Update - November 23, 2021
A Dangerous Tweet From the Fed
Jay Powell gets another term.
Joe Biden has decided to stick to the path he knows instead of taking one he doesn’t. For stocks, it means more of the same.
That’s good.
With Powell at the helm, the Federal Reserve has been – and figures to remain – moderately hawkish. The rhetoric that interest rates may rise holds true… as long as, so they say, things don’t get worse.
At this point, only one thing is certain… the Fed fails to see inflation as a threat.
Proof comes from the disastrous world of social media, where some boneheaded Fed intern posted this to the agency’s Twitter feed this week…
The folks in charge of our money are failing to acknowledge the volatility or general direction of this chart. Instead, they’re distracting us with nutritional advice.
“Sorry about the rising prices of things,” they seem to imply. “But here’s a cheaper alternative.”
Perhaps Mr. Powell will share his favorite stuffing recipe during his next press conference. Or maybe next year at this time we’ll get a tweet about the best bugs to eat.
They’ll still be cheap… I hope.
Banks Win
Of course, none of this is a surprise. I’ve written about the Fed’s mission creep before. It’s a problem only for the folks who don’t recognize it and prepare for it.
The action from the money printers is creating plenty of opportunity.
Again, our portfolio proves it.
Take Kearny Financial (KRNY), for example. It went against the market yesterday and put in a good showing. Most bank stocks did. They like Powell.
But there’s something happening in the banking sector that you should be aware of.
It makes right now a very good time to buy shares of banks like Kearny.
The idea is highlighted in the company’s most recent earnings report. Do some digging, and you’ll see that the bank’s commercial loan business is dealing with record levels of loan repayments.
Thinking higher rates are around the corner, many firms are rushing to refinance their debt. They’re paying off old loans by taking on cheaper, newer ones. Kearny’s pipeline of new loans is at a historically high level.
This creates a drag on profits in the short term as the bean counters are forced to pull sources of anticipated long-term revenue (assets) off the balance sheet and replace them with loans with lower rates. The new loans in the works, though, should more than make up for the lost revenue.
Again… it’s a temporary drag. That’s why banks celebrated the news of Powell’s second term yesterday. It means the trend will play out as expected.
Of course, there’s another, even larger trend with Kearny. It’s one I’ve noted before… its massive share buyback plan.
The company plans to repurchase 10% of its shares… and increase its dividend.
This is exactly why our Modern Asset Portfolio theory is so valuable. By focusing on the power of real interest rates, we can uncover the stocks that offer outsized returns… without taking on additional risk.
Kearny is an interest rate play through and through. By taking advantage of the trend, we get an outperforming stock without having to venture further out on the speculation spectrum.
If you don’t own shares yet… get them now.
Like everything else – including your turkey dinner – the price is going up.
With that, I hope you and your family have a wonderful holiday full of gratitude and abundance.
And please, stay away from the soy.
I don’t care what the Fed’s nutritionists say… That stuff’s not healthy.