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Arrowhead Asset Management Investment Update (May, 2022)

What we can expect in May, other than indecision and reticence to commit money!

Last Friday the top 100 stocks of the Nasdaq stock index (QQQ) closed down 4.4% on the day.

Not far behind came the S&P 500 (SPY) at -3.6%, along with the Russell 2000 small caps (IWM) at -2.8%.

This nasty selloff comes after each US Index already failed to hold their price support from previous lows dating back to mid-March.

While these price support levels were broken, the reason for the selloff and overall market weakness comes without a hopeful "bear market bottom" perspective.

That said, its important that we prepare for this week's trading session (and the month of May in general) even when inflation investments such as precious metals and fossil fuels appear to be struggling?

When it comes to the current stock market, no one knows what comes next, in spite of the pundit grandiosity we regularly hear on CNBC and Bloomberg. 

When US and global stock prices are in a downward bear market (as we are now), lines get drawn which show recently breached stock price support levels. Once these price levels are broken, those lines act as new upward price resistance levels.

However, if these price support levels are violated and the market continues to sit on the fence and trend sideways, sticking to cash is a wise bad option.

In other words, in the immediate future we will only buy new positions when we see very attractive investment opportunities.

Today, and probably for the near future, bearish sentiment is dominating. Small rally days have been short-lived - and are met with heavy selling.

Even if a rally does occur, tough overhead price resistance will need to be breached and confirmed over time.

Even the commodities space - which has done well recently, is showing itself to be in a tough "weakening" spot as well.

One reason commodities are questionable going forward is because rising inflation, paired with a weak market, has confused investors about how the Fed will react with interest rates.

Some believe the Fed will alter rate hikes to support the stock market, while others believe the Fed has waited far too long to fight inflation. In my opinion, the latter is true, but the Fed doesn't want to be the bad guys and take us into a recessionary economy.

That said, high inflation and a “stagflation “ environment means we should continue to watch the commodities space for investment opportunities when the timing appears right.

Therefore, in the near term, we have our eyes on gold (GLD), consumer staples (XLP), agriculture commodities (DBA), and similar investments.

As far as growth stocks doing well again, it may not be until the Fall when technology and consumer discretionary stocks start to look attractive once more.

In the short-term, however, we continue to be sensibly risk-averse until we see a stock market bottom decisively confirm itself.  

Rocky Boschert

Arrowhead Asset Management Investment Update (April, 2022)

Our 2nd Quarter 2022 Investment Strategy

There is talk that the Russian army plans to retreat to its eastern border with Ukraine. If so, this would counter one of the biggest headwinds for turning the sentiment of this current stock bear market toward a more positive direction. 

Still, in the US and the developed global economies, inflation will continue be an issue. And so will the fiasco around global supply chain disruptions.

That said, now that the US central bank has started its anti-inflation interest rate program, financial markets (Wall Street) have a clearer picture about what they can expect going forward.

Remember, Wall Street hates uncertainty.

If the Ukraine invasion does wind down and the frequency or size of the Fed’s future interest rate hikes don’t spook Wall Street, we should be seeing a slow but steady rebound in stock prices, with the less volatile sectors initially doing better than the growth sectors that have dominated the markets over the last few years.

In the interim, we will be rotating investment money to more defensive US sectors like Real Estate, Consumer Staples, etc.  

Summary / Commentary

It is my hope the one positive that will come out of this very ugly Russian invasion of Ukraine will be the glaring reminder that oil is the global currency of dictators, petro-thugs, nuclear threat extortionists, and, of course, greed driven polluters.

Domestically, this reality also applies to oil specific interest groups like the American Petroleum Institute (API), a powerful fossil fuel lobbyist entity that funds and disseminates bogus scientific research and manipulative marketing misinformation created simply to keep oil money corrupted politicians under their control.

The Ukraine invasion has AGAIN reminded the world that the most effective way to cripple repressive oil-funded despots like Russia's Putin is to stop the financing of fossil fuel developments and speed up the switch to decentralized renewable energy development and production whenever and wherever possible.

And that's not just in Putin's Russia. It also applies to the oil theocracies of Saudi Arabia & the Middle East, the failed state of Venezuela, and even the politically-divided United States.

Putin is a creature of oil and gas. Oil money funds both Putin's invasion armies and his "cyber warfare" factories. Hence, it's past time we acknowledge that European, U.S. and other global banks have directly funded Putin and his war industries even after he displayed his true nature by invading Georgia and waged war in Crimea.

