This 3rd Week of May 2022 Thoughts
Sad but True: 3 clients have had checks stolen from their mailbox and one was FROM Schwab. One was “washed” and altered and deposited into a bank account in Broken Arrow! It is sad but true: take checks to your local post office and don’t risk mailing from your front porch. ☹
Battery storage added a record capacity in 2021. New projects run for longer on a single charge: full capacity is almost 3 hours before needing to recharge. * CA continues to be the leader in grid-scale battery storage capacity added in 2021, with TX, FL, Mass, and NV also showing significant gains.* *Inside Climate News 3/31/22
Look for your 5498s to be mailed out by the end of May: this form is important for all IRA, SIMPLE and Roth IRA holders.
Are the pundits INSANE? NO!!! There is no chance that the market is capitulating. You don’t get capitulation on the 2nd rate hike.
Art Cashin, a voice I have listened to for 36 years, shared his wisdom this week; “Never bet on the end of the world: it only happens once, so those are pretty good odds.” With the S & P now down 20% from its peak and the NASDAQ off to its worst yearly start in on record…investors are looking for signs of capitulation. Please do not think wishing can make it be! Give this market time.
What set this maelstrom off this week? At the end of 2021 we started to see consumers using credit cards to pay for the rise in food and energy prices, and that’s actually gotten much worse: it is now hurting those bellwether retail places like Cosco, Target and Walmart. Me…am I getting nervous? Nope! THIS…is finally getting interesting: bonds selling at a discount, of 8+. It has been since 1985 (my first year in the business) that we saw this sort of bond market selloff. Notice, it “hung around” til 1991…when I moved to Patterson Icenogle.
How much more of a beating can bonds dish out? Now down 10% for 2022, this time is among the worst returns in U.S. history. How much more can bond investors take? If you can’t remember when bonds last behaved so badly, you are right: this is the sharpest sell-off in 22 years. Yet, just as your body begins healing from an injury before you know you are improving, the worst for bond investors might already be ending. Selling bonds to “stop the bleeding” could most assuredly be a mistake: selling low usually is. This is the medicine for 12 years of almost 0% yields: this is what needs to happen for bonds to once again be a true partner to your financial plan, by contributing a more typical 3%-5% dividend. The U.S.bond market has had positive returns, before inflation, in all but four years since 1976. Even in 1994, when the Federal Reserve raised interest rates six times for a total of 2.5 percentage points, bonds lost only 3% in the aggregate.
😊Why does this matter to you? Rarely has the U.S. bond market lost as much money as in the first four months of 2022. Long-term Treasury bonds lost more than 18% this year through April 30, surpassing the previous record, a loss of 17% in March 1980. The broad bond market has performed worse so far in 2022, worse than in any complete year since 1792 except one: 1842, when a deep depression approached rock-bottom. Inflation is like kryptonite for bonds, whose interest payments are fixed and thus can’t grow to keep pace with rises in the cost of living. Until recently, inflation seemed like a problem of the distant past, when it often plagued bond investors. But a gradual rise in rates isn’t bad for bond investors—so long as inflation comes under control. Make no mistake: investing in bonds is an act of faith that the Fed can tame inflation. And that, as U.S. Treasury Secretary Janet Yellen has said, “will require skill and also good luck.”If the Fed does rein in inflation, though, bond investors should be fine—and should do better over time as they reinvest their income rather than taking it as cash. This is the time to work for your portfolio to earn higher yields…and to set yourself up for the next phase of the economic cycle. Yes, we will see a recession, at some point: recessions are as normal as winter is. Nothing to fear…we just have to be prepared.