Stagflation

Stagflation

Ever feel like you're going nowhere fast? That's stagflation in a nutshell; working harder for less while getting squeezed by paying more. A hallmark of the Biden Administration has been the failure of the economy. The jobs number gets a lot of ink, but the "new" jobs are typically service-orientated, lower wage, and not full-time. And that's the bright spot in the economy!

A combination of raging inflation and economic stagnation has resulted in morass of stagflation. Recent market trends indicate that rather than achieving escape velocity from the Bear Market begun in November 2021, we may have several months (years?) to go, especially if the S&P 500 tests the June '22 lows again. Couple that with a housing recession (mortgage rates have doubled since January, with mortgage demand lowest in 28 years), persistently high oil prices, and large companies FIRING as fast as they can email, and we are in dire straits.

One of the only options for Americans is that most favored by Third World residents; buy hard assets as soon and quickly as possible because fiat money (think paper money NOT backed by gold) is worth less and less every day. Hence we have seen massive, incoherent, gains in machinery, durable goods, and of course real estate. But even the latter might be in for trouble now as the Federal Reserve is on a mission to break the back of inflation.

The noted investor Warren Buffett once said: "5% Interest Rates Will Attract Money from the Moon." Expect the Fed Funds rate to exceed that by the end of the year. There is no stopping a motivated Fed on a mission with the implicit backing of the Biden Administration.

With equities range-bound and drifting lower, investors are in a pernicious position of having their dividends taxed at a higher rate, underlying corporate growth slowing, and innovative small companies being snuffed out of existence.

Stagflation ends when inflation is tamed and economic policies enable the free market to function. Two years into this Administration offers little hope that anything will change. The question that needs to be answered by investors is this: "What is the impetus to buy?"

Suffering Fools

Suffering Fools

Dearest fellow Financial Farmers, why do we suffer fools? Investors for too long have been held hostage to economic imbeciles. Why are we gluttons for punishment? If every piece of economic data indicates that the market is POOP, why NOT short it? 

Frequent readers of this amazing blog know that this author is a big fan of "Reminiscences of a Stock Operator" by Edwin Lefevre detailing the life of Jesse Livermore. It reads like an acquired taste, in that fine champagne is an acquired taste. I consider it Gospel for trading. With that said, one of my favorite lines in the book details Livermore's thoughts on selling: "If a stock is good enough to sell, it is good enough to sell short."

Here at ILAF we have an open mind, but it closes like a steel trap when we lose money! The past 7 months have been a painful reminder of what happens when "leadership" runs amok and there is no strategy in place. Chaos ensues. Why as an investor should you be punished for this? Well because you believe in long-term growth and that the economy will "eventually recover," right? 

Recovery often takes longer than we realize, with the Bear Markets often lasting years. In times of listless trading, near-term assets are whipsawed back and forth until investors are green with nausea, not envy. So with that said, there are several options for investors who have little to no confidence in the current market.

First, there is always "do nothing." This involves keeping your current portfolio as is. You're indifferent to near-term volatility and think in decades. Second, there is Dollar Cost Average your existing portfolio during the sell-off with the hope of increasing your positions. Over long periods of time this has generally worked. Third, there is the safety run idea of going all cash until the market subsides and there is some light at the end of the tunnel. The average bear market lasts about 300 days. So cozy up to a umbrella cocktail for about 10 months. A fourth option to consider would be profiting from the downturn. There are several ways to accomplish this, some act more as buffers while others seek Absolute Alpha.

Consider your time horizon and goals, but also your risk tolerance. As Zero Hedge aptly says, "In the long run we're all dead." So for some doing nothing works, others prefer a cocktail on the beach, and a few investors will try to profit from chaos. Socrates put it best: "Know thyself."

Getting Breyer'd

 Getting Breyer'd

The Biden Administration added another term to the popular lexicon yesterday when they leaked Justice Stephen Breyer's intention to retire to the media PRIOR to his actual announcement that he was indeed retiring, thus a Supreme Court Justice was effectively FIRED before he RETIRED. He was Breyer'd.

It is troubling in a Democracy that an elderly sitting Justice can be pushed aside with little recourse. Where was the President last night either apologizing or denying what happened? And to add further insult to the "retirement," Biden then vowed to break Federal Law by announcing both the RACE and GENDER of the new appointee...no need to discuss qualifications for sitting on the bench of the highest court fellow Americans, those are just needless distractions.

Politics determine policy and policy determine economic outcomes. Financial farmers should pay very close attention to the vetting "process" of highly appointed administration officials, bureaucrats, and judges as they will have significant impact on the future of this country's destiny. Gaffes add up, and lifetime appointments sometimes last a lifetime.

 

 

Taxflation

 Taxflation

Increasing taxes and rising inflation are a deadly combination. "Taxflation" is what we find ourselves in now globally as freewheeling politicians ratchet up the pain and are beholden to nothing but their own egos. Be afraid on this solemn day dear readers of the unencumbered politicrat whose loyalty lies only with increasing power. Beware what constitutes your "fair share," as soon it will be your full share! 

Every year Americans dutifully write out a myriad of checks to local, state, and federal governments to help fund our collective defense, social programs, and politicians' salaries under the banner of "civic duty" which is enforced by the threat of imprisonment. What other "civic duty" is compelled by the potential loss of liberty? What would be the collection rate if taxes were voluntary? Imagine if freewill dictated the scope of the government we received.

While the Biden Administration is planning to increase the budget of the IRS to something akin to a nation-state, increase tax rates, and (obviously) increase spending, the barn door is wide open out back. Billions in fraud, pork, and ill-executed government spending leaves the taxpayer without a doubt as the most maligned and least-loved animals in the barn. If America was "Animal Farm" the taxpayer would be the horse. And I think I have a pretty good idea who the pig(s) are feeding at the trough.

What to do dear financial farmers? "Fight, fight, fight against that dying light" of freedom! Readers of this blog well know I support voting, and especially voting with your feet out of states entrenched in burgeoning socialism. For those with strong backbones, however, there is yet another option: Run. And by "run," I mean run for office at the most promising level where victory may be assured. Change the potential outcomes of a country increasingly on the course of taxflation. It's your money, and the politicians work for YOU...isn't it about time we see some real return on our investment?