Conservative. Smart. Investing.
Hello, folks. I have been monitoring the market situation but I haven’t had much to add to anything that I had already said. But today I have some comments.
On the Infrastructure bill, I hope that it passes. As I previously said, it does make sense to invest in improving our roads, bridges, airports, and broadband. However, it doesn’t make sense to overspend with the Democrats 3.5 trillion wish list. I think that it will be inflationary.
The ETF Retirement fund is traded using a simple proposition — price versus the long term moving average at month end. If the price crosses the moving average during the month and stays there, the trade is made.
The S&P 500 composite closed up over 2% higher in July than it did in June. But underneath that statistic are some troubling data.
When looking across all sizes of companies (S&P100, S&P 400, S&P500, S&P 600) there are negative trends in New Highs vs New Lows, Advances v Decliners, and % of stocks above their 21 day moving average. The market typically leads the economy by six months. Economic data is still favoring Expansion versus Contraction, but now only by a score of 5-3 as opposed to 6-2 or better in recent months.
I am so glad that those poor families making only $150,000/year are receiving their first childcare credits! Another example of government largesse gone wild. Despite the paradoxical drop in bond prices, I think we are on the road to inflation, or maybe, as a Barron’s commentary said this weekend, the “stagflation” of the 1970’s. “Stagflation”, for those you unfamiliar with the term, is inflation without growth.
My apologies for being a bit late on commentary. Also, my apologies for picking OLLI, BABA and VIPS as they have performed terribly. But their underperformance points makes my point on diversification – by allocating no more than 5% to any one stock, poor performance is ameliorated by good performance of the other stocks in the portfolio. On OLLI, I still think it is undervalued, and I recommend holding it. As for the Chinese stocks (BABA and VIPS), I think that the Chinese government is trying to send a strong message to the company owners that they are in charge. But they will soon recognize that if they want the extraordinary revenues from these companies to continue, they will have to remove their jack boots from these companies’ necks.
The ETF Retirement Portfolio is managed using a George Dagnino variant model where an initial BUY is made if the price is above the long term moving average on the last day of the month, and a SELL is made if the price is below the long term moving average on the last day of the month.
The S&P 500 tracking ETF SPY rose 1.3% in the month of June. Analysis of the FRED economic data show that the economy is still in Phase 2 (late growth cycle), which is good for equities.
The ETF Portfolio technical investing algorithm calls for a July 1 investment in International Bonds (EDV), Emerging Market Bonds (EMB), and long term Treasury bonds (VCLT). This is consistent with increase in the flow of monies into bond funds, which indicates that people are hedging these equity ETF bets. There is too much money chasing too little sources of return, so even low paying bonds are getting play here.
So we have an infrastructure deal, or do we? I was happy at first to hear that a “normal” infrastructure deal had been struck on Thursday. Then President Biden pulled the rug out from under us by saying it had to be tied to the progressive deal on the so-called “human infrastructure bill” (essentially a long liberal “wish list”). Then this weekend Biden tried to walk that statement back by saying he would still sign the “normal” infrastructure bill! More of the same from a do nothing government. As for Biden, I am reminded of an old Buddy Hackett routine where he played a rude Chinese waiter who grows frustrated with a couple who can’t make up their mind on what to order. He finally says “make up your f-ing mind, one from column A or two for column B!”.
Well, it looks like the Fed has finally acknowledged that inflation may be a problem. But what did they do? Essentially nothing. No decrease in asset purchases and no increase in the fed funds rate. All it did was signal that they may do so by next year (according to the “dot plots”). Curiously, the ten year yield is still at 1.45%. Some folks think that the market is actually two steps ahead of the fed – that is, they think that the fed will raise rates, slow down the economy and then be forced to lower rates again! I don’t know that the market is that sophisticated. I think it is just confused by mixed signals. Personally, I see the fed raising rates by the end of this year (not the next) – and that the 10 year note will be yielding 2% by year end.
New inflation data showed a 5% jump in consumer prices on a year-over-year basis in May. But the market shrugged this report off, perhaps believing the Fed’s line that “inflation is transitory”. I don’t believe that inflation will be transitory so I am less than sanguine about the short-term prospects of the stocks in the Growth portfolio. So, I would not add to positions in the growth portfolio at this time, but I would not sell anything either (otherwise known as a “hold” recommendation!).