The warning signs were always there, but the lust for irresponsible oil profits and oil development financing profits allowed everyone to look the other way, including NATO leaders, US presidents, and the world of global finance and investment.

Indeed, why now is the oil and gas industry finally pulling out of Russia, most notably Exxon? Rex Tillerson was Exxon's CEO before becoming Trump’s first Secretary of State. Tillerson did so much business with Putin that the Russian president awarded him the Order of Friendship. No wonder Trump hired Tillerson: He was the perfect front man for pandering to the egos of oil dictators and commodity oligarchs around the world.

Economic Geography Gone Amok

The fossil fuel industry inevitably produces predatory autocrats simply because of its geophysical locations.

Massive oil reserves are concentrated in very few places around the world. And the people who live on top of those locales, or control those deposits, end up with way more power than they deserve or should have, including Vladimir Putin and the King of Saudi Arabia (who openly murdered and dismembered a well known journalist, with no repercussion whatsoever.

It's very simple: By seriously renewing our national and global commitment to the development of more renewable energy sources, we acknowledge the simplest and most common-sense solution to minimizing war, death, commodity terrorism, and the very real destructiveness of extreme climate-related disasters.

Rocky Boschert

“A person cannot claim they're a victim, when their thoughts, ideas, and actions are those of a predator." 

Stocks Remain Under Pressure; We Get Ready To Buy Soon

Yes, we are currently in a stock “bear” market.

And the prospects of surging inflation and higher interest rates (as well as the Ukraine invasion) will continue to hinder the performance of stocks.

Remember, stock valuations are highly dependent on future promises of corporate earnings and earnings growth.

In the interim, inflation and higher interest rates will eat away at that future growth. And a recession would change that picture even more as growth forecasts would be significantly lowered.

The Federal Reserve Board meets on Wednesday and they've promised to embark on an interest rate-raising campaign, one targeted at bringing inflation under control.

Ironically, if we do enter into a recession, it will automatically curtail inflation, just as it did in 1990 during the Persian Gulf War.

Plus, in case you haven't been watching, US consumer sentiment has been dropping for awhile now - which is often a leading indicator of future recession.

Rising crude oil prices (West Texas crude), interest rates, and the Russia-Ukraine conflict will add to recessionary pressures as well.

A history of recent recessions

In summary, all 10 of the past recessions in the US have occurred during a bear market of some type - either 1) the shorter “cyclical bear market within a secular bull market” type or 2) the longer and more nasty “secular bear market” type.

Of the 10 recessions since 1950, 6 have occurred during long-term secular BULL markets.

It doesn't matter what the news stories are - or what your political ideology is. It doesn't change the fact that interest rates remain near historic lows, essentially making stock market investing the best place to make money.

Yet shorter cyclical bear markets are painful too. And I don't believe we've reached the current stock market bottom for this current cyclical bear market.

History shows that inflation peaks usually result in very profitable stock market outperformance, so timing inflation, and its likely future decline, will be the key to marking and identifying an investable stock market bottom.

Yet if inflation remains a problem for many months or years, then investing in the U.S. stock market will not be our best choice. 

Still, given all the bad news turmoil we see today, inflation could well be close to peaking.

At the beginning of the year we had 3 or 4 “consumer price index (CPI) reports that were showing fast  rising inflation.

And for what it's worth, Wall Street is not anticipating better days ahead for growth stocks - at least not yet.

Hence, owning too much stock in our portfolios ahead of an impending recession with the Federal Reserve about to announce its first rate hike this week is probably not the best investment scenario right now.

Keep one thing in mind, however. Stock "bear" market bottoms take place LONG BEFORE fundamental economic news improves.

The stock market factors in both good news and bad news months ahead of actual positive news surfacing.

Hence, we are likely to see two investment scenarios unfold in 2022:

1) The US stock markets bottom in March/April, prints a "V" bottom - and return to all-time highs later in 2022 or early 2023; or

2) We bottom in March/April, but experience more sideways action throughout the summer - before rallying later in 2022 or into 2023.

In either case, we could see the S&P 500 setting new all-time highs by the first half of 2023, at the latest.

Prepare for a not-so-friendly US central bank in 2022

Fed Chair Jay Powell and his buddies are going to hike rates on Wednesday (3-16) for the first time since 2018 - and likely announce a series of upcoming interest rate hikes.

