“Looking for love in too many faces, hoping to find a friend and a lover…”. Remember this Johnny Lee song featured in the 1970’s film, “Urban Cowboy”? By the way, that film launched two Hollywood acting careers, that of Debra Winger and John Travolta. {{{Back to reality}}} If you’ve left your investments intact in the U.S. stock market while the policies of the Biden Crime Family and his fellow Democrats have reigned over the White House and both houses of Congress, systematically dismantling the U.S. economy and the expansion track we were once on, then I’m here to tell you my friend, you’ve been “looking for love in all the wrong places!” 🙁

There’s not that many breaks to be had these days in America but just know with every new experience, there’s always lessons to be learned which can benefit us going forward, and 2022 is no different. Lessons these days come in by the dozens for Americans who are experiencing a not-so-friendly financial markets environment coupled with a federal government that’s plain crazy not to respond to the inflation they caused due to their war on oil & gas production, and not to mention the crime we’ll experience from their policy on completely open Southern borders. We’ve been living under some very poor third-world conditions for about two years now. This isn’t a political post but I have to stop for a second to mention in case you still haven’t noticed, all Democrats want is for you to keep voting them in office at election time so they can keep making money by selling our country out to hostile communist countries? There you have it. Once the mid-term elections are over Democrats will resume dismantling the Constitution and your way of life. After all, they’re not here to elevate your way of life, instead it’s all about them staying in power.

I’m here to talk about one aspect that can help you manage your own savings going forward, this is an article about financial market strategies in general that could help you the next time you vote in someone as stupid as the Biden Crime Family to occupy our highest office, plus all the idiots you keep voting for in both houses of Congress. Boy you’re a real mental giant huh? “What a fine mess you’ve made” [of your country] to quote Oliver Hardy. However, now that we’re here there is one area of discussion that has been misrepresented for quite some time. It’s something that pundits on financial radio and television will express once the stock or bond markets become “fully valued”? A condition that happened over the past call it 18 months or so. Years and years, really 40+ years of declining interest rates in the U.S. left all bond markets way – way overvalued/overpriced. Plus years and years of Federal Reserve stimulus programs aimed at driving down U.S. interest rates left our stock market swirling around in an unsustainable speculative bubble by the end of 2021. Keep these facts in mind as you read on…

Thinking out loud, I made note of something I found interesting. It seems that the larger, or more well diversified, the stock index, the worse the performance once interest rates began following inflation higher. Check this out –
NASDAQ Index, includes more than 3,600 listed securities, YTD return: -32.15%, that’s just in 2022.
S&P 500 index, 500 listed securities, YTD return: -23.09%
Dow Jones Industrial Average, only 30 stocks total, YTD return: -16.52%

What’s going on here? If you went back to prior years and looked at the difference in annual returns for these three indexes you’re likely to discover that more diversified indexes perform better than their peers when interest rates are benign, or at least the expectation for inflation and interest rates are either at, or close to zero. My contention is that you’re better off not buying “the market” [or being well-diversified] when the opposite case is true. That is, when interest rates are expected to rise going forward there’s a benefit in being under-diversified. I need to stop here for a moment and discuss those pundits that come out on television and radio to declare, “it’s a stock picker’s market!” When it really wasn’t at all. They decried that valuations went so high that now we must be selective about what stocks we buy. That’s actually not the case because valuation in and of itself is not a catalyst, not really. Look at the crypto-currency market, if valuations alone were a catalyst Bitcoin wouldn’t be over a single dollar. Yet it’s still hanging around $19,000 for owning virtually nothing, and just several months back they wanted $67,000 for owning nothing at all. Stocks can go to zero or go to the moon and the price of a security alone contains very little information. High inflation environments have always been tough on stock prices. It’s really not the level of rates itself, like the 10-year treasury yield rising over 4%, or whether or not short-term rates have hit a particular level. The problem lies in the “expectation” for higher rates, that’s the show stopper, it’s about investor expectations.

Indexing is here to stay. I successfully retired because of index strategies, and I witnessed several clients reaching their financial goals with me employing index strategies inside their portfolios. Generally speaking, diversifying risk within certain sectors is optimal instead of trying to pick just a handful of winners, especially in the U.S. stock market these days. All it takes is one CEO as bad as Larry Fink for example of Blackrock to destroy a companies reputation. There is no shortage of woke idiot CEOs and board members out there, so it pays to be well-diversified in normal times. However, these aren’t normal times, when annual inflation is well in excess of wage growth and about every other kind of growth measure.

I’m really looking forward to the opportunity to purchase U.S. treasuries yielding 7% or better annually, then who needs a stock portfolio and all the risk associated with owning that? The reason I mention this is because we may see this come to fruition, it’s certainly not out of the question that rates could go a lot higher than where they sit today. If that should happen the U.S. bond market will be much more attractive than the U.S. stock market. Who wouldn’t trade their stock portfolio in to receive annual returns of 7, 8, maybe even 10% annually for years, backed by the full faith and credit of the U.S. government? Maybe Johnny Lee was right, maybe as investors we’ve been “looking for love in all the wrong places”? 🙂