The Long Term Investor

AS USUAL.........HERE is my current PORTFOLIO MODEL.

I am once again posting my PORTFOLIO MODEL. My initial criteria to start the process to consider a business are.......BIG CAP, AMERICAN, DIVIDEND PAYING, GREAT MANAGEMENT, ICONIC PRODUCT, WORLD WIDE LEADER IN THEIR FIELD, LONG TERM HORIZON, etc, etc, etc.

PORTFOLIO MODEL

"Here is my "PORTFOLIO MODEL" for all accounts managed which is the basis for MUCH of my discussion in this thread. I am re-posting this since I often talk in this thread about my portfolio model. My custom in the past on this sort of thread was to re-post my portfolio model every once in a while since I will tend to talk about it once in a while. I "manage" six portfolios for various family including a trust. ALL are set up in this fashion. If I was starting this portfolio today, lets say with $200,000. I would put half the money into the stock side of the portfolio, with an equal amount going into each stock. The other half of the money would go into the fund side of the portfolio, with an equal amount going into each fund. As is my long time custom, I would than let the portfolio run as it wished with NO re-balancing, in other words, I would let the winners run. Over the LONG TERM of investing in this style (at least in my actual portfolios), the stock side seems to reach and settle in at about 56% of the total portfolio and the fund side at about 44% of the total portfolio over time. That is a GOOD THING since it tells me that my stock picks are generally beating the funds over the longer term. AND....since the funds in the account generally meet or beat the SP500, that is a VERY good thing.

As mentioned in a post in this thread, I include the funds in the portfolio as a counter-balance to my investing BIAS and stock picking BIAS and to add a top active management fund that often beats the SP500 (Fidelity Contra Fund) and a SP500 Index Fund to get broad exposure to the best 500 companies in AMERICAN business and economy. The funds also give me broad diversification as a counter-balance to my very concentrated 10 stock portfolio. At the same time the funds double and triple up on my individual stock holdings............that I consider the BEST individual businesses in the WORLD.

STOCKS:

Alphabet Inc
Amazon
Apple
Costco
Home Depot
Honeywell
Microsoft
Nike
Nvidia
Tesla

MUTUAL FUNDS:

SP500 Index Fund
Fidelity Contra Fund

CAUTION: This is a moderate aggressive to aggressive portfolio on the stock side with the small concentration of stocks and the mix of stocks that I hold and with the concentration of big name tech stocks. Especially for my age group. (72). So for anyone considering this sort of portfolio, be careful and consider your risk tolerance and where you are in your life and financial needs. I am able to do this sort of portfolio since my stock market account is NOT needed for my retirement income AND I have a fairly HIGH RISK TOLERANCE. In addition I am a fully invested, all the time, LONG TERM investor. (LONG TERM meaning many years, 5, 10, 20, years or more)"

MY COMMENT

This portfolio is HIGHLY CONCENTRATED on the big cap side of things. OBVIOUSLY between the funds and my ten stock holdings there is MUCH doubling and tripling up on the stocks. THAT is INTENTIONAL. I strongly subscribe to the view of Buffett and some others that TOO MUCH diversification kills returns. I do NOT believe in the current diversification FAD that most people seem to now follow.......or think they are following. I DO NOT do bonds and think the current level of bonds held by younger investors.....those under age 50.....is extremely foolish.I DO NOT do market timing or Technical Analysis.

#8490

 

The FED......as expected......so the markets turn positive.

Stock market news live updates: Stocks turn positive as traders digest Fed decision to speed up tapering

https://finance.yahoo.com/news/stock-market-news-live-updates-december-14-2021-233411115.html

(BOLD is my opinion OR what I consider important content)

"Stocks reversed course to rise Wednesday afternoon as investors mulled the Federal Reserve's final monetary policy decision of 2021, which came against a backdrop of persistent inflationary pressures.

The S&P 500, Dow and Nasdaq turned positive after spending much of the trading day earlier in the red. Bond yields rose in the immediate aftermath of the Fed's 2 p.m. policy statement announcement, and the benchmark 10-year Treasury yield added more than 3 basis points to rise rise above 1.47%.

All eyes on Wednesday were on the Federal Reserve's monetary policy statement. In this, the Fed announced it was speeding the withdrawal of its crisis-era stimulus programs. The Fed ramped up the rate of tapering of its asset purchasing program to $30 billion per month.

Previously, the Fed's asset purchasing program took place at a rate of $120 billion per month in combined Treasuries and agency mortgage-backed securities from the start of the pandemic through November. Last month, the Fed began dialing back these purchases by $15 billion, and announced another $15 billion reduction for December.

The firming economic recovery and soaring inflation has given the central bank room for a more hawkish tilt to policy. Last week's Consumer Price Index showed the fastest surge in U.S. consumer prices since 1982 on a year-over-year basis in November. And on Tuesday, the U.S. Producer Price Index jumped by the most on record at a 9.6% year-over-year increase for last month."

