I occasionally peruse conspiracy-minded “news” sites, so you don’t have to. A popular theory expounded by the tin foil hat brigade is that Russia and China are joining forces to form a gold-backed cryptocurrency to replace the U.S. dollar as the world’s dominant currency. Once the dollar is dethroned, the thinking goes, America will economically collapse and morph into a dystopian hellscape.

I should also point out that millions of Americans believe that an elite cohort of reptiles rule the country.

Paranoia leads to bad investment decisions. Let’s take a clear-eyed, no-nonsense look at the global investment backdrop. I’ll also show you how to position your portfolio for the coming new year.

WATCH THIS VIDEO: How to Beat The Investment Crowd in 2024

In the epic battle of eagle versus dragon, the U.S. retains the edge. Despite the hyperbole of American doomerism, the world’s largest economy isn’t in danger of being overtaken by the second largest anytime soon.

Moody’s Investors Service on Thursday slashed its outlook for eight Chinese banks from stable to negative. This move came a day after Moody’s downgraded China’s credit ratings.

The ratings agency on Thursday also lowered Hong Kong’s outlook from stable to negative, citing its economic ties with mainland China. Moody’s also downgraded its outlook for 22 Chinese local government financing vehicles.

Moody’s cited China’s slowing economic growth, troubled real estate sector, and massive debt. In a bid to exert more geopolitical influence, China has lent nearly $1 trillion to about 150 developing countries. Beijing has been hesitant to cancel large debts owed by economically struggling countries, in large part because China is facing a debt bomb at home.

In China, trillions of dollars are owed by local governments, their off-the-books financial affiliates, and overextended real estate developers.

Many foreign firms are now pursuing what’s called a “China-plus-one strategy,” a policy that hedges risk by locating plants and facilities in China and another low-cost nation.

China’s stocks have been among the world’s worst performers in 2023. The SPDR S&P China ETF (GXC) has posted a year-to-date daily total return of -11.94%, compared to +21.16% for the SPDR S&P 500 ETF Trust (SPY).

The U.S. stock market also remains the largest in the world, by far (see infographic).

The paradox is that China’s woes help quell inflation fears, which puts downward pressure on interest rates. This dynamic is beneficial for the global economy and financial markets, particularly in the U.S. The worry, though, is that China’s problems could get out of hand.

China’s weak economy has resulted in a weak yuan, meaning its exports are falling in price for foreign buyers. If the country’s economy continues to struggle, it will consume fewer raw materials (e.g., copper, iron ore, and aluminum), putting downward pressure on commodities prices, which are major drivers of short-term swings in consumer prices in the U.S.

Indeed, the economic news in the U.S. has been positive. The economy and labor markets are posting decelerating growth but they nonetheless remain resilient.

The Labor Department reported Friday that nonfarm payrolls rose by a seasonally adjusted 199,000 for the month, slightly better than the 190,000 consensus estimate and ahead of the October gain of 150,000. The unemployment rate fell to 3.7%, compared to the forecast for 3.9%, as the labor force participation rate climbed to 62.8%.

Slowing growth and improving prospects for a Fed “pause” on rates are weighing on the benchmark 10-year Treasury yield, which currently hovers below 4.2%. The declining yield is a tonic for the stock market.

Despite China’s problems, the global economy is expected to remain on track. According to the latest numbers (as of December 8) from the World Bank, global growth is projected to transition from 6.1% in 2021 to 3.6% in 2022 and 2023. That represents slowing growth, but it’s not an outright recession.

The World Bank also estimates that global inflation will steadily decline, from 8.7% in 2022 to 6.9% in 2023 and 5.8% in 2024. Central bankers, including the U.S. Federal Reserve, are starting to moderate their monetary policies. When the Fed cuts rates, as expected in mid-2024, equities should soar.

As we face a new year, the stock and bond markets are poised to thrive. How should you allocate your portfolio for 2024? According to our flagship publication, Personal Finance, allocations that make sense for late 2023 and into 2024 are 40% stocks, 40% bonds, 10% cash, and 10% hedges.

These allocations represent a bullish stance; they’re also a general rule of thumb and you should tweak the percentages according to your own risk tolerance and stage in life.

On Friday, the main U.S. stock market indices closed higher as follows:

• DJIA: +0.36%
• S&P 500: +0.41%
• NASDAQ: +0.45%
• Russell 2000: +0.67%

Of course, global risks will persist into next year. The wars in Eastern Europe and the Middle East continue unabated; China’s financial instability could conceivably cause a financial contagion; and the Fed could still deliver a nasty surprise on rates.

If you’re looking for proven ways to make money with mitigated risk, I suggest you consider the advice of my colleague Jim Pearce, chief investment strategist of Personal Finance.

Personal Finance, founded in 1974, is our flagship publication and it has helped investors build wealth for nearly 50 years.

Case in point: If you had taken the initial recommendation of Personal Finance to buy Chevron (NYSE: CVX), and held on, you’d be sitting on a whopping return of nearly 3,200% (that’s not a typo).

Want to get aboard “The Next Chevron?” Click here for details.

John Persinos is the editorial director of Investing Daily.

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