Recession, inflation and the NFL Draft
A simplified glance at a powerful trend
Maybe it’s because I’m about a month short of turning 60 years old. Or, because I’ve grown weary of all of the hype, arrogance even anger that dominates financial market chatter in 2024. But I had several discussions this week with a range of high-quality, high-level investment industry pros. From professional investors like me, to people who provide products and services to investors, to my usual crew of outstanding editors at Seeking Alpha, etf.com and elsewhere. And I’ve been doing some thinking.
Part of our mission at Sungarden is to figure out where we fit into the vast land of investment research and opinion. And the past 7 months since we started ETFYourself.com and then the Institutional service over at www.SungardenInvestment.com, the mission has become more focused by the day, thanks to the feedback we’ve asked for and received.
We’d like to hear from you (3 things):
What are we doing at ETFYourself.com that helps you?
What about our site and service is not “value-added” to you
What would you have us add to our offering that we don’t do now?
Email at info@sungardeninvestment.com with your thoughts
2 things we are already working on:
More focus on the simplest, yet arguably most effective thing we offer: the ROAR and 2-ETF portfolio.
Playing offense and defense at the same time, and getting the “big picture” in line. After that, every investor seems to have their own approach to what securities to own. I firmly believe the investment industry is making all of this stuff way too confusing. I think we can change that for those who find us.
Devote more attention to what people don’t get much of elsewhere: playing defense as part of investing!
Everyone is so focused on playing “offense.” there’s not much attention being paid to defense. At the NFL Draft, which starts tonight, there are going to be a lot of defensive players chosen, even if the quarterbacks and wide receivers get most of the media attention.
Same thing with investing. My career has been defined not by how much I made when everyone was “crushing it” but how I navigated markets when they weren’t handing out 15% annualized returns. As I approach the big 6-0, that’s front of mind, for sure. And I don’t think I’m alone.
As in the NFL, winning requires executing on both sides of the ball. We think most in our field ignore defense. Not us.
Now, to the markets: This chart says it all!
Since the stock market can’t make up its mind, let’s focus on something else today. Inflation is here to stay. That’s becoming more obvious with each passing week. Whether it is 2-3% or 5-6%, it is likely to be more than consumers and investors are used to. The chart below is not the one we are usually shown when the subject is “bond spreads.” For that, you hear a lot about the 2 year Treasury yield versus that of the 10 year bond, the latter being the bond market equivalent of the S&P 500: the primary market indicator.
However, what I find much more interesting than the 2-10 yield spread is this one. 6-month T-bills versus that same 10 year Treasury bond. What I notice in this chart is that rarely since the mid-1980s has the 6-month T-bill rate exceeded that of the 10 year bond. That makes sense, but look at WHEN, like now, we’ve been afforded a premium yield for just a 6-month commitment.
In other words, when the orange line is above the purple line. It only happens before recessions. And with GDP coming in weak today, but the price/inflation indicators continuing to be robust, the potential for not just stubborn inflation, but a weaker economy persist. That’s called "stagflation” and we don’t need to see it come to fruition to end up with what we already have: a stagnant stock market, but high yields for simply staying out of trouble for 6 months…you know, just about until election day in the US.
Premium subscribers:
The WEEKLY CHART BITES tab, containing all of my latest snapshot technical commentary, is now updated in the shared research deck.
Another excellent commentary Rob and the chart is certainly one that is not discussed. You are asking what helps us, well, observations like this. And, playing defense. Nice football reference w/ offense/defense but you forgot special teams, which maybe could be the inverse ETF's??? Is there a 6 month t-bill ETF out there...thanks again for your thoughts!