“This is a major financial shock for the world … a first in the history of monetary policies.”
No investor likes to wake up to a headline like this.
And yet, there it was, on my morning news feed.
To be honest, this is good news to me.
On the other hand, many investors are abandoning the market, saying: “The party’s over. The punch bowl is gone. Why should I be in the market at all?”
Anyone who really believes that probably should just go to cash. Clearly, they don’t understand investing.
Do they think all the gains from trading stocks over the last four centuries came from loose money policies?
To be fair, it’s been 14 years since the last real bear market.
Today’s 30-year-old Wall Street trader was still in high school, listening to Daft Punk and worrying about their MySpace page at the time. Given the state of history education in today’s schools, they can be forgiven for thinking this is the “end of the world.”
Well, I’m here to tell them … and you … that’s not the case.
They see disaster. I see opportunity…
And it’s all around us … literally.
Amateur Hour Is Over
Back in the day, I enjoyed playing pool — “snooker,” in English-English — in the early morning hours after my band’s gigs in one of Cape Town’s live venues.
It was a great way to unwind with my bandmates. But the best thing was that after midnight, the dilettantes cleared out. That left the tables free for us serious players.
Today’s stock market is like a half-empty pool hall.
The easy wins are over. It’s no longer enough just to talk a good game.
If you wanna play, you gotta put your money on the table and use the skills that come from long practice.
The good news is that you don’t need to be the stock market equivalent of Fats Domino to start racking up the wins — even in this kind of market.
Of course, if you’re subscribed to my Bauman Letter, you’ve got a good head start.
My Endless Income portfolio has doubled the S&P 500’s return over the last 12 months. It’s beaten the market hands down since the beginning of the year … the worst start to a stock market year since Hitler invaded Poland.
During those 30 months, my favorite asset class more than doubled the S&P 500’s total return.
A Mathematical Certainty
My favorite scene from the movie Titanic isn’t when the star-crossed young couple enjoys the view from the doomed liner’s forecastle.
It’s when the ship’s owner, J. Bruce Ismay says: “But this ship can’t sink!” … to which the Scottish engineer who designed it replies: “It’s a mathematical certainty.”
If there’s one mathematical certainty in investing, it’s that when inflation-adjusted real yields on Treasury bonds go up, “unsinkable” growth stocks go down:
By “growth stocks,” I don’t just mean all those pandemic era stay-at-home stocks crowding Cathie Woods’ exchange-traded funds. I include Amazon, Alphabet and the like in that as well.
The combined market cap of those stocks is so huge that they effectively define the index. As they fall under interest rate pressure — as we’ve already seen from Amazon and Netflix — so too will the stock market.
So, with a big sell-off in the Treasury market underway and the Federal Reserve raising its rates at the fastest clip in history, it stands to reason that many novice investors would head for the lifeboats.
But This Isn’t the Titanic…
…And abandoning ship now would be a big mistake.
For one thing, there aren’t enough lifeboats. Even the safest one of all, cash, is a losing proposition with inflation running at over 8% per annum.
More importantly, unlike the North Atlantic in April 1912, there’s another vessel right alongside to which you can transfer your money as “unsinkable” tech stocks flounder. It’s an asset class with an outstanding track record and unique characteristics that are incredibly attractive as everything else crashes:
- It’s based on an intrinsically scarce commodity essential to every economic activity. It’s not optional, even when the stock market and the economy are in a downturn.
- Because it’s in constant demand, the smart money tends to flock to it in a crisis. So, whenever there is a big market pullback, inflation or rising interest rates, this asset class tends to rise in value.
- The unique financial circumstances of the last 14 years have created a historically unusual situation where the yields on this asset will rise right along with interest rates and inflation. Not only is it a good hedge … it’s going to generate positive returns.
I’m talking — of course — about real estate.
It’s the cornerstone of our Bauman Letter model portfolio, and it’s the driving force behind Endless Income.
So stay tuned for more on this outperforming investment class as the rest of the year unfolds and the “easy money” leaves the market.
Editor, The Bauman Letter