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Patience Usually Results in Success

December 13, 2023

When it comes to your financial future, the old song rings true, “Know when to hold ‘em, know when to fold ‘em.”   

The problem is gambling with your future is never a sure bet.

When you are still working with at least five to ten years ahead of you, it makes perfect sense to invest in the long term.  Strategic Investing means to make a financial goal and stick with it.  In a decade your investments will usually make you more money.  Warren Buffet has shown that is a smart way to aggressively invest.   However, when you are close to or in retirement, we prefer to follow Tactical Money Managers who actively move your investment into the equity or bond market, and then when it appears right, will withdraw funds and deposit them into low-risk money market, bond, or other types of accounts and keep the funds there until the volatile time is over. 

Sounds like Gambling to Me!

During his testimony on December 13, 2023, Federal Reserve Chairman Jerome Powell said the Fed plans on three interest rate cuts next year.  The stock market immediately jumped.   Then later in his testimony, at about 12:53 PM (Arizona Time) he said, “We won’t remove the possibility of increasing interest rates in the future.” 

Which is it?

A week ago, the Fed Chair threw cold water on the positive talk of lower interest rates any time soon, in fact he said, prepare for more pain as the Fed will probably increase interest rates again.

It seems a bit like both holding and folding your cards. 

Trying to second guess what the future might bring by looking back to 2008, analysts reported, “The Federal Reserve was also forced to take unprecedented monetary policy measures during the Great Recession to preserve the financial system. From September 2007 to December 2008, the Fed implemented 10 interest rate cuts, bringing the fed funds rate down from 5.25% [about where we are right now] to essentially zero.” June 21, 2023

Just because the Fed cut the interest rates back then, it was not a good thing, as the market dropped more than 50% in that year and a half span.

There are many factors working against a long bull-run for the stock market.  One factor is the Bond Market and interest rates, followed by uncertain volatility.

Hartford Funds wrote about The Interest-Rate See Saw.   “Bond prices and interest rates have an inverse relationship: When interest rates rise, bond prices fall and vice versa—just like a see saw.

“Higher interest rates allow bond investors to collect more interest on new bond purchases, but the principal value of their existing bonds will drop in value. When interest rates increase at a slow and steady pace over several years, bond investors may not feel the impact too much because the higher interest payments help offset the decline in bond principal. When rates rise rapidly, however, it can be painful because the drop in a bond’s principal value is greater than the additional interest income.”

Bonds and Interest Rates Have an Inverse Relationship

For illustrative purposes only. Assumes a bond with a fixed semi-annual coupon and 10-year maturity. Source: Hartford Funds


“Purchasing bonds when interest rates are at or close to their peak could be a prudent strategy for capital appreciation since the principal value of bonds will likely increase as interest rates fall. You could also consider purchasing an actively managed bond fund or ETF to let professional money managers decide how to navigate changing interest rates.”

Our concern is the Fed can cause another 2008 drop in the market when it tries to prop up the stock market with enthusiastic positive rate cuts, only to see the market drop anyway.  It is our observation that the 2020 Pandemic mini recession never fulfilled its job of moving the market in a permanent upward trajectory.  All that happened was trillions of dollars of debt was added to our economy, which will end up with the U.S. Government being responsible for digging into its pockets to offset the interest costs and avoid bankruptcy.

Mr. Powell is fence sitting, fighting a precarious battle as he wants the market to be positive without the wild volatility of the bond market.  As long-term Fixed Income Investors rush to take advantage of dropping rates (due to his promise of rate cuts), the more money that goes into the bond market to get the best rates, the faster the rates will drop.

More Volatility is Right Around the Corner

So, where does that leave us right now?  The Senate and the House have returned to work but are unlikely to get much done before the Christmas break— which means January is going to be busy.

To recap, Congress passed a short-term budget package before the Thanksgiving holiday to avoid a shutdown. But that gives legislators until January 19 to pass some of the budgets (Transportation, Housing and Urban Development) and until February 2 to pass other parts (Defense, Health and Human Services).1

Congress will leave D.C. before December 25 and will return to Washington on January 9, which leaves only a handful of days before the first deadline. House Speaker Mike Johnson has indicated that there will be no more short-term packages.1

In addition to the regulator spending bills, Congress is expected to act on funding proposals for Israel, Ukraine, and the southern border.

If it sounds like a lot of “January headline risk,” you may be correct. So be prepared for some volatility. We can hope for the best, but history suggests Congress may take its time working through the many issues.

Another concern is few remember our current “moderate inflation” has been orchestrated by the Administration selling off our Federal Oil Reserves.  For the past two years, the government has pumped almost half of the oil from its reserve tanks to decrease the cost of gasoline.  That means if we want to get back to the same level we had for decades, the government will have to start buying oil, pushing the price of inflation right back up again.  It’s a political game, trying to avoid the bitter taste of losing the nation’s confidence with high inflation.  It might happen sooner than later when the energy giants stop receiving lost cost already drilled oil.

Patience is a Virtue

That leaves me right back to what I wrote in my blog earlier this year in May 2023.  We’re now more than a year since the most recent Treasury interest rate inversion first started.  That is a worry!  A recession seems like a sure bet.  Whether it’s short or long, most of the former recessions that followed Treasury Rate Inversions had fast upward trending market growth, just like what we are seeing right now, followed by sharp declines!

I asked our investment committee this question: “What keeps you up at night when it comes to our future economy?”

The best answer?  “I take sleeping pills.  I always get a good night’s sleep.”

The reality is that the “Worry Spectrum” is a sliding scale of emotion.  It starts on one end with an oblivious “Alfred E Neuman’s “What, Me Worry?”  to Chicken Little’s, “The Sky is Falling!”

The one answer that everyone agreed on:  The things we are all watching for are the surprises.  Other than that, sooner or later, even with the expected coming cycle’s downturn, we’re going to have a happy ending.

If we are patient.

  1., November 20, 2023



The views and opinions expressed are based on current economic and market conditions and are subject to change. Statements of future expectations involve uncertainties that could cause actual results, performance or events to substantially differ from those expressed or implied. Certain risks exist with any type of investment, including the potential for loss of principal, and should be considered carefully before making any investment decisions. Keep in mind that current and historical facts may not be indicative of future results.