My three-day rule states that upon any news-driven market crisis, wait three business days to move money.
Anyone who spent the weekend after Thanksgiving pondering risk from Black Friday's omicron shock benefited by standing pat.
Bond markets rallied all week despite the Federal Reserve's decision to quicken the pace of winding down its extraordinary bond and mortgage buying, thereby allowing long- and medium-term interest rates to float freely. That was supposed to slam bond values. Wrong-o. Oil prices tanked, a positive sign if you are afraid of inflation.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
That said, omicron is now the lead story alongside the Fed's battle against rising prices.
I maintain that as shipping bottlenecks and spot shortages of computer chips and chicken parts lift and home prices and rents quit soaring, the official inflation indicators will slow. By late 2022 or early 2023, the 6.2% annualized readout will be below 3%.
I admit that I and many others missed the bump in inflation, figuring the legacy of 2020's COVID-19 shutdowns would be extended economic weakness, which tends to be deflationary.
Instead, America is a crazy and seldom-seen salad of surging economic growth, employment, wages and inflation – but also persistently low long-term interest rates and resilient securities values, supported by the unimaginable and unprecedented stockpile of investor, bank and corporate cash eager for high yields and growth opportunities. All that money needs repositories that beat a one-year T-bill's 0.26% yield.
The Fed can hike short rates several times in 2022 and savers will still find slim pickings.
Stick With High Yield
In this environment, I maintain my fervor for high-yielding investments despite their credit risk. Other income experts agree. The main reason is America's relative economic power.
Brandywine Global high-yield bond manager John McClain calls Europe a "slow-melting ice cube," but he deems the U.S. "in the catbird seat globally on vaccines and therapeutics." If COVID surges, "we're going to be the economy that stays open," McClain says. He avers that the Fed will not pump interest rates too much because the Treasury cannot afford ever-higher interest bills.
Emily Roland, co-chief strategist for John Hancock Investment Management, reiterates her pre-omicron love of corporate bonds rated triple-B and those rated below (junk level) amid evidence the new virus strain will strengthen an already strong dollar. In the municipal sector, "you get paid to go down the credit-quality curve," says Greg Gizzi, of Delaware Funds. Tax-frees were deep in the green yet again as 2021 expired.
I still endorse floating-rate bank-loan funds, preferred stocks and shares of short-term, high-interest-rate lenders. In the tumultuous week following Black Friday, two of my favorites, Flaherty & Crumrine Preferred Income Fund (PFD) and Invesco Taxable Municipal Bond ETF (BAB), made 1.60% and 1.00% respectively – quite a one-week haul for any fixed-income offering.
I believe in floating-rate bank loans and funds such as RiverNorth Specialty Finance (RSF) and the closed-end DoubleLine Yield Opportunities Fund (DLY).
These are bold choices in a volatile environment. But this type of aggressive investment has prevailed for over a decade, and I see no reason to now blow the whistle.
-
Stock Market Today: Powell Rumors Spark Volatile Day for StocksStocks sold off sharply intraday after multiple reports suggested President Trump is considering firing Fed Chair Jerome Powell.
-
3 Things Dave Ramsey Says to Stop Buying — and 2 That Are Worth ItDebt-free living starts with smart choices. Here's what Ramsey says to avoid and where your money is well spent.
-
Who Will Replace Jerome Powell as Fed Chair?Buzz is building that President Trump could announce Fed Chair Powell's replacement sooner rather than later, even though his term doesn't end until next year.
-
June Fed Meeting: Updates and CommentaryThe June Fed meeting was a key economic event, with Wall Street keyed into what Fed Chair Powell & Co. have to say about interest rates and the economy.
-
May Fed Meeting: Updates and CommentaryThe May Fed meeting came and went with little fanfare as Fed Chair Powell & Co. stuck to their data-dependent script toward interest rates amid tariff uncertainty. The May Fed meeting came and went with little fanfare as Fed Chair Powell & Co. stuck to their data-dependent script toward interest rates amid tariff uncertainty.
-
What Is the Buffett Indicator?"It is better to be roughly right than precisely wrong," writes Carveth Read in "Logic: Deductive and Inductive." That's the premise of the Buffett Indicator.
-
CPI Report Puts the Kibosh on Rate Cuts: What the Experts Are Saying About InflationCPI Consumer price inflation reared its ugly head to start the year, dashing hopes for the Fed to lower borrowing costs anytime soon.
-
Fed Leaves Rates Unchanged: What the Experts Are SayingFederal Reserve As widely expected, the Federal Open Market Committee took a 'wait-and-see' approach toward borrowing costs.
-
CPI Report Keeps the Fed on Track: What the Experts Are Saying About Inflation
CPI Disinflation in key areas of consumer prices should help the Federal Reserve stick to its policy path of gradual cuts to interest rates.
-
Blowout December Jobs Report Puts Rate Cuts on Ice: What the Experts Are SayingJobs Report The strongest surge in hiring since March keeps the Fed on hold for now.
