The last word, although it is really one of the first words in this column, should go to market savant Jim Bianco. In this brilliant LinkedIn post, Jim noted the past 14 instances of sharp increases in the yield on the 10-year U.S Treasury note... and the inevitable stock market blow-ups that followed UST yield spikes. From the Franklin National crisis in October 1974 - which was even before my time, although Wikipedia gives a great summary here - there is inevitably a cathartic event after an interest rate spike that leads to a stock market correction.
This is the exact setup that we have today. While Jim focuses on the 10-year UST note, which is by far the most liquid Treasury instrument - I looked at the chart this morning from the St. Louis Fed's excellent FRED database of the 5-year UST. The chart is horrifying. A yield spike of this magnitude hasn't happened in such a short time period since the late 1990s... and we all know what happened then. Dot-bomb.
So, as I noted in a prior Real Money column, we are in the midst of Tech Bubble 2.0. Netflix (NFLX) was an extreme example of what happens when the narrative shifts... but it is all narrative these days, with precious little cash flow to back it up.
Netflix saw an extraordinary $62 billion decline in market cap as its subscriber base fell 1% sequentially in the March quarter. Tesla produced a 0.48% sequential increase in car deliveries in the March quarter...and the market cheered. What's the difference? Narrative, man.
But here's the real narrative. Rising interest rates around the world are going to produce, and have already begun to produce, slowing sequential growth in purchases of all consumer goods. I saw yesterday that ACEA - the European auto trade group with whom I'm familiar having lived and worked in Europe for five years following auto stocks - noted that March was the ninth consecutive month of year-on-year sales declines for the Western European art market.
What an incredibly bad time to open a new plant, and according to German audio bible Autombilwoche, Tesla Gruenheide will only produce 30,000 units in 2022. Sorry, Elon, but the macro rules the micro. Always. And the macro just sucks right now. That is what the bond market is telling you.
This crushing inflation, produced by so much global central bank fecklessness, has produced a global economy that is barely growing. In the U.S., the latest forecast from the Atlanta Fed's GDPNow model shows 13% growth for 1Q22. And this is the environment in which you want to buy high P/E stocks? That's crazy.
The way to benefit from inflation is to own resource companies. My HOAX portfolio started with an energy-centric focus... and has produced a gain of 47% in its four months of life. My HOAX 2.0 portfolio broadened that palette to include fertilizers, industrial metals and the companies that ship those goods, and is now beating its benchmark, the (QQQ) ETF, by more than 320 basis points in its third week of inception.
This is the time for active management. You must ensure your portfolio benefits from inflation, and is not crippled by it. The wise men of the market, like Jim Bianco, know that history always repeats - or has 14 times in the past 48 years. Don't be fooled by self-driving cars and alternative worlds like the metaverse. The real world is experiencing slowing growth right now. Make sure your portfolio doesn't.
