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Bummer. I still own too many tech shares. What’s with the Fed killing inflation, the economy and our stocks?

My love for technology goes unrequited.  But then most of my other non-tech — like healthcare and industrials — haven’t been doing brilliantly, either. With one exception — energy.

Maybe I should be all in cash? Not just 61%. (I’m not good on pain.)

With cash, I’d pile back in when it turns up — which I thought it had last week. Wrong for Friday. Maybe Monday? Maybe this week?

Forget Ukraine. Forget supply shortages. Forget booming employment. Forget everything — except inflation.

Right now, the Fed is calling the shots. And the Fed is obsessed with inflation. Here’s why:

The Fed’s mandate is full employment (we have that in spades) and 2% inflation (we don’t have that).

The Fed can’t affect any of the factors causing our present inflation — like the War in Ukraine, like supply chain blockages, like too few workers (or better, finding workers who will work for less), or telling the Saudis to pump more oil (and thus bring down the $5 per gallon at my local gas station).

All the Fed can do is to clobber the economy with higher interest rates. That will de-levitate the housing boom.  And things that go into houses — like wood, pipes, sheetrock and wiring — will magically get cheaper.

Will it work?

Already home mortgage rates are skyrocketing and demand (and prices) for houses are dropping. Ditto demand for commercial and industrial real estate which has been buoyed by low interest rates for recent high prices. Prices are ebbing, with buyers disappearing.

The New York Times did a big piece

Market Pain Isn’t Over, but You Will Get Through This
Head-spinning volatility in financial markets isn’t all that puzzling when you consider the problems the Federal Reserve is grappling with, our columnist says.

Here’s the second half of the excellent article:

But now, the Fed has recognized that inflation has gotten out of control and must be significantly slowed.

This is how Mr. Powell put it on Wednesday. “Inflation is much too high and we understand the hardship it is causing, and we’re moving expeditiously to bring it back down,” he said. “We have both the tools we need and the resolve it will take to restore price stability on behalf of American families and businesses.”

But its tools for reducing the rate of inflation without causing undue harm to the economy are actually quite crude and limited, he later acknowledged, in response to a reporter’s question. “We have essentially interest rates, the balance sheet and forward guidance, and they’re famously blunt tools,” he said. “They’re not capable of surgical precision.”

As if that were not scary enough, for an operation as delicate as the Fed is attempting, he added: “No one thinks this will be easy. No one thinks it’s straightforward, but there is certainly a plausible path to this, and I do think there, we’ve got a good chance to do that. And, you know, our job is not to rate the chances, it is to try to achieve it. So that’s what we’re doing.”

Well, fine. The Fed needs to make the attempt, but given the precariousness of the situation, the high volatility in financial markets is exactly what I’d expect to see.

The Federal Reserve is committed to continuing to raise the short-term interest rate it controls, the Fed funds rate, to somewhere well above 2.25 percent. Only a few months ago, that rate stood close to zero, and on Wednesday, the Fed raised it to the 0.75 to 1 percent range. The Fed also said it would begin reducing its $9 trillion balance sheet in June by about $1 trillion over the next year, and it continues to issue cautionary “forward guidance” — warnings of the kind that Mr. Powell made on Wednesday.

Watch out, he was essentially saying. Financial conditions are going to get much tougher — as tough as needed to stop inflation from becoming entrenched and deeply destructive. The Fed will be using blunt instruments on the American economy. There will be damage, inevitably. People will lose their jobs when the economy slows. There will be pain, even if it isn’t intended.

In the financial markets, short-term traders are unable to make sense of all this. The day-to-day shifts in the markets are about as informative as the meandering of a squirrel. But for those with long horizons, the outlook is straightforward enough.

A period of wrenching volatility is inescapable. This happens periodically in financial markets, yet those very markets tend to produce wealth for people who are able to ride out this turbulence.

It is important, as always, to make sure you have enough money put aside for an emergency. Then, assess your ability to withstand the impact of nasty headlines and unpleasant financial statements documenting market losses.

Cheap, broadly diversified index funds that track the overall market are being hit hard right now, but I’m still putting money into them. Over the long run, that approach has led to prosperity.

