Holy cow! It’s only been a few weeks since our last “From The Boardroom”and so much feels different from the turn of the year.
Under normal circumstances, we would want to open this missive with something humorous or thought-provoking. Considering “normal circumstances” is not where we find ourselves at these times, let's not delay and dig right in by first sending as much light and love as we can to all the people impacted by the war in Ukraine.
As a side note: If you have been wondering how you may be able to help victims of the war in Ukraine, keep in mind that IRA distributions that go directly to a charity can meet your IRA Required Minimum Distribution while also being tax-free to you. So, if you don't have a need for this year's IRA distribution and have a desire to help click here and we will help you perform a tax-free contribution to a charity helping those in Ukraine.
War, huh, what is it good for?
It brings tears to this contributor's eyes to type those words but since we are committed to digging right in, we will avoid the emotional soliloquy and focus on how the war in Ukraine may be affecting the stock market, interest rates, The U.S. Dollar and commodities.
( Every month we cover these topics and give you actionable steps, keep up to date by subscribing here……curious to see what we have said in the past? Click Here)
Last monthwe opened with: “And, let us tell ya, there has been some serious action since we last shared our notes with you. Buckle up because there are some serious moves happening in Equities, Interest Rates and Metals that you are going to want to know about.“
Since those comments, as you will see in the charts below, the serious moves we mentioned have been magnified by the events happening between Russia and Ukraine.
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One of the fundamental structures of markets (for now)is when there are times of crisis there will be an increased demand for the main reserve currency of global trade and settlement of debts. As of this time, the currency that sits in that king's seat is The U.S. Dollar. You can see confirmation of this fundamental structure by this updated chart of the U.S. Dollar vs. other major global currencies.
For a point of reference, here is the last chart and notes we shared with you in regards to The U.S. Dollar.
As you can see by the previous notes in the chart our past prognosis of dollar strength has been satisfied, so now what?
Normally, we would expect to see a breather in the strength of The Dollars rally with a pullback towards the noted number 4 on the first chart. At the current time if such a pullback were to occur we would then watch to see how The Dollar reacts to future trend lines as clues on how to adjust our allocations to Dollar-related investments. As of now, the longer-term bull case for future Dollar strength is still intact and pullbacks can be viewed as potential buying opportunities for investors that can handle the risk associated.
Commodity/Metal Prices- A New Trend?
With so much dollar strength, many would think commodity prices/metals would be declining or at least underperforming other risk assets. Yet, this doesn't seem to be the case as you will see below in the chart.
One thing to keep in mind as we move forward, if we are in a “bear market”, then many of the historical relationships investors have come to rely on in the past will not be reliable. And, it appears the traditional inverse correlation between The Dollar and Metal prices may be a good example of this. (Side Note: The last time The Dollar and Metals behaved like they have the last few weeks was at the start of the Great Recession. Just something to keep in mind)
Gold priced in dollars has now broken out of the triangle/pendant pattern we have noted for the past few months in previous From The BoardRoom.
This is encouraging for Metal bulls as breakouts like these tend to lead to multi-month trends. The next steps will be to see how prices react to future trend lines. For our Quiver models, this move has and will cause us to increase our metals exposure as long as future trend lines tell us to do so.
Interest rates have continued to levitate at the high end of our expected range. Long time readers may remember we have been moving forward under the belief that interest rates tracked by the 10 year U.S. Treasury yield would trade in a range from 1% to 2% until the economy gave us a reason to believe rates should trade in a higher range of 2% to 3%.
So far, the economy has not given us any fundamental reasons to cause interest rates to sustain trade above 2%. Typically during a crisis, global investors seek the safety of treasury bonds which usually puts downward pressure on the U.S. Interest Rates. But, as we noted before about bear markets and past relationships, there is the threat that rates could continue to move higher from the result of financial markets deleveraging or a liquidity event that is bigger than most market participants are currently expecting. This is where technical analysis can be very handy in managing risk.
As you can see by the chart provided, the 10yr Treasury yield is hovering at the top of our expected range box. Our use of technical analysis will cause us to readjust any interest-rate-sensitive investments within our portfolio allocations if and when the interest rate markets sustains trade over the green line.
We highly recommend that lower-risk investors that may have a larger allocation of their portfolio in bond funds or target-date funds evaluate their options as sustained trade above 2% mayhave a drastic (negative) effect on the value of those types of investments.
Equity Markets - The Bear Has Arrived
Equities are in the late stages of tracing out the pattern we mentioned in past newsletters that would cause us to be more vocal about the risks of a market “correction” becoming more than just a correction and morphing into a “bear market”.
As of this writing, this contributor is willing to go out on the limb and state that there is an 80/20 chance we find ourselves in a Bear Market for risk assets. Humorously, we are leaving the 20% just so we have a wishy-washy way of backing out of our Bear Market call if need be in the next few weeks.
Bottomline, the equities markets have broken the trendlines and given us the 5 wave decline we were looking for to convince us that the intermediate to longer-term risk in equity markets is to the downside and future rallies should be used to readjust risk within a portfolio.
Also, it should be noted when looking at longer-term charts, if we have entered a Bear Market the downside targets are pretty far from where markets are currently at as you can see by this chart from our good friend at www.pretzelcharts.com
While this is potentially horrible news for most unassuming equity investors, it’s great news for us at Quiver. Why? Because preparation pays. In the event our call is correct we are prepared and able to find opportunities as future market events unfold. IF by a small chance our prediction turns on us. We have the flexibility to pivot at a moment's notice and take advantage of the reversal as well. Even though we feel it is highly unlikely, it pays to be nimble.
Now, we need your help in helping others. As long-time readers know, we invest a lot of time and energy in understanding market cycles and managing the risks and opportunities they can create. Our years of homework have led us to the conclusion that now is not the time to be complacent with stock market investments, especially if you are in the Red Zone (AKA: might need some of your money in the next 5 years). This is also not a time to be leaving an old 401(k) with a previous employer. If you or someone you know is heavily invested in the stock market or has an old 401(k) they haven’t rolled over to an IRA, contact us today: Book a Spot!
Finding the Next Wave - Healthcare Technology
People always ask us, "What should I be investing in NOW? What trends are you seeing in the market?"
All of us want to be ahead of the curve, and this is especially true for investors!
That's why we've created The Next Investment Wave. This quarterly missive will highlight investment trends that we are following and outline the potential opportunities.
This quarter, we are digging into health care technology. Why Healthcare tech?
The healthcare industry is massive! National healthcare expenditure reached $4.1 trillion in 2020 (reaching almost 20% of U.S. GDP ) and is estimated to reach $6.2 trillion by 2028.
With an aging population and rising inflation, healthcare costs are anticipated to rise significantly over the next decade.
The need for the healthcare industry to continue to invest in technologies as a way to create efficiencies is imperative to meet this growing need in the face of rising costs and inflation.