens. And that's the message of this video. Yes, the news are what they are always risks everywhere. But if you are smart by using cash and being diversified, you can reach your long term financial goals. So thank you for watching. If you like this common sense approach to investing by looking at the risk and reward to being in cash, diversifying, please subscribe to this channel. Click that notification bell so that you don't miss videos like the one that is coming on Sunday about the risk and reward of investing in China. Thank you. Looking forward to your comments and I'll see you in the next video.