Update April 30 2022

Greetings  

The markets hammered down today in a brutal across the board sell off Friday April 29th. Simply put, there were more sellers than buyers. Investors worldwide fell backwards. Interestingly enough, the hardest hit here was a Wall Street darling: AMAZON.

They posted higher expenses and a reduction in activity, likely a hangover from the huge mail order business they received during the shutdowns. Also hit was Apple, Microsoft, Abbvie (A drug company valued at ¼ of a trillion dollars) and Johnson & Johnson, among a others.

It was not as bad as it looked as had it not been for Amazon, the red we saw would not have been so blood red. Amazon may have a little more bloodletting before I think it will stabilize. It’s coming share split should bode well for some support hopefully.  

Little green was to be seen anywhere. All the indexes this month got hammered badly, the worst since 2008 I am told. Many are glad April is over. It was a brutal month for investors globally.  

We can thank mostly Washington. Our elected officials think money is free to print up and hand out. What they don’t realize is that spawns complacency, dependence, apathy, and the worst of all it, inflation. Washington got away with money printing for decades without horrible inflation. But in the last year, the money supply (M1) has exploded. (See graph)

 

 

  

Congress and various administrations didn’t believe basic economic theory the money creation causes inflation. But see the huge spike starting in 2020? It started at 4 trillion. Today is 21 trillion. That works out to 17 trillion printed up in a little more than 2 years. I don’t care what economist you talk to. The amount is off the charts by, well, TRILLIONS. If Washington thought they could print up that much and not have inflation, then they are dumber than any of us thought. Even the Federal Reserve, as recently as last year said inflation was “transitory”. Frankly both bodies haven’t a clue. 

Well they finally changed their tune a few months back as inflation figures exploded, and continued to worsen. Now they are in a box. They must tighten the money supply this time around (the first time in I don’t know how long) by withdrawing Quantitative Easing (QE) and initiating Quantitative Tightening (QT). This means slowing down (not stopping mind you) printing copious amounts of more free money. They also have to raise interest rates, what I have been warning about for over year. And now with inflation hotter than half a century, they must raise rates A LOT.  

 

Therein lies many problems: 

1-            Crashing the stock market 

2-            Crushing the consumers access to cheap borrowed money 

3-            Crushing housing affordability 

4-            Making existing revolving debt more expensive (uh oh) 

5-            And finally, making the debt payments by the U.S. government increase by billions.  

Remember, the U.S. owes close to 30 trillion. More if you count debt that is not due today but still due at some point in the future. Increase interest rates not only cost the consumer more in debt payments, it costs the government more as well, and a lot more.  

So how do they pay the hundreds of billions in increased interest on trillions of dollars’ worth of debt held worldwide? 

Good question. 

If they don’t have it (which they don’t), they have to borrow it (and increase even more what they owe to just pay the interest). They could tax it from you and I (which, with massive inflation, few could afford more money out the door) or print it, which is the problem in the first place. 

So here we find ourselves today.  

In the box the FED made. 

So now to the markets: The markets realize some severe increases in the interest rate is coming. Repeated and egregious. The tightening of money spigot shuts off the feeding tube to Wall Street banks, investors, consumers and businesses alike. This tanks the market and hammers the consumer’s ability to spend. A double whammy.  

The FED’s will then resort back to the only tool they have. They will give in, lower rates again (a cycle that they have repeated many times before) and then round and round we go. They will go back to more printing due to public pressure, and the whole thing starts over again.  

I don’t believe the FEDS have the guts to do what needs to be done, which is reset the `system` and allow a horrendous depression to accomplish that. It’s the medicine we need, but it will taste more than awful and one quarter of the way thru, the public outcry would be ear shattering.  

Finally, tying it all in to you and I, inflation is here to stay. It may back off as the economy spirals into recession (we got our first negative reading yesterday. U.S. GDP actually FELL 1.4 %), but long term it is here to stay.  

Two quarters of negative readings is a definition of recession.  Just saying.  

Since right now the markets are digesting the coming drastic interest rate increases (courtesy of the Federal Reserve for not seeing it earlier like some us did and wrote about and therefore waiting until inflation got out of control), the selling continues.  

That said, with bad inflation, I mean real bad inflation, which is what is coming, historically the place to be is in stocks.  

Not necessarily high multiple (expensive growth stocks) but more like solid companies that pay investors to hold them (dividends) and that increase them every year. (See notes at end of email). 

Certainly the bank pays us little to nothing. Real estate is ok, but with recession, people stop paying rent and taxes and maintenance skyrockets. Additionally, as rates increase, home mortgages become more expensive and then you can’t sell it even if you wanted to. (Think the foreclosure environment of 2008/09).  