Also, any reader who think Biden or any US president causes high gasoline prices is misinformed. Oil prices and the resulting cost of actual gasoline at the pump is controlled by an international network of oil producing countries and price speculators. 

Remember that in a “lobby money controlled” capitalist-run government like we have in America, our large corporations and/or special interest oligarchs tell the Federal and State politicians what laws to write and what to do and say.

And of course they are aided directly by their blindly partisan media misinformation outlets like Fox News on the right wing MAGA white nationalist side - and MSNBC on the Wall Street controlled neoliberal side.

Rocky Boschert

"Treat your children like you would if their life were a 'second chance' for your own life" 

Putin's "Genius" probably didn't anticipate a 50% drop in the Russian stock market

The dictator groupie Donald Trump may think Russian President Vladimir Putin is a “genius” for the way he invaded Ukraine, but the shareholders of Russia’s largest publicly traded companies may have a different assessment today.

After Putin ordered a wide scale invasion of Ukraine, the Moscow Stock Exchange (MOEX) “suspended trading on all its stock exchanges until further notice.”

Shortly thereafter, Putin’s corrupted Russian oligarchs must have howled after a subsequent notice indicated the MOEX would restore trading at 10:00 a.m. Friday Moscow time.

Fortunately, very shortly after their exchanges re-opened, the U.S. dollar denominated RTS Index plunged by 50 percent and their MOEX Index tanked by 45 percent.

As of this weekend, the major Russian stock indices are all currently trading 50% or more below their pre-invasion highs. As of Monday, February 28, Russia has announced their stock markets will suspend trading for the rest of this week.

Plus we can all feel good that their stock market pain has also spread across all the largest publicly traded companies in Russia:

Gazprom, one of the largest (and most corrupt) natural gas companies in the world, lost over 50 percent as of Friday’s market close.

Rosneft, another large Russian dirty energy company, slumped by as much as 59 percent.

Novatek, Russia’s second largest natural gas producer, lost 48 percent.

And one of the largest banks in Russia, Sberbank, is trading as much as 80 percent below its late October 2021 highs.

The plunge in the Russian stock market, together with its now bloodied petro-currency, the Ruble, also hit record lows against the Euro and the U.S. Dollar.

Russia’s financial market collapse brought in the Russian central bank, the Bank of Russia, to desperately support their market and the currency.

The Bank of Russia announced that it was banning short selling and was initiating “interventions in the foreign exchange market, extending acceptable collateral for loans, and providing the banking sector with extra liquidity.”

Yet the Russian central bank does not have unlimited money to support Putin’s war criminal military aggressions against a victimized neighboring country.

And with significantly broadened global sanctions expected over the weekend from the U.S. and much of Europe (which are expected to further hit Russian banks and Russia’s ability to sell its debt), Putin may have created an unanticipated financial crisis at home instead of a simple deadly muscular display of his military ego.

Additionally, what will happen on Monday when the new announcements of heavier sanctions hit the newswires throughout the weekend is impossible to predict.

As we move forward, let sane Americans and global investors have some degree of human civility by boycotting all future purchases of Russian stocks - and divesting themselves of whatever remaining Russian shares they own.

In fact British Petroleum just announced they're divesting all 20% of their ownership of Russian energy company Rosneft AND removing two Russian oligarchs from their Board of Directors. It almost makes up for their Deepwater Horizon disaster!

And finally, on a more personal imperfect and karmic economic justice note, I hope Trump and his Russian oligarch loving crime family had money invested in Russian stocks. Because, of course, Putin is a genius.

Rocky Boschert

Investing in a world with increased risk of climate-related disasters

January, 2022

The United States has seen devastating wildfires ravage the Pacific Northwest and Colorado, destructive tornadoes spreading out nationally, flooding in Miami, NYC and Detroit, on-going droughts in the Southwest, and increased threats of more frequent hurricanes around the Gulf states.

It is unmistakably clear some degree of climate change is responsible for the growing frequency of extreme climate caused natural disasters, not to mention their increased power in terms of the damage and destruction they leave in their wake.

The International Monetary Fund’s (IMF) latest World Economic Outlook states that the losses from unmitigated climate change on global "gross domestic product" (GDP) will average 15 per cent by 2100 (with a range of three per cent to 30 per cent).

Likewise, the "Network for Greening the Financial System" (established by eight central banks following the signing of the Paris Agreement) indicates a reduction of 1.5 per cent to 23 per cent in global GDP.

