We're on a Road to nowhere! Today's soundtrack is provided by Talking Heads. This morning I was reading an article from Blomberg via Investing.com that contained the thoughts of newly-promoted Fed Vice Chair Lael Brainard. The article contained this brilliant chestnut from Brainard:
"If we don't see the kind of deceleration in monthly inflation prints, if we don't see some of that really hot demand starting to cool a little bit, then it might well be appropriate to have another meeting where we proceed at the same pace," she said. "If we are seeing a deceleration in the monthly prints, it might make sense to be proceeding at a slightly slower pace."
I am writing this on the way to Guarulhos Airport in Sao Paulo and the driver didn't seem too bothered when I threw my phone against the side of his Ford Focus. Seriously, though, GPS keeps him on the road through SP's manic traffic, but where is the GPS for the US economy?
"Deceleration in monthly inflation prints?" What the hell is this woman talking about? Seriously. Does it make more sense to go buy groceries, fill up your gas tank (retail electricity prices are also surging, Elon) speak to a local real estate agent...or to rely on stale data that is compiled using methodology that was developed in the 20th Century?
Graças de Deus!
As the Nasdaq is jumping today despite a mid-quarter profit warning - delivered in the form of a bizarre, four-page PowerPoint - from Microsoft (MSFT) , we are going to keep seeing this divergence.
Corporate America is telling you things are getting worse for the global economy and that the US economy is already in a recession. Technocrat America is going to keep telling you things are okay. Just as they were with the Nasdaq at 16,000. And 15,000. And 14,000. And 13,000. You get the picture.
The US economy is horrible right now and the only way to play that is to take advantage of inflation - as I do in my model portfolios HOAX and HOAX 2.0 via heavy exposure to energy and energy-dependent names... or just don't own stocks at all.
To that end, I created yet another model portfolio this week, PREFS. This one is different from the others. It doesn't compete versus a benchmark and is not composed of a short-then-reinvestment trade. It stands alone.
PREFS is composed of 10 preferred stocks, with a blended average yield of 6.6%...try and get that at your local bank! Seriously, PREFS is a diverse group with no hydrocarbon producers - I have those in spades in HOAX and HOAX 2.0 and my two short portfolios SHORT and FKBGT are benchmarked against hydrocarbon providers, Exxon Mobil (XOM) and Antero Resources (AR) , respectively.
So here is PREFS. I have waxed poetic about the virtues of preferred stocks before in my Real Money column, but to allocate assets to PREFS, as some of my existing clients have already begun to do, you have to believe that US stocks don't have much upsides, and in fact have at least 20% downside according to my calculations, and that The Fed will continue to raise rates, but at a pace that will not cause the yield curve to invert. Brainard's comments give me some - but not a lot - of comfort on that front.
Every portfolio I create and manage is based on a core set of ideas that are not in the mainstream. If, for instance, you consider Cathie "oil is going to $12/bbl" Wood to possess mainstream ideas, or if companies like Bill Gates' Microsoft are somehow held to pillars of virtues. I am happy to be on the other side of the trade from those people.
Remember that technocrats are leading the global economy on the Road to Nowhere.
(Microsoft is a holding in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells MSFT? Learn more now.)
