Raise your hand if 2022 seems to be starting with a BANG for you! It sure is for these contributors!
And, it feels just like……wait for it……it feels just like 2020 - the year of our lord Covid. As much as it pains us to state such a thing, it appears we are not alone in this feeling. According to the questions we are getting from our clients, it seems that collectively we are all looking at each other with befuddlement asking “WTF is going on” or the favorite question we have been hearing “Are you F’n kidding me? I am so tired of this crap”. You are not alone as we feel ya!
As your Grandpa Norm used to say on those road trips people take to torture their grandchildren to places like the Date Festival in Indio or Solvang, “Buckle up buttercup, the ride has just begun”. Which humorously, 9 times out of ten, an hour later led to “don't make me pull this car over, Sally”. Oh, the days of road trips without electronic devices... Or as Patrick now asks “Can’t we do that in the Metaverse?”
We digress, if there were song lyrics to sum up the end of 2021 and the beginning of 2022, it would seem Simon and Garfunkel's, “the nearer your destination the more your slip slidin' away” is the realm we find ourselves in.
On the bright side of all these groundhog-day-twilight-zone feelings, is that when it comes to our client's invested savings and what we have been expecting from financial market cycles over the past few months, there have been few surprises to cause us to change course from our previous missives. So, if this is your first time reading one of our letters, we highly recommend you visit our Novemberand Decemberissues of From The Boardroom, each is packed with technical charts and fundamental commentary that is definitely worth your time as it contains insights you won't find anywhere else. You can find them here: https://quiverfinancial.com/newsletter-nov2021
Even though the news cycle in regards to Covid has swung back to a direction we all were hoping would not happen, financial markets have remained stable regardless of what the news may be leading you to believe. As you know, what happens next is most important, so here is a recap as well as some thoughts on what we are seeing develop within market cycles that may matter most to you and your investments.
Equity marketsmeasured by the SP500 have ranged between 4400 and 4800, a 1% range with an upward tilt, since September 2021. While broader indexes like the Russell 2000 have been stuck in a more volatile sideways 10% low to high range since January 2021 (that is 1 full year of sideways action for those of you keeping score).
Going forward, we still believe we are closer to an equity market top than a bottom and equity investors should tread with caution, please see our long-term equity charts in ourNovember From the Boardroom for additional color as we cover the long-term trends in depth. We also discussed different ways to invest during these types of periods and periods with inflation. We believe that being cautious with equity risk at this time is especially important to any equity investor that is within five (5) years of retirement or five (5) years away from needing some of their invested money for a life expense like healthcare, what we call - The Red Zone.
Considering our beliefs above, please keep in mind Historical trends tell us if the next market decline/bear market/reset/crash happens, investors would benefit greatly by having funds available to take advantage of the next bull market. Take a closer look at your risk appetite and consider investment options that diversify you away from the Stock Market while still providing Growth and Income.
Interest Rates measured by the 10yr U.S. Treasurys have ranged between 1.2 and 1.8% since the Covid market bottom of March 2020 (that is almost 2 yrs for those still keeping score).
Going forward we believe this range continues to hold until there is more evidence that the economy is truly stronger or weaker than it was post- Covid.
Gold and Silver continue to bore us to death as they have essentially moved sideways since June of 2020. This is in an environment one would have thought would have had growth as a result of inflation fears. Apparently, this is why (contrary to what the hyped-up subscription writers and libertarians would lead you to believe) the metals have always been considered an “imperfect inflation hedge” for professionals. Watch markets long enough and you will find that the metals tend to move in fear of inflation as opposed to a result of inflation, something to keep in mind when you get that next cold call from Sven who wants to sell you some gold coins.
Going forward, until the chart pattern we share with you above either breaks above the red line or below the green line, the metals will most likely continue to lull us to sleep. The good news is (as you can see by the contracting nature of this pattern) we should have an answer very soon. So, while the past 18 months have been a snooze fest for metal investors, the next 18 months could be a different story. Make sure you subscribe to stay in the loop and ahead of the trends.
Real Estate,while still supported by the main fundamentals of low-interest rates, full employment, growing homebuyer demographics, and limited supply, it does appear the froth that was seen last year in housing markets has subsided as affordability may have been reached and personal debt levels tick up now that the government isn't supporting every Tom, Dick, and Harry with $1200 checks. First time in history that baby-making paid off in spades.
Going forward, we believe the performance of real estate assets will become even more about location and market. With some cities and markets seeing stagnation in prices while others benefit from greater mobility in work life will continue to see growth albeit at a lower rate of growth than was seen over the last year. The fundamental economic rule book has us believing that as long as interest rates stay low and people remain employed, housing should remain stable with opportunities to create fair levels of income for individuals that can afford the related risks.
The U.S. Dollar has continued to defy gravity even as so many pundits have predicted the demise of The Dollar over the years. Since January 2021, the Dollar has increased by approximately 6% compared to a basket of the other major world currencies. Not too shabby in a time frame where Uncle Sam has pulled off his best ever sugar-daddy impression and put a handful of trillion dollars on his credit card so all of us could continue to eat out and order in while we hoarded our toilet paper and binge watched Netflix during our Peloton bike rides. Thanks Uncle Sam!
Going forward, as of this moment, we are under the belief this trend continues. As long as the price action of the U.S. Dollar remains above the levels of support on the chart above. We will continue to lean into all the ways The Dollar can influence the price action of other assets.
This is a subtle yet important statement as we reach a juncture in risk assets where the lyrics of “the nearer your destination the more your slip slidin' away” may become all too true for investors who overstay their welcome or take on too much risk at the wrong time.
Curious to know how The Dollar has influence on other assets and how you may be able to use that knowledge to create a lower risk portfolio?
We would love to hear what your biggest questions may be. Tell us what you think here: Quiver Survey
On a personal note.
We would like to take this moment to give a heartfelt thank you to all of our clients and readers. We enjoy working with all of you and look forward to many more prosperous years ahead.
Happy New Year and Thank You!
In Some Personal News
Readers of our November From The Boardroommay recall we ended as Colby needed to take Tucker to the vet for a gimpy leg. It is with profound sadness we share that this will be the last From The Boardroom Tucker will be contributing to due to an aggressive bone cancer. We thank Tucker for all the joy he has brought.
On a much brighter note, we have a new addition to the Quiver family. Welcome baby girl Indy Anderson. Colby’s son Mikey had his first baby girl on January 4th and we are happy to report both baby and mom are doing great! God help little Indy, she will need it in this crazy-ass world!