Heading into Wednesday's announcement, many pundits said they were expecting the accelerated taper announcement."

MY COMMENT

NO....I was not siting here and waiting for this announcement. I just happened to be on the computer while waiting to go out to lunch. I dont see any details...but it appears that what was done was as anticipated. At least the market averages are telling me that.

We will see what happens by the time we get to the close and everyone has had a chance to digest all the minute details of the report and the press conference.

 

Here is more detail.

Fed doubles pace of tapering, warms up to rate hikes in 2022 as inflationary pressures rise

https://finance.yahoo.com/news/fed-fomc-monetary-policy-decision-december-2021-153342164.html

(BOLD is my opinion OR what I consider important content)

"The Federal Reserve announced that it would move more quickly to pare back its pandemic-era easy money policies as Fed officials grow concerned about the persistence of inflationary pressures.

On Wednesday, the policy-setting Federal Open Market Committee said it would double the pace by which it winds down its asset purchase program.

The FOMC also signaled a strong likelihood of an interest rate hike next year, which would be the first since the central bank slashed short-term borrowing costs to near-zero in March 2020.

Since the depths of the pandemic, the Fed has added trillions of dollars in U.S. Treasuries and agency mortgage-backed securities to signal its support for financing conditions. The Fed had set a course in November to “taper” the pace of those aggregate purchases by $15 billion per month, and will now double that pace — to $30 billion per month.

“In light of inflation developments and the further improvement in the labor market, the Committee decided to reduce the monthly pace of its net asset purchases by $20 billion for Treasury securities and $10 billion for agency mortgage-backed securities,” the FOMC statement reads.

The new pacing would bring all asset purchases to a full stop by March 2022, faster than the course set forth in November that originally sought to end purchases by the middle of next year.

The decision was unanimously agreed to.

A quicker taper would allow the Fed to move earlier — and perhaps more aggressively — on interest rate hikes. All of the 18 members of the FOMC said they could see the case for at least one rate hike next year, a noticeable revision up from September projections showing a 50-50 split on a 2022 rate hike.

The updated dot plots, which map out each of the FOMC members’ projections for where rates will be in coming years, shows the median member of the committee projecting three rate hikes next year, another three or four in 2023, and another one or two in 2024.

Those projections suggest a more aggressive rate hike path than the last round of dot plots in September, likely rooted in FOMC members’ growing concerns over inflation.

“Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to elevated levels of inflation,” the FOMC statement said.

The median member of the committee sees personal consumption expenditures, the Fed’s preferred measure of inflation, clocking in at 2.6% in 2022 (compared to 2.2% in the Fed’s September projections).

Raising rates (and thus, borrowing costs) could have the effect of dampening underlying demand in the economy.

The Fed may also feel more comfortable raising rates given progress in the labor market, where November jobs data showed the headline unemployment rate falling to 4.2%. The Fed now sees the unemployment rate ending 2022 at 3.5%, a sharp improvement over the Fed’s September projection of 3.8%.

The FOMC statement says Omicron and other new variants remain risks to the economic outlook.

The next FOMC meeting is scheduled to take place Jan. 25 and 26."

MY COMMENT

We now have OVER a month of peace without a FED policy meeting.....thank goodness. Of course they will probably be talking and testifying in congress, etc, etc, etc.....so....we will still have to put up with this STUFF.

As to potential rate hikes in 2022......we "MIGHT" be looking at three next year. In the end it will all depend on economic data and conditions. I expect that the hikes will be at the 0.25% rate each....so we "MIGHT" be looking at hikes of about 0.75% over the next 13 months. Not exactly a danger or even a mild concern to investors. Of course....the media will beat each rate hike to death.

AND......we still have to get through the press conference today. That is ALWAYS a big danger.

The.....short term.......things we have to endure and ignore as investors are just part of the reality of investing and NOT trading.

The rise in the averages that happened with the announcement seems to have petered out and is holding steady for the moment. No doubt everyone is waiting for the press conference........so.....who knows where we will close today.

 

Now that was a BOOMER today. It all happened in the last couple of hours after the FED was done. I had NINE out of TEN stocks in the big GREEN today. Five of them were UP by 1.39% to 2.00%. The other four were in the range 2.50% to 7.5%.

Just goes to show that you never know when you will get a big gain to make up for a few bad days. It happens EXPLOSIVELY and out of the blue.

 

There is a LOT OF ROOM TO RUN in the BIG CAP tech stocks right now. They all slid back over the past few days. Tesla, Microsoft, Amazon, Google, Nvidia, Apple......all are set up for a big year end run-up.

It will be interesting to see what the markets do over the next couple of days left this week. If the markets BOOM.....I see that as a good solid indicator for a SANTA RALLY. If they linger or drop back.....perhaps a sign of just a FIZZLE to the end of the year.

