Ukraine Invasion…war is profitable

Today’s Russia Ukraine Invasion “buy the rumor, sell the news” relief rally doesn’t surprise me for several reasons, the largest factor being that war is very profitable.

Here’s another cynical fact, Russia has a tendency to “annex” its neighbors: Crimea 2014, Georgia 2008 and I’m even old enough to personally remember Czechoslovakia 1968. 

I don’t know how military tensions with Russia will pan out, but here’s what I do know:

  • OMICRON was a dud, January’s receipts at restaurants and bars fell only 0.9%
  • Global pent up demand for Travel, Entertainment & In Person Services is HUGE
  • ReOpening & Mid Cap stocks have been outperforming for the past month
  • Cyclicals like Energy, Banks, Industrials & Materials are outpacing inflation
  • The Small Cap stock selloff reached bearish levels and might have bottomed

My portfolio is a diversified mix of the above, so I remain optimistic.

As a side note, if you think I’m too cynical for believing that war is a profitable enterprise, forgive me but that’s the lesson I learned while serving in the military.  As a former Marine, every November, I celebrate the Marine Corps Birthday (Nov 10) and Veteran’s Day (Nov 11) by listening to War is a Racket, written by USMC Maj Gen Smedley Butler.  You can listen here:

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Anemic economy will shackle FED

The Stock Market has started out the year horribly, in fact, the worst ever.  The selloff is due to the double whammy of Omicron and fears about the Federal Reserve raising interest rates.

Neither issues concern me.  Omicron is clearly dissipating (epicenter UK has lifted restrictions) and the FED can’t significantly raise interest rates because they’re shackled with a long term anemic economy. 

But you say, “muhhhh inflation!” 

Sure, the FED printed nearly $5 trillion over the past two years and that has contributed to short term inflation.  But…do you know what that $5,000,000,000,000 bought over the past two years?  An average annualized US GDP growth rate of 1.06%.  That’s about half the rate of the anemic growth that’s occurred over the past two decades.

Other than last year’s FED induced GDP growth, the US economy hasn’t grown at or above 4% since 2000.  Non-coincidently that’s the year before China joined the WTO.  (think about that)

The IMF has just downgraded 2023 US GDP to 2.6%.  The bottom line is that post-pandemic, the US will return to its multi-decade lackluster economy.  Therefore, unless the FED wants to throw the country into a recession (during a critical Democratic midterm election cycle) I’m extremely confident that interest rates won’t go up significantly.

Let me put this another way:

B U Y    T H E    D I P

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Sky is falling as interest rates rise

Happy New Year

The stock market is starting out the year as it will likely end…volatile and profitable.

Today there was a continued sell off in the Market as the 10 Year Treasury rose above 1.8%.  I’m not sure why rising interest rates are such a surprise to anyone. 

Despite the volatility, quality companies are extremely profitable and therefore I think the S&P 500 will end the year up, perhaps by as much as 10%.  So, yet again, I see this pullback as a buying opportunity.

For more of an explanation, yesterday I released a podcast discussing how S&P 500 valuations are still more favorable than bonds at 4%.  You can listen to it here:  https://www.wealthsteading.com/351

And today I release a podcast discussing valuations of QUALITY stocks and specifically referenced Goldman Sachs.  It’s available here:  https://www.wealthsteading.com/352

Don’t confuse my optimism with “catching a falling knife”.  I’m not condoning widespread purchasing of everything that’s down.  I think that meme type stocks, the no profit stocks, and the stay-at-home one trick pony stocks have much further to fall.  Investors are rotating out of high risk unprofitable stocks and into quality companies with reasonable valuations.

As always, invest with caution.

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Record INFECTIONS…Record S&P 500

Worldwide infections for COVID are at record highs, as is the S&P 500.

The RUSSELL 2000 (Small Cap index) is still lagging behind its November 8th high, but that’s where I continue to see the greater opportunity.  The “riskier” Small Cap stocks and those favored from an eventual global reopening present the best growth opportunities for 2022 and at a lower price per earnings valuation.  I’m sticking to that narrative.

Throughout this pandemic, the only time that consumer demand was lacking occurred during government imposed lockdowns.  While restrictions still exist, they’re weakening across the globe.  In the USA:

  • Despite Delta & Omicron breakouts, domestic holiday air travel was nearly back to 2019 pre-pandemic levels.
  • The CDC has cut quarantine isolation in half to only 5 days.
  • President Biden has stated, “There is no federal solution.” (i.e. no federal lockdowns)
  • NYC’s new initiative is: “Stay Safe and Stay Open”

The bottom line is that each new variant of the virus results in less impact to the stock market and I expect that to continue into 2022.

Speaking of the New Year, I’ll be prognosticating about 2022 on a live stream episode of UnLoose the Goose, which will air tomorrow Wednesday 12/29 at 5pm eastern.  You can tune in live to ask questions or watch the replay at:

HAPPY NEW YEAR & BEST RETURNS !!!

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FED new policy…same as the old policy

I know it’s fashionable to be worried about the stock market.  I’m not.

One of the main emotional drivers is that the Federal Reserve has tightened its monetary policy and that interest rates are going up.

Attached is a chart of the FED Funds rate going back to 1954.  The RED line indicates estimated interest rate increases through 2024.

Despite the media hysteria, I don’t see a reason to panic.  The range looks very similar to what we saw 67 years ago and certainly no higher than the peak over the past 13 years.

So…I’m not worrying, I’m enjoying the Christmas holiday.  I wish you the same.

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