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Remember the “Powell Pivot,” the recent move by the Federal Reserve I said not to worry about?
Well, it sure slipped Wall Street’s mind. Stocks got over it quickly, with both the S&P 500 Index and the Nasdaq Composite shortly making new highs.
Better yet, the stabilization in long-term interest rates caused by the Fed’s actions lit a fire under many of my favorite “Safe Money” stocks.
That’s great news for you if you’ve been following my advice to focus on higher-rated, income-generating names.
It’s not that inflation isn’t a serious issue. It is. We’re seeing it run rampant in the housing market, in financial markets, heck, even in the car market!
Every single car I’ve owned has been a depreciating asset ... something you know going in will lose value over time.
But, in the last year or so, used cars have unexpectedly done the exact opposite: They’ve appreciated.
The car frenzy is even spurring some new car dealers to charge more than the manufacturer suggested retail price (MSRP) posted on their window stickers, per The Wall Street Journal. That’s virtually unheard of, at least for most standard cars, trucks and SUVs.
As long as the Fed isn’t going to push back against inflation ... and is going to keep the easy money flowing ... it just doesn’t pay to stand in its way.
The better approach is to profit from the situation while it lasts by using Safe Money strategies.
Here’s a slide I shared in my recent presentation at the Orlando MoneyShow to underscore the point. If you’ve watched the movie “The Day After Tomorrow,” you recognize the scene ... and you can see why I used it to illustrate my point about the magnitude of this “money flood.”
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So, what changes the narrative? What’s the one thing I’m watching that could derail the asset market free-for-all ...
Interest rates. Specifically, a renewed, significant move higher — perhaps sparked by even more intense inflation fears or even uglier inflation data.
But nominal rates aren’t rising anymore. They’re just chopping around in a sideways pattern.
What’s more, “real” interest rates (or rates adjusted for inflation) remain deeply negative, no matter which measure of inflation you use. Heck, the entire Treasury real yield curve is also in negative territory, using a different, market-based methodology followed by the Treasury Department.
In plain English, that means money remains cheap, cheap, cheap. Nothing the Fed has done or said to date is “biting” — and nothing it will likely do over the next several months will either.
That will change at some point down the road. And rest assured, I’ll do my best to alert you when it does. But I’m not jumping the gun here, and neither should you.
Keep profiting instead.
Until next time,
Mike Larson