Either way we are definately going to end the year with AMAZING gains for 2021. Right now.....as of the close today......the SP500 is at +25.39% for the year......and.......when you figure TOTAL RETURN it is at least +27% for the year. That is one HUGE number........and that is on top of a total return of +18.39% for 2020 and a total return of +31.44% for 2019.

Looking backwards.......2018 was the last down year we had with a loss of (-4.52%). To find another DOWN year you have to look all the way back to year 2008 when the SP500 had a total return of (-37.02%). So we are in a RUN UP that covers ELEVEN of the past TWELVE years.

This is why YOUNG investors are out of touch with reality and are spoiled. Anyone that started investing after 2008 has ONLY seen a single down year in the SP500. It is going to be a real shock for them when the inevitable NASTY down year happens.

 

HERE is the story of the day.......or.....at least the last couple of hours of the day.

Dow jumps 380 points, Nasdaq surges 2% in relief rally after Fed gives rate hiking timeline

https://www.cnbc.com/2021/12/14/stock-futures-are-flat-ahead-of-key-fed-decision-.html

(BOLD is my opinion OR what I consider important content)

"U.S. stocks cut their losses and moved higher on Wednesday as the market got past one of the big uncertainties heading into year-end. The Federal Reserve signaled a more aggressive unwinding of its monthly bond buying, as expected by the market, and forecast multiple rate hikes on the way next year.

The S&P 500 rose 1.63% to 4,709.85, while the tech-heavy Nasdaq Composite jumped 2.15% to 15,565.58. The Dow Jones Industrial Average added 383.25 points, or 1.08%, to close at 35,927.43. All three were in negative territory for the day before the central bank’s decision.

The Fed announced on Wednesday that it would wind down its asset purchases, a process known as tapering, at a faster pace amid a continued rise in inflation. The Fed will be buying $60 billion per month of bonds starting in January, down from December’s rate of $90 million, and said that it will likely continue that trajectory in the months ahead.

The move comes as the central bank is grappling with the highest inflation level in nearly four decades. The Fed was widely expect to accelerate its taper this month.

This sets the stage for a dramatic policy shift that will clear the way for a first interest rate hike next year. The central bank signaled on Wednesday that its members see three hikes in 2022.

“Now I have seen how high rates are going and how fast it’s going to happen. The uncertainty is removed from the market. From an equity perspective, now they just have to focus on earnings, margins and growth,” said Jim Caron, a chief strategist on the global fixed income team at Morgan Stanley Investment Management.

“It’s kind of a sigh of relief to the equities market who thought it might be much more aggressive. It’s kind of what we were thinking anyway,” he added.

Shares of Apple rose nearly 3%, lifting the market averages and continuing the stock’s recent momentum. Other Big Tech stocks like Microsoft and Netflix also moved higher. Wednesday’s moves marked a reversal from earlier this week, when the Nasdaq underperformed on Monday and Tuesday.

Defensive plays also performed well, with health-care stocks such as UnitedHealth and Amgen rising 3.1% and 2.6%, respectively.

“While the three rate hikes for ’22 projected by the dot plot likely raised more than a few eyebrows, keep in mind that would still keep us within the realm of historically low rates, and further the market often moves positively when it has a clearer picture of the future, which the Fed no doubt provided,” Mike Loewengart, investment strategist at E-Trade Financial, said in a note.

Big banks, however, fell even after the Fed signaled multiple rate hikes are on the way. The yields for the 2-year and 10-year Treasuries rose by a similar amount following the Fed’s announcement, though the short-term rate did yield did give up much of its gains in the late afternoon. Banks typically do better when the so-called yield curve is widening, with long rates moving faster, as that is how they make money borrowing at short-term rates and lending out at long-term rates.

JPMorgan and Bank of America shares lost ground. Some regional bank stocks, including Comerica, saw modest gains.

Fed Chairman Jerome Powell said at a new conference on Wednesday afternoon that the labor market is not fully recovered, pointed to a sluggish rebound in labor force participation, but said it was still appropriate to roll back some of the Fed’s pandemic-era policies.

“We’re not going back to the same economy we had in February of 2020. ... The post-pandemic labor market and economy in general, and the maximum level of employment that’s consistent with price stability evolves over time,” Powell said."

MY COMMENT

Looks like year 2022 will be a year for FUNDAMENTALS. What is going to drive the markets.....besides the usual inflation and virus stuff......will be earnings and margins and growth. I like it. Seems like there is very nice potential for the BIG CAP market leaders to shine in 2022.....if......they can produce nice earnings each quarter.