Yet, at a time of record-high government debt levels, the ability of public fiscal policy to adequately respond to climate change impacts will be constrained. All of this is to say that private capital will play an increasingly large role in the world’s attempt to mitigate the economic costs of climate change disasters.

The good news is that scientists still say there is time to avoid the worst-case projections, meaning that investors can stand to benefit from the long-term global shift to a non-fossil fuel, low-carbon economy.

Renewable Energy 

One of our biggest investment opportunities going forward will come in the form of renewable energy (much needed new and updating infrastructure spending will also reduce the potential problems created by extreme weather events).

Of course this is not a new idea for investors; but the scope of investment required for the world to meet its climate risk mitigation objective is massive.

Total spending will have to reach an annual average of US$2 trillion by 2030 (for reference, spending in 2018 was US$900 billion), according to the International Energy Agency (IEA). This shift is already happening, as market forces have taken over.

The building of new fossil fuel power generation stations - except in the dirty energy states whose politicians are bribed by lobby money - slowly being phased out, especially coal. Companies and utility providers specializing in solar, hydro, wind and geothermal technology will stand to benefit as a result (nuclear, though able to produce clean energy, appears to lack the political appetite now).

Solar power is in line to be the big winner: IMF research gives it the largest jobs multiplier, making it a logical first choice for politicians looking for bipartisan support regarding infrastructure spending.

The biggest concern surrounding solar renewables is the lack of “baseload” ability — for example, peak energy demands are not always when the sun is shining the most. For that reason, technologies supporting "energy storage" capacity also must grow.

Importantly, the cost of renewable energy technology has come down dramatically and is now in-line, or cheaper, than dirty energy alternatives. And that is before factoring in the externality costs (pollution, carbon dioxide) of fossil fuels.

Economic analysis as far back as 2015 reveals renewables spending to be US$4.7 trillion in aggregate, or 6.3 per cent of GDP. The transition to renewables would accelerate even faster if fossil fuels weren’t currently benefiting from such massive direct and indirect subsidies from lobbly-money co-dependent governments.

Nonetheless, the world has moved past the tipping point when renewable energy sources are cheaper than dirty energy plants. Investors will want to have exposure to this secular bull market industry.

Electric Vehicles

Besides clean energy, the next most promising clean energy opportunity comes in the form of electric vehicles.

Tesla’s story is well known among investors and is the biggest “pure-play” company on this theme, but almost all auto manufacturers are moving in this direction.

Globally, the IEA estimates there are only eight million electric vehicles on the road but predicts that number will be 120 million by 2030 (potentially as high as 250 million depending on the scenario).

The above energy sources are two of the largest opportunities that come to mind when thinking about investing around the climate change theme.

Green Infrastructure

Other opportunities worth mentioning include specific rare earth metals (both the commodities directly and through mining companies), since demand will grow alongside the need for battery technology.

Plus, environmental consulting and engineering and construction service companies will benefit from the changing infrastructure demands to a low-carbon economy; including carbon capture and newer energy storage technologies.

Geothermal 

Finally, a potential investment idea that is often overlooked is geothermal energy. This is not the first source that typically comes to mind when thinking of “green” alternatives, but it solves two key problems.

First, it addresses the issue of peak production versus peak demand. Power generation can be adapted to match any demand curve since the flow of heat from underground can be increased or decreased with relative ease.

Second, and perhaps more importantly from a political perspective, the expertise and resources that oil and gas companies have in drilling and maintaining oil wells can be put to use in the construction of geothermal power plants (which require creating a network of reservoirs to cycle the heat above ground).

Geothermal plant construction is a natural solution for transitioning a workers who feel threatened by a move away from fossil fuels, making it an easier political decision for governments.

Renewable technology successes are tied to economic geography

It should be mentioned that betting on any one technology or solution may not be a prudent investment decision as it is too early to call a clear winner in many cases.

Furthermore, given the early-stage nature for some technologies, investors with the ability and risk tolerance will consider looking at private companies - even though there is no shortage of publicly-traded stock companies either.

Bottom line: As governments attempt to make up for lost time as the climate approaches the critical 2-C warming threshold that scientists have warned about, renewable energy investment opportunities will continue to grow.

As such, private capital will also need to play a critical role in this global energy transformation, as informed electorates demand more and more action on climate change.

Finally, the economic recovery from the COVID-19 pandemic is an important opportunity for governments to accelerate investments, through green infrastructure spending and the like, wherever there is political appetite for economic stimulus.

