Update - October 6, 2020

Our Theory Goes Mainstream

Here we go again.

“This is a wake-up call to everyone in New York City to tighten up again,” said New York’s governor yesterday.

The words of warning came just after the Big Apple’s mayor proposed locking down a dozen or so of the city’s neighborhoods.

It’s doubtful these zip codes will be the only ones affected.

It’s similar news in Paris… Madrid… Ireland… and many other cities and towns across the U.S. that are facing rising numbers.

I’m an investor, not a doctor. So I’ll stick with what I know.

The news, while not great, is not unexpected and not all bad… at least for stocks.

Today’s market looks like a tale of two economies. One is having a blast. The other… not so much.

Winning

Our job is to avoid the stocks that suffer from lockdowns and jump into the stocks that are rewarded as millions of folks change their work, shopping and travel habits.

Take Scotts Miracle-Gro (SMG), for instance. I talked with an industry insider last week who told me that businesses still can’t keep up with demand.

Normally, the fall is a slow period for seed and gardening sales. That’s not the case this year, as folks are already stockpiling supplies for next spring.

Our shares of Scotts have been fairly flat in recent weeks, but I expect that to change as we approach the company’s next earnings report in early November.

It’s the same story with Logitech (LOGI), a strong work-from-home play. The longer lockdowns last and the more folks avoid their offices, the stronger the company’s sales will be.

Logitech announced this morning that it will open its books after the closing bell on October 19.

I expect good news.

While the value of both of these companies is up by double digits since we entered them, they are still worth buying if you don’t yet own shares.

Despite the headlines and the political messiness these days, I remain as bullish as ever.

In fact, it’s because of those factors that investors who are able to hold their noses are in for a treat.

Going Mainstream… Sort of

More and more folks are starting to see it like I see it.

With zero interest rates, there is no alternative to stocks. Look what I found yesterday…

I’m not sure whether I should be flattered or scared that somebody at Bloomberg sees things the way I do.

Digging into their views, though, it’s clear there are some differences.

Where I say it’s time to ditch the convention and turn to a Modern Asset Portfolio (see our most recent issue), they say to go with more of the same, simply turning to “equity-like bonds and bond-like equities.”

It’s a go-nowhere path.

After all, the correlations these ideas were built on have flat-out dissolved.

The Wall Street Journal admits it in yet another piece that acknowledges our MAP theory.

It is rare for stocks and government bonds both to fall in value together, but that happened in March: A basic 60% stocks-40% Treasurys portfolio suffered one of the worst single-month losses since the 1960s, according to Goldman Sachs. The only worse returns occurred in 2009 and 1987.

Did you catch that last line? It’s hugely important.

The balancing act that is the traditional asset mix works… except when it is supposed to.

It worked fine when the markets were in good shape. But when an investor needed the safety of bonds the most, they were falling apart.

The conventional strategy holds back returns when times are good and offers little protection when things head south.

If you’re wondering why you’ve seen mediocre returns… there’s your answer.

For an alternative to this mess, read our latest issue, where I debut modern alternatives to this outdated investment idea.

The math behind the old-school theory made sense when interest rates were alive and well.

But rates are dead… perhaps the most overlooked victim of this COVID-19 mess.

That means the correlations based on them are dead too.

“This experience could repeat itself more often in the future,” said one fund manager interviewed by The Wall Street Journal, “because we have reached an effective lower bound for government bond yields.”

More folks are starting to see it like we do.

It means Dow 100K is coming fast.

It’s time to ditch the old theories and invest in a new one.

There’s no other choice.

Be well,

Andy

P.S. I’m working on the next issue of Manward Letter right now. I am aiming to dive deeper into my MAP theory and answer questions from you. So give the latest issue a read and let me know if you have any questions with an email to mailbag@manwardpress.com.