I was driving in the car listening to business radio on satellite radio as the press conference was happening. It was a nicely worded press conference.....I was actually impressed with the job that POWELL did. The satellite radio shows me the various market averages as I was listening in real time. As the press conference went on........the NASDAQ, and to a lesser extent, the SP500....were jumping between positive and negative about every 15-30 seconds. They both turned SOLIDLY POSITIVE after about 5-6 press questions.

Looking forward to the next couple of days. What an emotional short term market.

 

Well......DUHHHHHHH. Is there anyone that is a real person that believed all the media BS over the past 2-8 years about how the MILLENNIAL generation was not going to buy houses.

Millennials are supercharging the housing market
Economists expect them to bolster demand for years

https://www.foxbusiness.com/real-estate/millennials-supercharging-housing-market

(BOLD is my opinion OR what I consider important content)

"Alex and Michelle Angert lived the last years of their 20s without a permanent address. They moved out of a small Manhattan apartment in 2018 to stay in short-term rentals around the U.S. before embarking on a yearlong honeymoon to travel the world, starting in the Philippines.

When the pandemic cut their travels short last year, Mr. Angert, 31, decided to take a job in public relations in Richmond, Va. He and Mrs. Angert, who is also 31 and works at a healthcare tech company, started house hunting this spring. After losing out on multiple offers, they raised their $400,000 budget. In July, they plunked down $635,000 on a three-bedroom ranch in a tree-filled lot near a Richmond country club.

"I would have had all of these regrets in life if I didn’t travel," Mr. Angert said. "But it feels like the right time to settle down and put down some roots."

For years, conventional wisdom held that millennials, born from 1981 to 1996, would become the generation that largely spurned homeownership. Instead, since 2019, when they surpassed the baby boomers to become the largest living adult generation in the U.S., they have reached a housing milestone, accounting for more than half of all home-purchase loan applications last year.

The generation’s growing appetite for homeownership is a major reason why many economists forecast home-buying demand is likely to remain strong for years to come.

Rarely has the for-sale home market been more heated than in the past year. The median price of an existing home sold in October was nearly $354,000, close to a record and up about 13% from a year ago, according to the National Association of Realtors. Prices have climbed from a year earlier for a record 116 straight months, with double-digit percentage gains touching every corner of the U.S. this year.

The frenzy has eased a bit in recent months. More buyers are pausing their searches or walking away, discouraged by the prices and a shortage of homes for sale, real-estate agents say. Some market watchers expect home sales to flatten or decline from current levels. They say the Covid-19 pandemic produced a sudden, unforeseen spike in home buying that won’t be repeated, pulling forward sales that would have been spread out over a number of years.

But most housing analysts don’t expect a wave of sustained home price cuts for quite a while. They say the pandemic and the emergence of remote work accelerated millennial home-buying trends already underway. Young families living in apartments decided to buy houses in the suburbs or leave expensive cities for cheaper ones. Millennials who already owned homes traded up for more space. Forbearance on student-loan payments, federal stimulus checks, and a booming stock market helped some first-time buyers afford a down payment.

The generation accounted for 67% of first-time home purchase mortgage applications and 37% of repeat-purchase applications in the first eight months of 2021, according to CoreLogic. And as the largest cohort of millennials turned 30 this year—below the median first-time buyer age of 33—those percentages could rise higher still. That’s especially true because millennials are getting married and having children later in life than recent prior generations, events that can often prompt a home purchase.

The financial stakes could scarcely be higher for millennials, who have faced a wide wealth gap with previous generations. Burdened by student debt and with career paths sidelined by the 2008 financial crisis and housing-market collapse, many millennials lacked the savings for a down payment in their 20s. Some distrusted homeownership as an investment. Credit standards tightened after the housing crash, making it more difficult for many young borrowers to qualify for loans.

Some real estate brokers also theorized that millennials preferred to rent and spend money on travel and experiences rather than buy houses. "We talked for years about how millennials preferred to ‘do’ rather than to ‘have,’ "said Richard Ruvin, a Realtor at Keller Williams Milwaukee North Shore in Wisconsin.

But sitting on the sidelines meant missing out on one of the biggest sources of wealth creation for past generations: equity in a home. In 2019, households of older millennials had a net worth about 11% below expectations based on what older Americans had at the same age, while younger millennials’ net worth was 50% below, according to the Federal Reserve Bank of St. Louis.

Home prices have soared in the past year, raising questions about whether now is the best time to jump into the market. But purchasing a home is still more affordable for many first-time buyers today than it was for older generations, said Mark Fleming, chief economist at First American Financial Corp. That’s because incomes are higher and mortgage-interest rates have declined from above 10% in the 1980s to around 3% today.

A typical mortgage payment for a median-priced U.S. single-family existing home made up 17% of the median family income in the third quarter of 2021, according to NAR. That’s down from about 23% in 1990, when many baby boomers were in their late 20s and 30s.

