cemagraphics
It’s back to the 1970s and the signs are all around us. A railroad strike was averted this week as negotiations ended. US freight railway workers received a retroactive 24% pay raise for the period from 2020 to 2024! The German government is in the process of nationalizing some of their utility/energy companies. The G7 is implementing price controls. White-collar workers have had their way since 1980. Things have changed, and it is the blue-collar workers’ turn. We are in a new environment for labor and a new environment for investing.
I told you this last Sunday. This is the third wave down in a bear market. The 3rd wave is usually the most severe, the sharpest and the quickest. It’s also the trickiest to maneuver. This market has me twisted up a bit – as most bear markets do when they get to this point. Do you continue to lighten up on bounces? At some point, you end up selling at the lows and pushing risk management too far. I don’t think we are there yet. I am amazed at how resilient the market has been. I think that market players have been hedged and risk has been managed. That is why it hasn’t fallen faster.
My physical therapist told me this week that she was ready to leverage up on real estate as prices fall because – “Prices always go back up. Right!?” Too many people have said that to me lately. I feel a little queasy every time someone says that. While that may have been true in a falling interest rate environment (the last 40 years), it isn’t necessarily true in a rising interest rate environment. Lower rates were a tailwind and led to higher valuations. Higher rates are going to be a headwind. For how long, I don’t know. (This is commercial I am talking about, not your home.) Commercial real estate does well in inflationary periods because you can charge higher rent. Highly leveraged commercial real estate in a rising interest rate environment just makes good work for the restructuring group at Ironhound.
The third wave is tricky, but it is better to be a little late to the party than early. Trying to stay patient. My analysis points to a potential high in interest rates in November. There is a G20 meeting in Bali on November 15th. The US could get pressure from allies to ease up on the dollar strength and higher interest rates. I told you that the Fed would raise rates until something breaks. The strong dollar will probably be what breaks it. We are staying defensive until then. Inflation is sticky. I went and bought 2 pizzas for us on Friday night, and they were $25 a piece! Ouch!
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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