Today, with the selloff of Amazon, and other growth stocks (stocks that traditionally don’t pay dividends but instead use their profits to grow), means the market may be more and more turning to the value of dividend payers.  

Like a house rental, you get your rent checks (in the form of dividends) without the tenant, the maintenance, the illiquidity, selling commissions, taxes and whatever else makes up being a landlord. Not to mention the possibility of another RENT MORATORIUM! There is not a divided moratorium! 

And like a rental home, sometimes they drop in value, but as long as you’re getting your rent (dividends), you don’t look up the value of the rental every day and say “geez, I lost money today”. Keep that mindset when holding dividend stocks. Balances may move but we will get our checks if the companies keep true to their track records. And if so, we get more every year.  

Concluding, the selling may not be over. No one knows. And yes, I feel your pain. I know it all too well as I have been doing this 40 something years. But it is what it is. Right now, many investors have not sold thing and have given back 5 years or more of gains and still going down.  

Not us. Know that we have been selling for weeks, even months, and may continue to do so should we see more erosion. 

At some point this will end. But I cannot promise you when and how much farther it will go.  

That said, please re-read the annuity mentioned again at the end of this email.  

This is what I have been recommending for months now, and more so in the last month. It is because I do not know (nor does anyone) know if it stops tomorrow or goes down similar to what the March 2020 CoVid crash did (down 38% in 15 trading days), or like 2008/19 (down 50%) or similar to the dot com crash (down 80%). 

Hey, it can happen.  

Those that went to into an annuity already have made safe that portion of their nest egg. They are already out of stocks. More are doing it now and I am selling stocks for those funds as well in their accounts. One less worry for them.  

Annuity equals: No more red, no falling balances, PARTIAL participation in market rallies possible, and principal protected. Then we take the remainder and aim for an aggressive stance to attempt to make that portion act as if the entire portion is in the market. With less at risk, we can go for higher returns as we have reduced risk in entire portfolio. And remember, this annuity allows you to take out 10% a year, so we can take money OUT if the markets eventually look healthy and long term reasonable. The ability to withdraw 10% every year and go BACK into the market is a great feature and also spreads our risk by buying in over time.  

For me, I continue to hold my rental (my dividend payers) knowing my “rent” will increase every year (see notes below), and although I hate seeing my balances go down, I have seen many, many crashes, and lived and prospered through all of them.  

Bad crashes have their good in them. Rot is cleared. Novice investors learn lessons (sometimes very harsh and very costly ones), and weak companies are done away with. Best of all, bad crashes are can be followed with stunning and prolonged uptrends. Like plants, once the forest is burned away, new growth explodes into the new light that the destruction brought. 

That’s all. Those wanting to move to more cash, I would never go against a client’s wishes, so just message me. I do however, recommend the strategies detailed instead in this letter for a more balanced and conservative approach based on the markets.  

Now go enjoy yourself this weekend. Let me worry about the markets. (And unfortunately, I do, a lot!)  

“Watching the markets so you don’t have to”  

Marc  

  

Disclaimer: This is not a recommendation to buy or sell any securities. May include forward looking statements. Past performance is not a guarantee of future results. No one can predict market movements at any time. Investing involves risk. You can lose money, including total loss of principal. Consult your tax advisor for all income tax related questions. Stop-loss strategies utilize stop orders which turn into market orders, so they may not limit losses. Dividends are not guaranteed and may be cut or eliminated at any time and may not prevent losses. Annuities are not FDIC insured and are insured and guaranteed by the underlying insurance company only. Early withdrawal penalties may apply. Management fees are not allowed once funds are moved to an annuity. Annuities may or may not be suitable for all investors. Indexed funds attempt to track the underlying index but are only a proxy for that index and may or may not track the index exactly.   

Special note: For those wishing principal guarantees and possible market upside participation, you may consider a fixed indexed annuity. Purchased annuities have no management fees and are 100% principal protected. These I have found are desired by those that cannot tolerate any losses whatsoever, or are extremely sensitive to any kind of loss. They also will participate (rise in value) if the market (S&P 500) rises between the applicable time periods as set forth in the contract, so they have a minimum guaranteed interest of 7.2% over the life of contract OR you get a portion of the increase in the market. The greater amount of the two is what they guarantee and always 100% guaranteed to get at LEAST all your principal back and a MINIMUM of 7.2% on the entire balance OR the market upside, whichever is GREATER. The best of both worlds. Contact me for details.   

(530)559-1214