Queasy
Posted on Sunday, September 18th, 2022
My wife left me this week to go to clean out her aunt’s house. From the pictures I don’t envy the task. Plus, I have learned now that anything involving moving furniture means that I should reach into my pocket and hire someone. I have shortened my golf career enough. While Diane was gone for a couple of days, the bright side of the week was that all the kids came home. It wasn’t exactly planned but they are all here. We got into an in-depth conversation about social media and its detrimental impacts. They had some interesting insights. They accept that there is a dark side to the internet, and you must guard against it overwhelming you. It’s fascinating (and a little upsetting) to me that they have never known life without the internet and social media. There was a positive side to our conversation. I found out that two of my kids have fantasy football teams. One of my son’s and my daughter have them. My kids are finally into sports! I was worried that I was doomed to watching football by myself on Thanksgivings for the rest of my life. The kids want you to root for Kyler Murray this afternoon.
It’s back to the 1970’s and the signs are all around us. A railroad strike was averted this week as negotiations ended. US freight railway workers received a retroactive 24% pay raise for the period from 2020-2024! The German government is in the process of nationalizing some of their utility/energy companies. The G7 is implementing price controls. White collar workers have had their way since 1980. Things have changed and it is the blue-collar workers turn. We are in a new environment for labor and a new environment for investing.
I told you this last Sunday. This is the third wave down in a bear market. The 3rd wave is usually the most severe, the sharpest and the quickest. It’s also the trickiest to maneuver. This market has me twisted up a bit as most bear markets do when they get to this point. Do you continue to lighten up on bounces? At some point you end up selling at the lows and pushing risk management too far. I don’t think we are there yet. I am amazed at how resilient the market has been. I think that market players have been hedged and risk has been managed. That is why it hasn’t fallen faster.
My physical therapist told me this week that she was ready to leverage up on real estate as prices fall because – “Prices always go back up. Right!?” Too many people have said that to me lately. I feel a little queasy every time someone says that. While that may have been true in a falling interest rate environment (the last 40 years) it isn’t necessarily true in a rising interest rate environment. Lower rates were a tailwind and led to higher valuations. Higher rates are going to be a headwind. For how long I don’t know. (This is commercial I am talking about not your home.) Commercial Real estate does well in inflationary periods because you can charge higher rent. Highly leveraged commercial real estate in a rising interest rate environment just makes good work for the restructuring group at Ironhound.
The third wave is tricky, but it is better to be a little late to the party than early. Trying to stay patient. My analysis points to a potential high in interest rates in November. There is a G20 meeting in Bali on November 15th. The US could get pressure from allies to ease up on the dollar strength and higher interest rates. I told you that the Fed would raise rates until something breaks. The strong dollar will probably be what breaks it. We are staying defensive until then. Inflation is sticky. I went and bought 2 pizzas for us on Friday night, and they were $25 a piece! Ouch!
“Short term volatility is greatest at turning points and diminishes as a trend becomes established.”– George Soros
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
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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.