Ending the Year on a "Brown Note"

Sour sounds for 2021...

Written by Jimmy Mengel
Posted December 21, 2021

Dear Outsider,

I just attended my son’s annual Christmas recital. He did wonderfully, performing choral arrangements for holiday songs from across the world: Africa, Mexico, Russia, and, of course, North America.

They killed it… except for the part where the music teacher channeled his inner Bob Marley (and inflated ego) and decided to pick up a Les Paul and jam a Christmas reggae tune loudly enough to drown out the kids entirely. 

However, the elementary school orchestra itself needs some serious work, as heard here.

It was like listening to an elephant sexually assaulting a sparrow.

Now, I’m not going to sit around and criticize children. A student is only as good as his teacher, and those in charge have a tough job. They have to be organized, disciplined, and clear. 

But our less-than-fearless leaders right now are not, and the market is beginning to sound much like the school orchestra… 

The government and the market have been playing all the wrong notes for the past year. Loose lending policies, big government projects, and nebulous employment numbers have all led to a stock market that has made it way too easy to make money during one of the most tumultuous times in our nation’s history. 

That appears to be changing…

The Federal Reserve has already tipped its hand and said it would start tapering its quantitative easing and raising interest rates not once, not twice, but thrice. So does the Fed taking away the proverbial punch bowl make it the right time to drop stocks?

I’d say no, not at all. Where are you going to park that money? If you keep it in cash, it’ll continue to be whittled away by inflation. If you sink it into real estate, you’ll be buying at all-time highs. If you decide to invest in a new car, good luck — if you can even find one. 

How about bonds?

Well, these moves have already led to some volatility in the bond market, which is typically the safest investment out there. It’s not anymore because inflation has run so rampant that bond yields are as slow as the elephant and inflation has been as fast as a sparrow.

The same Federal Reserve has already gone on record saying inflation is “transitory.” Chairman Jerome Powell has already had to eat those words and own up to the fact that inflation is indeed a major issue and needs to be reeled back in sooner than later.

Back in October, an economic data report revealed that there was a surge in the employment cost index. That basically means that employers were seeing a steep hike in wages and benefits, which strongly correlates to inflation.

“I think that the data we got toward the end of the fall was a really strong signal that inflation is more persistent and higher, and that the risk of it remaining higher for longer has grown,” Powell said in a recent news conference. “And I think we are reacting to that now.”

Too little too late. I’m sure you’ve noticed it in your grocery bills long before Powell’s press conference. 

The Fed and the government have been playing a discordant symphony. We’ve been waiting with bated breath to see whether President Biden can get any of his agenda passed. While a neutered infrastructure bill passed, his Build Back Better bill has stalled.

All of us who have been waiting for trillions of government dollars to flow into our green energy and infrastructure stocks have been sorely disappointed.

That’s why I don’t typically invest based on a discordant choir of government, bureaucracy, and banking. I buy stocks that I know and understand will be with us in good times and bad. Right now, that means utilities, dividend aristocrats, and high-yielding real estate investment trusts. 

My Crow’s Nest readers know this all too well, and we’ve been able to pull in 127% this year on safe, sturdy plays like Sherwin-Williams (280%), Lowe’s (250%), and Caterpillar (112%). 

As the cursed year of our lord 2021 comes to a close, we have a financial orchestra playing the equivalent of a “brown note.” That frequency is between 5 and 9 hertz, which is below what humans can hear. However, it is a frequency that vibrates the human bowels and forces someone to literally shit themselves. 

The right move now is to ignore the noise and actually make money out of shit. I’m not joking — check it out right here.

Godspeed,
jimmy-mengel-signature-fixed

Jimmy Mengel

follow basic @mengeled on Twitter

Jimmy is a managing editor for Outsider Club and the investment director of several personal finance advisories, The Crow's Nest, and The Adventure Capitalist For more on Jimmy, check out his editor's page.

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