Much like the industrial revolution, the coming decades will open several opportunities for investors to take advantage of shifts in global priorities and technological breakthroughs.

David Rosenberg, Rosenberg Research & Associates 

 

Our Investment Strategy for 2022 and Beyond

For most of our Fidelity IRA / brokerage accounts - and our Fidelity 403(b) / ORP retirement plans - our 2022 and beyond investment strategy will involve taking a roughly 10% positions in ETFs (or mutual funds) that are showing new upward momentum and 5% positions in "thematic" ETFs that are also in an upward momentum trend.

As far as performance results for our above described investment strategy, extensive back testing shows that our established buy signals described above have verified positive historical results over many past years (with some portfolios more contained during the extreme volatility of that two Covid years) 

Yet I'm confident that should we start seeing more infection stability with the pandemic, our historicall verified performance results will again show an 80-85% success rate over the next few years following our investment buy signal.

Moreover, with our strongest investment holdings, we will continue to hold 50% of our position through a normal "correction" period, then bringing it back to a 10% position and sticking with the investment until we see the upward trend run out of steam.

However, to ensure consistent long-term investment profitability, our investment strategy will require some degree of short-term investment rotation if any of our investments "falter" sooner than expected.

To minimize potential losses, all our investments will be kept on a tight leash, if for some reason any portion of our investment does not continue their upward trajectory.

In other words, we will watch closely for sustainable long-term upward trends, hold those investments until the uptrend reverses, then, liquidate the investment when it is no longer performing well.

A practical shift in "new decade" investment choices 

Many of you probably consider our investment service to be focused primarily (or wholly) on the stock markets. Although historically true, as more and more of our clients enter or approach retirement, our asset selection process will be tempered more toward risk aversion.

Plus, due to the extreme political economic dysfunction we are increasingly seeing with the white supremacy-focused MAGA GOP, it is incumbent within our investment strategy to manage your money with intelligent and cautious risk-aversion.especially, after Trump's traitorous attempt to get his neofascist thugs to overthrow a newly elected Joe Biden on 1-6.

In terms of financial assets, while we will certainly use the most commonly recognized investment vehicles - which will include ETFs and traditional mutual funds, we may also move more toward individual stocks and bonds - as well as "ETN's" that track the "price" of various commodities such as gold, silver, or lithium.

And to be clear, we will not invest in the stocks of dirty energy or environmentally destructive mining companies.

To be both successfully profitable and risk-averse, our investment strategy cannot obsess on any one ETF / fund, investment asset class, sector, industry, or commodity. Moreover, individual  stock investing is becoming more and more complex, with almost all large company ETFs and mutual funds owning the same 10-20 stock companies.

However, we will generally focus our investing in larger company, high visibility investments that are displaying sustainable uptrends and endowed with high trading volume (i.e. liquidity) - assuming they are attractive as a suitable investment given our specific risk tolerance.

During the 2020-21 Covid-19 pandemic years, US stocks were the global investment asset of choice for most institutional and personal investors. In 2022, we will probably continue to witness that trend until Americans stop being anti-vax, but especially anti-mask, fools.

In other words, pandemic aside, as usual we will also watch closely for global investment trend changes by tracking large investor money flows - both in and out of investment classes, sectors the world over.

Financial Media "Noise"

It is important to understand that the investment "noise" we regularly see or read in the financial media is based almost solely on daily performance trends, the marketing of economic prognosticators, and investment firm sales pitches.

The financial media "fear and greed" programming we see daily has very little to do with anything other than short term investing. It generally does not address much of anything relevant for one week or longer regarding the economy or investments in general.

In fact, like television and cable news in general, so much of the financial media only exists to 1) sell advertising to the investor audience, 2) entertain viewers "gullible" to financial gurus and 3) to sell money management services by hyping their unverifiable investment performance.

On the other hand, there are some investments trends that one can key on for valid information, such as the Federal Reserve Board's current monetary and interest rate policy - as well as other identifiable investment sentiment indicators (such as shifts in inflationary data).

2022 should be an interesting year. If the US stock market is to continue its 12 + year bull market, the S&P 500 stock index will need to break through its resistance price level sooner rather than later.

So be safe and be wise. Get vaccinated and wear a mask when needed until we all get out of this Covid-19 nightmare.

Rocky Boschert

"Racial, religious, LGBTQ, and xenophobic hate will have no place in our investment portfolios."

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