Page 18 - Investment Advisor December 2022/January 2023

PORTFOLIO PERSPECTIVES

in housing. That’s part of what was a is a forward-looking mechanism. The in December; and .25% in February.
surprise to the market. market usually bottoms in the middle Then they’ll try to take a pause. I’d
Nouriel Roubini, New York University of a recession because people start to prefer not to see that .25% in February.
economics professor, just wrote in Time discount everything and think forward The meeting will be in the first week of
magazine that “The decade ahead may about what’s happening. It comes down the month.
well be a stagflationary debt crisis the to the relationship between interest I’m seeing that the way the mar-
likes of which we’ve never seen before.” rates and equity multiples. ket has priced in [increases], the rate
Your thoughts? hiking regimen seems to be at least
That’s why he has the nickname “Dr. Do you have any good news about consistent with the [Fed’s] dot plot eco-
Doom.” He’s extrapolating the short interest rates? nomic projections. And it has a little bit
term. Yes, we do have a debt burden and I feel that we’re getting closer to the of upside. It seems that the market is
inflation. But why I think we potentially end of the Fed’s hiking cycle. There’s respecting the data and communication
will not have stagflation is that from the Fed and therefore has
the central banks are trying to If people are scared today — and priced it in.
fight inflation. They don’t want
persistent inflation. If we don’t rightfully so — just buy short- What does that imply?
get persistent inflation, you can’t term Treasurys, buy T-bills. Put It seems that we’re getting, at
get the recipe for stagflation. least, close to the end of this
your money in a money market interest-rate hiking regimen,
It’s atypical for both the although they still have to
equity and bond markets to account and wait a little bit. deliver on those hikes over the
be awful at the same time, next four months.
as they are now. Right? probably a little bit of upside risk to
Yes, except in inflationary environ- yields, which we gleaned from the Fed’s Are there any other investments
ments, like we have. But just because we minutes [released Oct. 12]. The min- that financial advisors should be
have a bear market in equities doesn’t utes signaled to the market that they recommending to clients right now?
mean it’s going to continue if we have a weren’t going to wait for inflation to If people are scared today — and right-
recession because that’s about earnings. come down before they stop hiking. fully so — just buy short-term Treasurys,
If earnings can deliver, the market will They were talking about having a glide buy T-bills. Put your money in a money
eventually look through the bad times. path for getting there. market account and wait a little bit.
The stock market is thinking: What cash They want to get closer to neutral. The only [negative] thing about
will I get in 2023, 2024, 2025 — out 10 or So that gave the market some optimism money market accounts is that if bad
15 or 20 years? Earnings will recover at prior to the CPI [Consumer Price Index] things start to happen, those rates will
some point. report data: The Fed isn’t going to over- come down. So instead of putting more
engineer and try to wait too long. Their money in the equity market today, cer-
Why are we having this next meeting is in a few weeks. tain parts of the credit market look
simultaneous bear market in bonds? potentially significantly more attractive.
Bonds were way too expensive, and And what are your expectations?
the yields were way too low for the I think they’re going to be data- What else would be wise to do?
environment we were in. This is why dependent. That isn’t likely to change If clients are bellyaching about the
you’ve seen the Fed hiking interest rates; between now and year’s end, meaning return, advisors can [recommend] their
they’re fighting inflation. they’re going to deliver with 75 basis holding a little bit of cash and that they
points at the November meeting. The shouldn’t be aggressive in their asset
We’ve been in an equity bear market is on the fence whether it’s 50 allocation right now. Four percent for a
market for some months now. It’s or 75 basis points. six-month T-bill isn’t bad.
traditionally thought that the market Cumulatively, the market has about However, the client might say, “I
is, overall, the leading indicator of another 1.5% of rate hikes priced in missed a rally [in whatever].” But if it
the direction of the economy rather between now and February. They’re try- makes you sleep better and lets you stay
than vice versa. Do you agree? ing to get a glide path where the next the course with the rest of your portfo-
I still believe that because the market months will be .75% in November; .5% lio, I think that’s important.

16 INVESTMENT ADVISOR DECEMBER 2022/JANUARY 2023 | ThinkAdvisor.com