Winners and Losers

Posted on Sunday, October 10th, 2021

We sent some paperwork out this week by United State Postal Serve (USPS). While the young lady was working on our mail she told me that the price had gone up by an additional dollar. One dollar – big deal right!? Well, that was an 8.5% increase in 3 months! The upshot is that the paperwork was promised to be delivered within 48 hours. It went out on Wednesday morning and delivery was promised for Friday. It arrived Monday at 4pm. Inflation is here and it is going to stick around for awhile. Send your Christmas packages early this year.

This might be the most important big picture concept to understand in the coming weeks and months. Energy/financials and tech/REITS are on opposite sides of the coin. If interest rates are going up tech/REITS are the losers while energy/financials will be the winners. If interest rates are going lower – the opposite is true. The top two performing sectors last week were energy and financials. Can you guess which way interest rates went? Energy was up almost 5% last week after outperforming the week before. The commodity sector and to some degree the big financials have taken it on the chin for years. This could be their turn.

For the broader market a rise in interest rates will have an impact as well. The broader averages are inordinately comprised of highly valued tech stocks. The market cap weighted indexes will naturally fall if large cap tech stocks like Apple, Amazon and Microsoft begin to fall. The top five stocks comprise about 20% of the S&P 500 index. Energy stocks – the whole energy complex is only about 4% of the S&P 500. The rise in oil stocks will not be able to hold up the averages if tech begins to fall. We don’t think tech is going to plummet. If interest rates rise slowly then tech stocks will probably hold their ground while the averages hold their ground or crawl slowly higher. The wind was at the markets back before with tech flying higher and interest rates falling. Now, it is like it has a piano on its back.

Take a look at your 401K. It probably does not hold value funds, precious metals or commodities. They have underperformed for years and investment committees have stripped them from your choices. Now might be time to consider switching your 401K to an IRA. If we are on the cusp of a commodity super cycle, which could last for years, in an IRA you would have the freedom to choose those options.

I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd  Blankfein

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

 

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

 

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.