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Arrowhead Asset Management Investment Update (3/3/2018)

Just when we think the stock market upheaval is subsiding, the Donald creates more chaos

Since our last Update, we saw some welcome stock market upside with a nice two-day jump in the stock markets last Friday and Monday, followed by a profit-taking sell-off on Tuesday and Wednesday of this past week.

Then, on Thursday, as the markets appeared to be consolidating the volatility of the previous week, we get President Chaos disrupting the markets by announcing trade tariffs against our best global business partners (Canada, South Korea, etc.) - causing the markets to selloff about 2% on Thursday afternoon.

Fortunately, on Friday, mainly the stocks of industrial companies (that would be hurt by a trade war) lost ground on Friday. Technology, health care and small caps were up nicely to finish the week.

Tariffs? Too little way too late

The problem with Trump's trade tariffs is that steel and aluminum tariffs can really only address the degraded US industrial sector that has already oursourced most of its jobs to other cheap labor countries.

Friends, those industrial jobs are probably never coming back to the US. But Trump cannot see it or admit it. Best case scenario: He is trying to re-energize his fading voter base by pretending to fulfill another promise he made during his presidential campaign. 

Yet if Trump gets his way with his silly metals tariffs, that very tiny piece of the tax reform bone that Trump tossed to his blue collar voters will be used up with one car purchase.

Tariffs almost never work. And as we heard from some of the Republican Party leaders after Trump’s announcement, they run counter to his Party’s ideological rhetoric of "free markets.”

In the end, politicians always try to find scapegoats for job losses, whether it be China, unions, or unfair free trade. The bottom line reality is very simple: American companies bail on American workers by moving jobs to cheap labor nations so they can increase their profits (and yes, to increase stock prices, which we benefit from).

As long as Wall Street controls our Presidents and the politicians (which they clearly do), the global neoliberal economic realities of the constant effort to curtail higher wages will dominate. Tariffs won’t matter.

Look at the market percentage moves, not the points of the up and down markets 

It might be surprising to those of you watching the stock markets that 75% or more of our investments in almost all our Fidelity accounts are still up for 2018.

Not by much, grant you, but just enough to dispel the illusion created by the noise of the financial media that all hell has broken loose. So when you are watching the gyrations of the stock markets, be sure to look at the percentage moves of the stock indexes, not the point moves.

That said, we may be witnessing a slow "sea change" in our investment world as it looks like ten years of consistently low interest rates is finally coming to an end.

In fact, a few investment gurus are saying that we may see the 10-year US Treasury Bond yield (dividends combined with price changes) rise to as much as 4% respectively. Such an interest rate rise would not be good for bonds and bond proxies (utilities and real estate) and it would be bad for some stock sectors.

Yet a sane and systematic rise in interest rates would be good for financial stocks, some technology and consumer discretionary stocks (they profit from higher prices), and possibly commodities, depending on what the US dollar does against the currencies of commodity-producing companies. And short-term bonds and money market funds would once again provide marginally higher dividends for savings accounts and senior citizen retirement income.  

Main Street is quickly becoming a "back alley" of Wall Street

However, there is an ugly underlying reality when it comes to US inflation data and the indirect effect is has on our investment choices.

Since the new "oligarchs" on Wall Street (aka the "elites") now control most of the US economy - and will probably never pay a fair wage to American workers if they can manage it, all the projections about “wage inflation” created by government reports are more about the "fake news" of political posturing than the overriding objective of Wall Street profits and control.

In other words, stock prices, executive wages, and hedge fund profits don't go up as much if employees are paid a "higher" fair wage and good benefits.

The new American oligarchs, currently figureheaded by President Chaos, are now so powerful they are only willing to pay American workers just enough to keep them “dependent” and fearful of losing their jobs. 

Moreover, by paying American workers as little as possible, corporate employers and their Wall Street banking partners can literally force American workers to be in constant debt - just to make ends meet. Low wages and perennial debt is the dream income scenario for Wall Street, hedge funds and real estate conglomerates.

Reality Investing

As an investment advisor, I cannot work under an illusion regarding the current economic reality that we now live under and the one within I must operate.

Truth be told, most middle class and blue collar working Americans have lost almost all control of their economic destiny (the poor are already almost completely ignored). Yet, sadly, what's left of middle class economic empowerment is being lost by choice. Just look at how median income Americans vote and what they buy with their limited resources and borrowed money.

If Americans don't care about the growth of business monopolies and their resulting inadequate wages & health care, it is their economic health and control they are choosing to forfeit.

The only way middle class Americans will improve their lot is to stop playing the victim and scapegoating the "other", make more educated consumption choices, and begin electing politicians that are working for their interests - not the economic interests of their elite donor-class as reflected by our "legally corrupt" two-party duopoly. 

My Evolving Best Money Advice

As your investment advisor, I will do whatever I can to keep you from acting against you own economic interests - as so many Americans are choosing to do. 

After three decades of professional money management experience, my accumulated wisdom tells me its very important for my clients to understand, embrace and maintain the following financial objectives:

1) Get out of debt and keep out of debt (the new oligarchs want to control you with debt servitude and other forms of financial dependency).

2) Use and invest your money the same way the rich do, but without consuming or investing in "addiction" products and services (porn, alcohol, gambling, and even privacy-invading social media), and shun death & war products and companies that further environmental destruction.

3) Keep your money as liquid as possible so you can have the most life choices available to you as the domestic and global economies shift.  

4) Simply buy less stuff. More stuff and bigger houses only complicate our lives and don’t make us happier!

5) When you get to retirement, or if you‘re already there, set yourself up so you can sleep soundly at night. Downsize! But don’t be afraid to invest in the stock market as one of your money management strategies.

It is very important to have as little stress as possible about your financial future - especially in a world that may require more and more flexibility and freedom of movement.

The Markets

Finally, regarding our current investments and the markets, know that we are still in a stock bull market. We will take advantage of that economic reality as long as we can.

But also know that with rising interest rates, at least in the intermediate term, eventually we will have to adapt to a shifting investment landscape.

I've been preparing for the upcoming higher interest rate economic environment. Like all economic growth cycles, it was inevitable.

Fortunately, moving back to a more balanced investment environment will once again be good for Americans that were reluctantly forced to invest in higher risk stocks to make money - but really wanted more traditional income-focused investments to grow their nest egg.

Rocky Boschert