The main challenge for millennial homebuyers, Mr. Fleming said, isn’t whether they can afford to buy a house but whether they can win a bidding war. The frenzied market this year has made it especially difficult for buyers with small down payments to compete. First-time buyers often lose out to all-cash buyers or investors buying to flip or rent out the homes.

Booming millennial demand coincides with a housing shortfall that is proving persistent. There were 1.25 million homes for sale at the end of October, down 12% from a year earlier. Mortgage finance company Freddie Mac calculated at the end of 2020 that the U.S. housing market was 3.8 million single-family homes short of what is needed to meet the country’s demand.

That mismatch is providing a sort of floor for the market, an army of buyers ready to swoop in and act if prices begin to sag, brokers and real-estate executives say. About 32% of millennials surveyed by housing-research firm Zonda in late 2020 and early 2021 said they planned to buy a home in the next one to three years or as soon as they could save for a down payment. Only 7% said they never plan to own a home.

"You very much could have record-high levels of demand" in the coming years, said Ryan Dobratz, co-lead portfolio manager of the Third Avenue Real Estate Value Fund, which invests in real-estate companies including home builders and land developers. "That’s just because of the millennial cohort finally moving to single-family housing in a big way."

Mariel and Matt Balaban, who are 35 and 36, respectively, were happy living in rental apartments for years, but having children changed their perspective. When the pandemic struck, Mrs. Balaban was pregnant with their second child, and they decided to move from California to Pennsylvania to be closer to their families. After touring more than 30 homes, the couple had their fifth offer accepted this spring on a four-bedroom house in Wayne, Pa.

"My husband and I both grew up in houses with yards and neighborhoods, and I think we both wanted that for our daughters," Mrs. Balaban said.

About 31% of older millennials and 43% of younger millennials don’t currently have a mortgage but could qualify for one, according to a Freddie Mac analysis of credit-bureau data.

In the first eight months of the year, millennials comprised the highest share of purchase mortgage applicants in San Jose, Calif.; Austin, Texas; and Seattle, all metro areas with a high number of tech jobs, according to CoreLogic. Millennials also accounted for more than half of applicants in more affordable markets such as Pittsburgh, Milwaukee, and Buffalo, N.Y., CoreLogic said.

"We have a lot of people that have chosen to rent for a lot longer than maybe they did 10 or five years ago," said Dana David, a realestate agent in the Buffalo area. "Instead of buying your first house and having it be a $150,000 house, now we’re seeing a lot of first-time homebuyers be in the $250,000 to $350,000 range."

Increased millennial buying clout is starting to change the face of U.S. homeownership. The millennial generation has more Black and Hispanic households than older generations. About 45% of millennials are nonwhite, compared with about 40% of the generation born between 1965 and 1980; and 28% of baby boomers, born from 1946 to 1964, according to Pew Research Center.

The homeownership rate for white households is projected to continue to exceed the homeownership rate for nonwhite households in the next two decades, according to the Urban Institute. But the number of white homeowner households will decrease between 2020 and 2040, the policy research group said, while the net increase in homeowner households will be nonwhite.

Latino homeownership in the U.S. is growing at a record pace. The number of Hispanic homeowners rose by more than 700,000 to nearly 9 million last year, according to Census Bureau data compiled by the National Association of Hispanic Real Estate Professionals, an industry group. That growth was fueled primarily by younger buyers: Hispanics in the U.S. had a median age of 30 in 2019, which was about 14 years younger than the median age for non-Hispanic white Americans.

Hevert Someillan, who is 31, teamed up with his mother, Lourdes Someillan, to buy a three-bedroom home with a pool and a detached garage with an apartment in Granada Hills, Calif., in February.

"I feel like I kind of owe it to my family, as an immigrant," said Mr. Someillan, who was born in Cuba. "I like ownership.…Eventually you pay it off, and it’s yours.""

MY COMMENT

I used to just SCREAM every time I would read about how the MILLENIALS were not going to buy houses. Total BULL SH*T by the media. They will.....obviously follow all the steps of every generation......living in apartments or condos in the city....getting married......having kids....moving to the suburbs......etc, etc, etc.

Even this little article contains some of the other items of BULL SH*T that you hear repeated over and over such as:

"The financial stakes could scarcely be higher for millennials, who have faced a wide wealth gap with previous generations. Burdened by student debt and with career paths sidelined by the 2008 financial crisis and housing-market collapse..."

The above is total BS. Earlier generations had much more difficult times to come of age. Imagine coming out of college or High School in the 1976 to 1982.....gas crises, stagflation era. The above is total BS. In fact as shown in the article the average BABY BOOMER had to spend a lot more of their income to buy a house:

"A typical mortgage payment for a median-priced U.S. single-family existing home made up 17% of the median family income in the third quarter of 2021.........That’s down from about 23% in 1990, when many baby boomers were in their late 20s and 30s."

