Labor Pushing Back
Posted on Sunday, October 17th, 2021
I managed to do more damage to my body. I threw out my back again this week. Seriously? Yes, it was yard work again. I hereby announce my official retirement from yard work. Diane doesn’t believe me either. No golf for three weeks and the weather is going to be perfect. Mom is right. This getting old stuff isn’t for wimps.
The market had been stuck in neutral for months. One look at the Russell 2000 would tell you that. We noted in our quarterly letter that every brokerage house on the street was bearish and telling its customers to expect stocks to move into a correction – defined as a move lower of at least 10%. Brokerage houses’ are NEVER bearish and here we have all of them being bearish at the same time. We reminded you that one of Reilly’s Rules is that when everyone expects something to happen something else usually does. While everyone is expecting a 10% drawdown we may have already had it. While the averages have hung in there the average stock has been on a poor run. As of early last week over 90% of stocks in the S&P 500 and 98% of those in the Russell 2000 have already experienced a drawdown of 10% or greater. We may have already had the correction that everyone is looking for.
We were talking about inflation when everyone was mocking people for talking about inflation. This week the Atlanta Federal Reserve President Ralph Bostic finally admitted that inflation is not of the transitory kind. We have always felt that when we are on the early side of a trade the hard part was not giving up on it so soon. Inflation is here to stay. It is right out of the pandemic playbook. During a pandemic we usually lose a lot of labor to the illness. Well, labor is pushing back and wanting more benefits and higher wagers. They can quit their jobs and move because there are plenty of jobs available. The pendulum is swinging back from white collar to blue collar for the first time in decades and we are investing in commodities for the first time in decades.
This is what we had to say last week. If inflation is going to go up then interest rates are going to go higher. 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 commodity sector and to some degree the big financials have taken it on the chin for years. This could be their turn. We would add that value may be an outperformer in this environment and with that comes European stocks, Canadian stocks and Japanese stocks. All places no one has wanted to invest for years. The things that have worked for 30 years may not be working so well going forward.
Take a look at your 401K. It probably does not hold value funds, European stocks, Japanese stocks, 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 will want to 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.