As discussed in a previous video, there is no bigger trend to help or hurt your investment performance than Monetary and Fiscal policy.
Monetary Policy is the Federal Reserve’s interest rate policy and banking reserve requirement that either adds or removes stimulus from the economy. Jerome Powell is determined to slow the economy, enough so to bring the inflation rate down from roughly 6% to 2%. He said that consumers and businesses should expect some pain.
(Remember…the Fed has just begun shrinking the balance sheet and this could remain in place for as much as the next two years)
Housing is the first to be impacted. With 30 year mortgages recently touching 7%, some signs of the Fed accomplishing their goals is showing up. New job openings last month also declined by 1mm, falling from roughly 11mm to 10mm.
Add to that the pain from a US Dollar that has climbed 18% this year. While this helps inflation, it has been extremely painful for other countries. These falling currencies are causing their inflation rates to increase.
So today there are fewer opportunities and more potholes, requiring an active manager as a valued partner to help you search out opportunities and minimize errors.
So getting back to Introducing Tactical Management, I have a new model to introduce:
Model 811. Because this model is tactical, I will not seek out a 12 month holding period as in other models, so this is most appropriate for IRA accounts.
There are 3 Buckets:
- Risk On
- Risk Reduction
- Risk Off
This model can go as much as 100% into any 3 buckets, right now its 50% Risk Off, on my Tuesday rebalance we will likely shift funds into Risk-Reduction
Oh yea, the name 811. There are 11 primary sectors in the S&P, I don’t plan on owning them all at one time. Each month, assuming I get comfortable shifting more money into Risk-On, the maximum number of sectors I will own is 8, always weeding out the 4 weakest
Finally, investments that have an inverse movement to the value of the dollar are widespread, and with the S&P 500 receiving 30% of earnings from Europe, I continue to worry about future earnings.
In addition to the S&P 500, broad Commodities, Energy, Gold, and Foreign Stocks are all down, in part, to dollar strength, likely offering some superior opportunities at some point in the future.
Stocks are in a bear market because when the Fed increases interest rates,Price Earnings multiples (stock valuations) contract.
So with inflation slowly showing some signs of easing, the next worry is over 3rd quarter earnings and forward guidance.
In baseball, a 30% batting averagecan make you an all-star. The average tactical portfolio manager is also right about 30% of the time. The key is to take your losses quickly and let your winners run. I call it “Pull the Weeds and Let The Flowers Grow.” It is also more tax efficient than mutual fund investing.
I would appreciate your interest in having me offer a second opinion on your investment portfolio.
Thank you for watching today’s video.