I see all the millennials pouring into my area. I have never seen so many people of that age.......25 to 40.......with as much money as they seem to have.

They have also been the recipients of the lowest mortgage rates in the past 50 to 60 years........not just lower but......WAY LOWER.

Anyway.....good for them.....buying a home is the best way to diversify your assets and build your net worth. PLUS......they are increasing MY net worth at the same time by driving the value of my home through the roof. In my area of Central Texas they will keep the housing market escalating for many many years.

No need to panic......but.....if you are young and have not bought a house......mortgage rates are going to go up as the FED raises rates. It might be a good time to start to do some home buying planing.

 

Apple watch time. No not the wrist watch....but the market cap watch. I believe the stock has to get to about $182 to hit the MAGIC $3 TRILLION market cap. I would say there is a distinct....."PROBABILITY".....that they will do it by year end. Actually there is probably a good chance they will do it this week.

Does this matter? Probably not, but it will be a market first for any company. A definite achievement in a company that has had their share of UP and DOWN time periods over their life.

 

An early in the day....mixed....market today. Looks like logical and typical profit taking to me on many stocks in the SP500 and NASDAQ. It will definitely help things when ELON is done selling shares of TESLA. The number of shares he is selling are a big hit on the stock price......and......seem to line up with the recent drop in the stock.

 

SO......now we are apparently looking at rising interest rates some time over the next year or so. What will the impact be on stocks?

2018 Doesn’t Prove Rate Hikes Are Bad for Stocks
2018’s stock market correction had another cause, in our view.

https://www.fisherinvestments.com/en-us/marketminder/2018-doesnt-prove-rate-hikes-are-bad-for-stocks

(BOLD is my opinion OR what I consider important content)

"Buckle up! That largely sums up pundits’ reaction to the Fed’s decision to “taper” its quantitative easing bond purchases faster than initially planned, reducing monthly purchases by $30 billion instead of $15 billion. The Fed’s statement also set expectations for “similar” monthly reductions from here, a path to ending QE in March—which many presume would tee up a fed-funds target rate hike in 2022’s first half. There is also ample chatter about the “dot plot” of Fed members’ forecasts, showing they collectively project three rate hikes in the year (based on the economic conditions they anticipate, which is hardly etched in stone). That, rather than QE’s impending end, has preoccupied most Fed coverage over the past couple of weeks, with many pundits blaming 2018’s stock market decline on that year’s Fed hikes. While we (nor anyone) can’t predict Fed policy from here, we can correct the record on 2018, which we think had very little to do with the Fed.

As best we can tell, the theory that rate hikes drove 2018’s negativity rests on two observations: The Fed hiked rates throughout the year, and its last increase—on December 19—roughly coincided with the S&P 500’s Christmas Eve low. Yet zeroing in on those facts is a bit too selective, in our view. Consider: The Fed started its rate hike cycle way back in December 2015. The S&P 500 did fine in 2016, rising 12.0%. The next rate hike arrived that December, and three more followed in 2017. Stocks’ party continued, with the S&P 500’s 21.8% return defying rate hike fears.[ii]

Even in 2018, stocks’ woes didn’t align with the Fed’s moves. As Exhibit 1 shows, while full-year returns were negative in a year the Fed hiked four times, that negativity was concentrated in the autumn. After suffering a brief correction (a sharp, sentiment-fueled move of around -10% to -20%) in the winter, the S&P 500 climbed through spring and summer and hit the year’s high point in late September, enduring two rate hikes along the way. In our view, saying the Fed’s decision to raise rates twice in the autumn, for a total 0.5 percentage point increase, caused the S&P 500’s -19.4% decline from that September 20 through Christmas Eve strains credulity.[iii]

Exhibit 1: Stocks Mostly Didn’t Mind Rate Hikes in 2018


Source: FactSet and St. Louis Fed, as of 12/15/2021. Fed-Funds Target Range Midpoint and S&P 500 Total Return Index, 12/31/2017 – 12/31/2018.

In our view, rate hikes were coincidental to stocks’ late-2018 volatility. The deep correction’s proximate cause, based on our research, was a wave of late-year selling by hedge funds—some that were liquidating holdings to prepare for closure, and some that were raising heaps of cash in anticipation of a flood of redemption requests. In both cases, the culprit was years of poor performance, which resulted in restless shareholders and low revenues under hedge funds’ typical “2 & 20” fee model (charging 2% of assets under management plus 20% of excess returns). Under the 2 & 20 model, performance often doesn’t reset annually, so after a spell of disappointing returns, funds must recoup prior lag before collecting that 20% on excess returns. That means a string of disappointing years can wreck revenues, making it prohibitively expensive to keep operating. For many fund managers, it can become easier to fold and start over than try to keep going in hopes of eventually earning that fee for outperforming.