Count on more market craziness until the Fed’s struggle to beat inflation has been resolved. But if history is a guide, the odds are that you will do well if you can get through it.

Harry speaking… Where to go now?

Here’s a chart from today’s New York Times showing last week’s Best Performers. You’ll notice that seven of the ten are energy companies, including the one Warren Buffett owns — Occidental Petroleum (OXY):

The good news about energy companies is they’re likely to rise further. Best yet, their dividend yields are not chopped liver.  At Friday’s closing price, Devon is paying 7.6% and Pioneer is paying 4.2%.

Crypto is insane, one of many online traders, has over 50 million “users.” I went to their web site and found listings for 10,129 crypto “coins.” The last one — the 10,129th — was Lego Coin (LEGO). Price is $0.0000009845. That’s six zeros. I think I counted correctly.

Bitcoin is $33,685.80, down significantly in recent days. It’s not the hedge against falling stock prices some devotees have suggested.

This is a seriously useful book

This is not quackery or alternative medicine. It’s serious practical advice, summarizing thousands of studies. I’m a big fan of published material by the Mayo Clinic.

Best bathroom reading. Click here.

Soon I will be 80.

I just learned that 25% of my Harvard Business Class of 1969 are dead. That truly sucks.

I told my class scribe that before I die I better finish my bucket list, which I will create before I die.

The sad part of my bucket list is that virtually all the countries I want to visit again are not longer visitable – like Egypt, Iran, Lebanon, Russia, South Africa, Afghanistan and China.

They have what our Department of State calls Level 4 Advisories. Samples:

+ Don’t travel to North Korea because of the serious risk of arrest and long-term detention.

+ Don’t travel to South Sudan because of crime, kidnapping and armed conflict. Violent crime – including carjackings, shootings, ambushes, assaults, robberies and kidnappings – is common through the nation and the capital, Juba.

+  Do not travel to Syria due to terrorism, civil unrest, kidnapping and armed conflict. No part of Syria is safe from violence. Kidnappings, the use of chemical warfare, shelling and aerial bombardment pose significant risk of death or serious injury.

Iranian President Ebrahim Raisi just called for the destruction of Israel at one of  his latest anti-Israeli rallies: He said, “This great movement that we are witnessing today in the form of protests is a symbol of the solidarity of the Muslim people that will lead to the destruction of the Zionist regime.”

I liked Iran when I was there.

Oh yes, there’s also Venezuela, Yemen and North Korea. But I’ve never been to any of them, so it doesn’t matter.

Don’t we live in a deliciously wonderful world?

It’s that time of year

Suddenly a spate of fancy, schmantzy live charity events. No Zoom. Give money in person.

Issue? Will my pandemic corpulence fit my only suit and my only tux? If not, what then? All the places that used to rent/sell suits have evaporated. I begin my crash diet tomorrow.

My pandemic “attire” was pure Zoom,  a shirt and executive PJs from Lands End:

Why can’t I wear these to formal events? They have a pocket for my checkbook. What more do they want? Surely?

How’s life in Russia?

If you live in a village, it truly sucks. This from Quora:

On the other hand

You could own this $450 million yacht called Amadea, which belongs to someone in Russia who’s very very rich, probably Putin.

Need to find something nice to wear to afternoon tea with your oligarch of choice, you would surely find it in the yacht’s downscale dressing room:

I should put owning a private yacht on my bucket list. Yet despite having two helicopter landing pads, the Amadea doesn’t have a tennis court. Not even one. What value is it?

The Tennis World’s new phenom

He’s Carlos Alcaraz, from Spain:

He just beat Novak, Raffa and Zverev. He’s just turned 19. Look for repeats of his incredible matches on the Tennis Channel.

Says it all

Susan’s line is, “In 400 feet, stop and let me drive.” She claims I give bad driving a whole new meaning.

My wise friend said this market “is the most difficult I have ever experienced in 57 years.”

I’m angling to buy more Devon (DVN) this morning.

One key to all this is diversification. Not gold, not silver, not industrials, not bitcoin, not Chinese stocks, not cannabis. My commercial and residential real estate syndications have held up well.

See you soon — Harry Newton