Real Yields and Real Returns
The S&P 500 and Magnificent 7 stocks are expensive and at their all-time highs. We believe inflation will remain stubbornly persistent and not return to a 2% inflation rate this year, resulting in both stocks and bonds losing their appeal due to their duration and interest rate risk. Consequently, we are reallocating from the popular […]
Investment and Strategies for 2024
The four decade era of declining or abnormally low interest rates is over. Both short-term and long-term interest rates are now meaningfully higher, and stock, bond, and real estate prices will no longer be significant beneficiaries of accommodative interest rates as they were in the past. Consequently, asset allocation strategies like the 60% equity 40% […]
Year-End Tax Bounces and Market Crosscurrents
Geopolitical conflicts, inflation, and higher interest rates are adding uncertainty to the popular soft landing scenario as we enter into 2024. Conversely, death and taxes are certain, so this letter will review some tax bounce opportunities that only occur this time of year. From a historical perspective, assets like stocks, bonds, and real estate have […]
Major Asset Classes Are at a Generational Inflection Point
Since 1982, 10-year US Treasury yields have declined from 15.8% to 0.55% in 2020. During this four decade period of declining rates, the three major asset classes of stocks, bonds, and real estate enjoyed unusually high returns that benefitted from the secular decline in interest rates. These three asset classes all share the common characteristic […]
The Changing Market and Investment Cycle of the 2020’s
The yield curve or “term structure of interest rates” has changed profoundly since 2019 with the rise in inflation and the federal government’s response to the COVID-19 crisis. The combination of profligate fiscal spending, excessive monetary accommodation, and high fossil fuel prices based on naive “green new deal policies” have created persistently higher inflationary pressures […]
Fade the Stock Market Blow-Off and Rotate Away from Stocks, Bonds, and the 60/40 Allocation.
S&P 500 earnings have turned up and should drive a final top in the S&P 500 and NASDAQ. Equity risk premiums are dropping, signaling stock market risks are rising. Rising commodity prices should lift energy and mining investments but could upend the Federal Reserve’s inflation fighting efforts. Trouble lies ahead if rising commodity prices cause […]
Trapped Between Inflation and Recession: Derisking Portfolios with High Yielding Investiments
Historically, when the Federal Reserve raises the Fed Funds Rate ten times or 5% in fifteen months, economic growth slows, GDP turns negative, unemployment rises, consumer spending slows, and inflation declines due to reduced demand. That has not happened in this cycle. The Federal Reserve’s hope to return inflation to 2%, is being made more […]
The Market Crack Heard Around the World
The US market uptrend broke this past January and signaled a market top that could lead to a 45% decline in the S&P 500 over the next three years. Market bubbles often trace out similar price patterns due to human nature’s predictable influence on trading. Man, a herd animal, historically succumbs to periods of mass […]
Persistent Inflation Threatens Four Decades of Investor Prosperity
The execution of the Fed’s reversal of its accommodating policy will dictate stock and bond market’s performance in 2022. In 2022, the “TINA” trade or There Is No Alternative argument for overpriced equities will collapse. “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria” said investor, Sir John […]
Uncontrollable Inflation Threatens Four Decades of Prosperity
The 60/40 model is broken. Inflation is rising rapidly, and the Fed is scrambling. Inflation and Fed taper end 40 year bond bull market. Fed’s balance sheet expansion reversal will hurt. Rotate away from large cap growth and bonds. After forty years of declining interest rates the 60% 40% stock bond allocation model is broken. […]