Hedge fund data is notoriously difficult to come by, as the industry is largely opaque and unregulated. But based on the media’s reporting at the time, our interactions with market makers and our experience, we think scores of hedge funds were in this predicament as 2018 drew to a close. By all indications, hedge funds’ performance was quite dreary in the middle of the last decade. Many managers were pessimistic on stocks after former President Trump won 2016’s election. Those who reduced stock exposure accordingly missed the bulk of the S&P 500’s 27.9% return between Election Day 2016 and 2017’s end.[iv] If they flipped bullish for 2018, they then got whipsawed by stocks’ twin corrections, leaving them in the red on the year by early December. Those who decided to close then had to liquidate holdings in a hurry. Those who remained open were staring down pre-determined redemption windows, and we think they anticipated clients fleeing in January 2019 and decided to raise cash.

As fund managers sold indiscriminately, causing big daily plunges in December, we think it spooked investors broadly, leading to a broad, sentiment-driven selloff—a correction. Late-year rate hikes, in our view, were merely unrelated window dressing.

Rate hikes aren’t inherently bearish, in our view. Like every monetary policy decision, whether they are a net benefit or detriment depends on market and economic conditions at the time, including how they affect the risk of a deep, prolonged, global yield curve inversion. 2018’s rate hikes flattened the yield curve, but they didn’t invert it.[v] Right now, with a roughly 1.4 percentage-point gap between 3-month and 10-year US Treasury yields, an incremental Fed rate hike looks unlikely to cause big money market disruptions.[vi] Maybe that changes by the time the Fed acts, but that isn’t knowable now. Hence, rather than sweat what the Fed might do months in advance, we think it is best to just wait and see and weigh monetary policy decisions after the fact."

MY COMMENT

I have invested through many time periods of rising interest rates. The impact has not been significant to me as an investor.....especially.....considering the performance and gains of stocks. The typical rate increase situation seems to be a series of 0.25% increases over time. Stocks usually take a little bit of a hit for a few days as a result of each raise....but....that is a very short term impact....often just a few days. After that all the OTHER market forces that are driving stock prices come back into play and the raise is forgotten.

In addition.....is is no shock that rates are going to rise. EVERYONE in the world knows what is coming. Business is prepared, management is prepared, investors are prepared.....no big deal. This is totally BAKED IN.

ACTUALLY.....I look forward to the NORMALIZATION of rates. We are at the extreme LOW END of the historical rate charts. We need to get the economy, the labor markets, the interest rates, etc, etc back to normal.

Speaking of back to normal......I heard POWELL yesterday talking about getting inflation to the 2% FED target. this seems a little FOOLISH to me. From my life experience I believe that the normal range for inflation should be higher for a healthy and strong economy. I would like to see that "normal range" as 2-4%.

 

HERE is the economic news of the day.....which no one will care about.

Jobless claims: Another 206,000 individuals filed new claims, rising from 52-year low

https://finance.yahoo.com/news/weekly-unemployment-claims-week-ended-dec-11-2021-200522770.html

(BOLD is my opinion OR what I consider important content)
"New weekly jobless claims ticked up slightly last week to hold near a 52-year low.

The Labor Department released its latest weekly jobless claims report Thursday at 8:30 a.m. ET. Here were the main metrics from the print, compared to consensus estimates compiled by Bloomberg:

• Initial jobless claims, week ended Dec. 11: 206,000vs.200,000 expected and an upwardly revised 188,000 during prior week
  
• Continuing claims, week ended Dec. 4: 1.845 million vs. 1.943 million expected and an upwardly revised 1.999 million during prior week
  

First-time unemployment filings fell sharply to reach their lowest level since 1969 in early December, coming in below 190,000. And even with the latest move higher, the four-week moving average for new claims — which smooths out volatility in the weekly data – came in at the lowest level since November 1969, dropping by 16,000 week-over-week to reach 203,750.

And continuing claims, while still somewhat above pre-pandemic levels, have also come down sharply from their pandemic-era high. This metric tracking the total number of individuals claiming benefits across regular state programs peaked at more than 23 million in May 2020, but came in below 2 million for a third straight week in this week’s report and reached the lowest level since March 2020.

The marked drop in new weekly jobless claims over the course of 2021 — and especially in the past several weeks — has served as one key indicator of the current tightness in the labor market.

But even as the rate of those newly unemployed per week sank to multi-decade lows, labor force participation has remained depressed compared to pre-virus levels, and job openings have held near record highs. The labor force participation rate last came in at 61.8% for November, or short of February 2020’s 63.3%, and the size of the civilian labor force was still down by 2.4 million.

“If we filled every single job opening that's out there right now, we'd have employment that was not just well above where we were pre-pandemic, but well above what anyone predicted pre-pandemic,” Betsey Stevenson, former Labor Department chief economist and professor of economics and public policy at the University of Michigan, told Yahoo Finance Live.

