March 2021

February 28, 2021

We are at a major crossroads with our economy, equities, and bonds.  I am very concerned with the limited options available to the Federal Reserve and the government in general.  In a nutshell, and very theoretically, when equities crash or are over-valued, investors move into bonds.  When bonds are too cheap, investors move into equities.  When the economy enters a recession, the Federal Reserve lowers interest rates.  When inflation occurs, the Federal Reserve raises interest rates, and investors move out of equities and into bonds and US Treasuries. Finally, when interest rates are kept artificially low, investors put more money into equities than the equities are worth, and then when the Federal Reserve has to raise interest rates to fight inflation equities take a double hit, international stock markets are affected, corporate bond yields rise (prices fall), and US Treasuries still don’t keep up with inflation-we very close to being here.  With the economy about to pick up with COVID winding down, the velocity of money coupled with the amount of money pumped into the economy could have a major inflationary effect.

I really do see this month as a continuation of the lessor of all evils.  I am remaining in Bonds.
 

I want to note however, this month is not going to be without some opportunities to possibly take advantage of a correction.  Equities are pricing in another stimulus bill-the House just passed their version.  Once the bill is a foregone conclusion, I would expect a drop in the markets, “sell the news”.  While I will be sticking to Bonds for the entirety of the month, there may be opportunities to after a major correction to move back into the equity funds.  By no means am I saying to time the market, but the old adage of buy low sell high should reign supreme.  Keep investing!

My Funds Coach