US investors at the moment are in a bit of a sweet spot for a few weeks following Jerome Powell’s declaration that inflation is coming, but he doesn’t care as he predicts it will come and go and be no problem, much as Ben Bernanke predicted that real estate would dip, but not fall enough to impact anyone, back in 2006.
Obviously, US investors face problems, even though at the moment the markets are poised to do ok into the next earnings periods thanks to oversold bounce rallies now starting in the US bond market.
I could tell you that the stock market is overvalued, because it is and I have told you that several weeks ago when the CAPE ratio for the S&P 500 hit its second highest level in its history. But really the biggest problem US investors face is the bond market, because most Americans have 40-60% of their money in bonds and the bond market is now in a long-term bear market after yields made secular lows last year.
This is a trend that’s going to last for years. In the past when the stock market dipped bonds would go up, so being in bonds was a great safety play.
But it no longer is.
In February, the Nasdaq fell about 10% and bonds fell too! In fact bonds helped to drag the market down with them falling ahead of the stock market.
American investors need to find ways to diversify without bonds for safety.
Right now the QQQ ETF has $150 billion in money invested in it.
However, the BND bond ETF has over $302 billion invested in it!
It’s the most popular ETF to own, holding mostly US Treasury bonds, with a small mix of high-yield corporate debt, and it’s trended down just as much TLT and LQD have been.
Most aren’t thinking about this at all.
Everyone saw bonds dip, but most don’t care as no one is telling them to do something about it.
Stocks are risky when they are at a huge valuation and fad stocks get hit hard during market corrections, but really when you look at the big picture the biggest risk is not in stocks, but in bonds.
Take a look at BND.
BND is deep in a bear market, trading well below its 150 and 200-day moving averages. However, its RSI managed to fall well below 30 at the end of February to give an extreme oversold reading. So now it’s trying to bounce for the next few weeks.
That’s gives people an exit window to do some selling in bonds and to move that money into something else.
That is not to say that someone who is invested say 50% in stocks and 50% in bonds should now just go 100% into stocks.
Not at all!
But, they should look to move money into gold, silver, foreign markets, and even foreign currencies. And they should think commodities and perhaps even real estate. Someone who has say $300,000 invested in US Treasury bonds would be better off selling that position and buying some sort of real estate with it. That’s too much trouble for me, so I own some REIT’s. I came into this year with about 40% of my money invested in CD’s and bonds and now have none in them!
The key in my view will be to invested in MANY markets and asset classes for diversification and safety now going forward. No one can rely on bonds anymore.
Jerome Powell’s remarks last week tell us that. He said inflation is coming and he does not care. Such dovish talk is helping the stock market for now, but it also means that bonds are now completely useless as an investment as the time is soon coming when they won’t yield as much as the rate of inflation.
This is the single biggest problem American investors now face going forward from here.
If you got an investment advisor or broker you work with you need to call them RIGHT NOW and talk about this with them.
Someone also just wrote this review of the book on Amazon:
“I was commissioned an US Army Second in 1964 and received a medical retirement in 1979. During that period I never really understood the reason we were fighting in Vietnam we were were simply and repeatedly told “… to stop the spread of Communism through-out the world…”. Your book clarified why we were fighting and in-part why we lost.
Looking forward to the sequel and hope it will address the period after 1961 to the present !”
To grab the book go here.