“That recovery and employers wanting to hire workers is there,” she added. “The challenge is that we still have just a lot of uncertainty going on in the labor market. A lot of what economists talk about is churn — people who are exiting jobs more frequently than they used to, exiting the labor market more frequently than they used to.”"

MY COMMENT

MUCH of this jobs data is very shaky in my view. The labor markets are just to disrupted for this data to mean much. The labor participation rate is a mess. We STILL have a long way to go in the re-opening. We will not have much of a chance to normalize anything till we get to the point where health BUREAUCRATS are no longer controlling half the country.

 

HERE....is the other economic news of the day.....which no one will care about.

U.S. manufacturing activity slows; factory supply constraints easing - IHS Markit survey

https://news.yahoo.com/u-manufacturing-activity-slows-factory-145248135.html

(BOLD is my opinion OR what I consider important content)

"U.S. manufacturing activity slowed to a one-year low in December, but there are signs that labor and raw material supply constraints at factories are starting to ease.

Data firm IHS Markit said on Thursday that its flash manufacturing PMI fell to a reading of 57.8 in mid-December from 58.3 in November. That was the lowest since December 2020. A reading above 50 indicates expansion in the manufacturing sector, which accounts for 12% of the economy. Economists had forecast the flash PMI climbing to 58.5.

Manufacturing remains underpinned by strong demand for goods and extremely lean inventories at businesses. But strained supply chains because of the COVID-19 pandemic are a constrain.

There are glimmers of hope, however. The survey showed "supply chain delays moderating markedly during the month," and "the rate of job creation quickened to the fastest since June." It also noted that "the rate of cost inflation softened to the slowest for seven months."

But shortages remained binding for the vast services sector. The survey's flash services sector PMI dipped to a reading of 57.5 from 58.0 in November. Economists polled by Reuters had forecast a reading of 58.5 for the services sector, which accounts for more than two-thirds of U.S. economic activity.

A measure of services sector input prices rose to 77.4, the highest since the series started in 2009, from 75.7 in November. That is a potential sign that inflation could remain significantly high for a while. Consumer prices increased by the most since 1982 on a year-on-year basis in November.

With both manufacturing and services sectors activity slowing, overall business activity cooled this month. The survey's flash Composite PMI Output Index fell to a reading of 56.9 from 57.2 in November.

Its measure of prices paid by businesses for inputs climbed to 78.1. That was the highest reading since the series started in 2009 and followed 77.6 in November."

MY COMMENT

This is not exactly good news for the economy going forward. BUT......we have gotten to the point where this constant economic data is just becoming irrelevant due to the VOLUME of this stuff that is released every day. Unless you are an economic data JUNKIE....this stuff has become so constant....that it is all becoming meaningless. EVERY DAY....there is some economic data coming out....day after day after day.....EVERY DAY.

My view.....the LAST THING any investor should be obsessing over is some daily economic press release. It is nice to have a FEEL for the economy.....but that is about all that I try to get from this stuff.

 

.".......but in a bit of personal news, I just got engaged to the loveliest person in the world and I am extremely proud my long-term investing and financial habits have put me in a place where I can afford to make sure my partner has the dream wedding she's always wanted."

CONGRATULATIONS....duckleberry_fin

People like you are the future. Working hard.....saving.....investing.....educating yourself.....striving to get ahead.....focusing on the future for yourself and your family. Those are the values that success has been built on for many generations going back hundreds of years. The more things change.....the more they stay the same.

 

YEP.......every generation has their own issues and problems.

Us early BOOMER's had to come out of college into the world of the 1970's and into the early 1980's....Vietnam war, the draft, the gas crisis, massive inflation, stagflation, etc. My parents came out of High School and within a year were in the middle of a WORLD WAR for the next five years. Their parents had to start and live much of their adult lives in the GREAT DEPRESSION. The generation before that had to do WORLD WAR I. The generation before that had to come of age in the GREAT DEPRESSION of 1896. The couple of generations before that had to come of age in the Civil War and the aftermath of the Civil War. And....on back through all of history.

And those are just the news type events......I have not even mentioned all the various social and cultural issues of the various time periods.

What I hate is the way the media plays it all up and makes it sound like doom and gloom.....for the young generation. You make your own future and your own life.......just like it has always been.

It is nice that on this board we are all in the same boat.....regardless of age......the investing boat. I like that there are many different nationalities, experiences, ages, life experiences, etc, etc, on this board.

 

AND......today.....we are all experiencing this NASTY market. Well....at least some of us are. I have not seen anything on this but......my view is that the little bit of positive news on the employment numbers is causing people to think that the interest rate increases......"might"....happen a bit earlier in 2022....perhaps mid year.

So......I will live in the short term.....but....I will invest for the long term. At least to look at the positive today.....I have NOT given back all of the gains I got yesterday....yet.

I continue to be fully invested for the long term as usual.