Please Don’t Fight the Fed/Fundamentals! The Issachar Fund is comfortable in Cash, 100%! In a Bear Market, almost all stocks eventually succumb to the selling pressure; therefore, I chose to sit patiently on my hands. However, I am stalking junk bonds and emerging markets on the short side. I have seen bear markets like this in my 32 years of actively managing risk, and the uglier it gets on the downside, the better the opportunity after the market bottoms. We need to find a bottom, but the Fed/Fundamentals may not be favorable until the market senses the Fed is done raising rates. The Fed is expected to raise rates by 75bps on Wednesday, fighting the inflation they created, so the cost of doing business will likely increase on Wednesday. Companies may raise prices to maintain profit margins when costs go up, creating collateral damage like layoffs. One way for the Fed to bring inflation down from 8.3% to 2% is to create a recession/depression. Unfortunately, I believe the Fed could overshoot its 2% inflation objective, and unemployment could rise to levels that could produce “the great reset.” Most of the current administration’s policies are counterintuitive and defy common sense. A change of Constitutional minded leadership in November could put the economy and the market back on the right track. Evil prevails when good men do nothing. I pray for God to appoint his leadership in November and save this great country from the failures of socialism. (There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses.)
The Fed’s balance sheet Increased by $10 billion last week! The Fed knows that simultaneously raising rates and decreasing its balance sheet will likely produce slower economic growth and reduced inflation. Therefore, the Fed may be slowly taking its foot off the brakes of liquidity by letting its balance sheet expand. Raising rates slows economic growth and increases the cost of servicing our debt, so the Fed may be stuck between a rock and a hard place. The hope of a “soft landing” may result in a “crash-landing” unless a miracle happens.
Tidbits: Our Consumer Price Index (CPI) is now at 8.3% YoY versus the Fed Funds rate of 2.5%. The past eight cycles saw the Fed continue to hike until above CPI. Ouch! Rates are rising at the fastest pace in history into a recession. Mortgage rates are at the highest since 2008. Congress is taking too much money out of the economy in the form of taxes. Every time taxes have gone above 18% of GDP (since the 1930s), we have had a recession. Credit card debt is near a record $1 trillion. Historically, September has been the worst-performing month of the year. Fund managers are more pessimistic about corporate profits than ever in the past 40 years and expect profits to fall over the next 12 months. Apple has over $18 billion of bearish bets against it, making Apple the most shorted stock. Wow!
China has been a net seller of US Treasuries for over a decade and now holds only 4% of all outstanding US Treasuries–down from 14% ten years ago. Since the pandemic, homes are selling below the asking price for the first time. No extractive industry, oil, coal, iron ore, gold, copper, silver, etc., has ever been able to increase output by 300-500% in less than a decade, which must happen for a sustainable transition to green energy. Politicians don’t get this. No matter how good we “feel” about “saving the planet” and “climate change,” China and India will keep building coal-burning electric plants five times faster than we reduce our dependency on fossil fuels. I believe the “climate change” scare is a “feel good” scam designed to rob us of our money and God-given freedoms. Once you know the Truth, it is hard to believe the lies.
Bottom Line: Issachar is in Cash waiting for the next opportunity, possibly on the short side. The Fed is slowly taking away the punch bowl of liquidity from the party. Many investors are sticking their heads in the sand, and some are in denial doing shots before the inevitable “last call,” then the lights will start coming on. The Fed saved the day in the 2008 financial collapse by increasing liquidity and lowering rates to near zero, bringing the stock and bond market to record highs. This time is different! The Fed is raising rates and decreasing liquidity. Grace & Peace to Everyone!
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Important Risk Information: Mutual Funds involve risks, including the possible loss of principal. An investment in the Fund may not be appropriate for all investors. The Fund may hold cash positions when the Adviser feels that the market is not producing returns greater than the short-term cash investments in which the Fund may invest. There is a risk that the sections of the market in which the Fund invests will begin to rise or fall rapidly, and the Fund will not be able to sell stocks quickly enough to avoid losses or reinvest its cash positions into areas of the advancing market quickly enough to capture the initial returns of changing market conditions. The Adviser’s judgment about the attractiveness, value, and potential appreciation of particular asset classes and securities in which the Fund invests may prove incorrect and may not produce the desired results. Past performance is no guarantee of future results. Ratings are only one form of Fund performance and should not be used as the sole consideration in an investment decision. Opinions expressed are subject to change, not guaranteed, and should not be considered investment advice. There is no assurance these opinions or forecasts will come to pass, and past performance is no assurance of future results. For more information regarding the fund, including current performance, please visit IssacharFund.com. Review Code: 4061-NLD-09/19/2022.