Update - May 31, 2022

Today’s Big Meeting Between Biden and Powell

Jay Powell and Joe Biden are meeting today… possibly as you’re reading this.

Golly… what could go wrong?

Instead of listing the ways (the many ways) the duo might want to double down on the trouble Washington has already stirred, here’s our vision of what should be said during today’s meeting.

Mr. Powell: You know… I think the best thing for America is for us to just sit on our hands. Let’s back out of all of this and just allow the market to work things out.

Mr. President: Yeah, I agree. The people know best how to allocate their money. Let’s not mess with what works.

Mr. Powell: Great. Should we tell our troops to take the summer off?

Mr. President: Well, hell, let’s give ’em the rest of the year off.

Oh, boy! The markets would soar.

But we know none of that will happen. The president has an election to win, and the Fed has a scarred face to save.

But some good news could come out of this meeting… even if it is only superficially good.

Surely there will be a press conference. Surely Biden and Powell will talk about their plan for economic salvation. And surely some investors will think it’s the beginning of the end of this mess and we’ll get a short-term pop… until they’re once again proven wrong.

What I really want to hear is a bit of dovishness – that Jay Powell is signaling to the market that rate hikes are front-loaded and will subside by the end of the year.

Just as I’ve been pointing out since January, that appears to be the path the market now expects the Fed chief to take. Futures markets are showing few expectations for rate hikes past September.

Some traders, in fact, are already penciling in rate cuts.

For us and our portfolio, there’s just one thing we need to pay attention to.

If you’ve been following along, you know what it is… the real yield on the 10-year Treasury.

This chart is critical:

For the last two months, the critical metric has been climbing. It went positive almost exactly a month ago.

But look at the tail end of the chart. The rate is dipping. It went from a high of 0.34% on May 10 to just 0.11% at the end of last week.

As I’ve said, even with May’s serious round of rate hikes, money is hardly expensive.

In fact, it’s still downright cheap.

Using one of my favorite metrics – stock buybacks – it’s clear that large companies still see few better opportunities for their free cash than buying back their own shares.

Buybacks are on pace to set yet another record this year.

In the June issue of Manward Letter – which will hit your inbox this time next week – I dive into the effects of a rising rate and what it means for our Modern Asset Portfolio.

Rates are the key driver of our unique model. As they rise, we adjust our strategy to best take advantage of what’s happening.

With rates now in positive territory, it’s time for us to make some adjustments.

But I’m certainly not going crazy making big moves. With rates just barely positive, many of the same moneymaking trends remain in effect.

Buyback stocks… tech disrupters… crypto… When money is cheap, they all win. It’s an undeniable idea.

Right now, there’s another undeniable aspect of all three asset classes… They’re far cheaper than they were a few months ago.

If I’m right that real rates will not move much higher, it means we’re sitting on a tremendous moneymaking opportunity.

I’ll have all the details for you in June’s issue… due out next week.

In the meantime, let’s hope Washington has the guts to sit on its hands.