We have done nothing since the record highs in late December but lose ground.
The S&P 500 has dropped back almost 5% from 6000 to below 5800.
One would ask what is happening?
Well it appears after the much better than expected job growth report last Friday that there won’t be any interest rate cuts anytime soon.
Many speculate now that the wait may push out to mid-summer.
With focus finally turning to the deficit by our Federal govern
ment, interest rates climbed in the last couple of weeks.
That will provide an alternative to equities.
The 10 year is at 4.75%.
With the equities market so out of whack on a price-to-earnings ratio, I took cash and placed it in Treasuries.
I have a renewal this week and will buy again, I have no problem taking near 5% on short-term Treasuries.
There will be a lot of investors like me.
If you think this is over, you may be in for a shock.
Real corrections have historically been twice as large as the recent setback.
That would mean another 5% haircut.
It seems to me that all of this false hope on absurdly low interest rates is shocking analysts who weren’t in the business when we actually had interest rates.
There is a whole generation who believes that 0% interest rates are the norm.
They are having to adjust their thinking.
For those debt hawks, there is little to give them comfort with the new administration taking office.
The last time around they spent more than they brought in through taxes. The funny fact was that the tax cuts did stimulate the economy and we did collected more tax revenue. We, of course, spent way more than we collected.
This country seems to believe that whatever good cause out there should be funded.
If you and I operated that way, we would be bankrupt.
Just because you want to, does not mean you need to.
We will get the financial earnings reports this week. We will also get the first inflation measures from the Federal Reserve.
What we will learn is that companies are making money.
The problem with this market is that we want them to make more than reasonable amounts.
Moreover, CEOs have learned to be conservative in their forecasts.
It is a recipe for this market to cool down.
We need a period to determine what will happen in DC.
I am not sure the “Great Carnac” could predict what is coming in the next six months.
As a value investor, the pullback does not hurt my feelings.
There are actually good companies paying 4% dividends with the potential for capital gains.
I have taken a few bites out of that side of the pie and will keep money in Treasuries.
Patience is a great virtue but hard to implement or sustain.