{"id":8275,"date":"2023-05-13T15:26:26","date_gmt":"2023-05-13T19:26:26","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/the-fed-is-way-late-and-theyve-already-screwed-it-up-this-stock-strategist-is-banking-on-gold-silver-and-treasurys-to-weather-a-recession\/"},"modified":"2023-05-13T15:26:27","modified_gmt":"2023-05-13T19:26:27","slug":"the-fed-is-way-late-and-theyve-already-screwed-it-up-this-stock-strategist-is-banking-on-gold-silver-and-treasurys-to-weather-a-recession","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=8275","title":{"rendered":"\u2018The Fed is way late and they\u2019ve already screwed it up.\u2019 This stock strategist is banking on gold, silver and Treasurys to weather a recession."},"content":{"rendered":"
The Federal Reserve keeps telling the financial markets to take its tough talk seriously. Yet many investors and even Wall Street professionals are pricing stocks as if a return to the good old days of easy money and low interest rates is just around the corner. They\u2019re convinced that the U.S. central bank is about to end its rate hikes and then pivot \u2014 lowering rates and bringing the U.S. economy to a soft landing that ushers in a new bull market for stocks. <\/p>\n
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Keith McCullough isn\u2019t having it. The CEO of investment service Hedgeye Risk Management\u00a0expects the Fed\u2019s restrictive actions will squeeze the U.S. economy too tightly. McCullough is keeping client portfolios geared to his view that in its zeal to curb inflation, the Fed ends up driving the economy into a recession \u2014 crushing consumer demand and the ability and flexibility of businesses to borrow, finance debt, cover expenses and meet payroll. <\/p>\n
\u201cUnfortunately the country is going to have to deal with that,\u201d McCullough says. <\/p>\n
Until the economic cycle shows signs of turning, McCullough is steering investors to precious metals, U.S. Treasury bonds and stock-market sectors that focus on what people need, rather than what they want. Think health care and utilities.<\/p>\n
In this recent interview, which has been edited for length and clarity, McCullough outlines his current outlook for the U.S. economy and the financial markets in the second half of the year, and recommends investments you\u2019ll want in your portfolio to weather the challenges McCullough expects investors will face.<\/p>\n
MarketWatch: When we last spoke at the end of January, you were adamant about holding secure assets including gold, silver and defensive stocks to weather a coming recession. Has your outlook changed? <\/strong><\/p>\n
McCullough: <\/strong>No. The recession will be deeper and potentially more protracted than even I think. What happened with SVB and the other banks is not inconsequential. The credit line of America is impaired. In a bear market these things appear quickly and then all at once. It\u2019s why it\u2019s really hard to see a recovery in the back half of 2023. Commercial real estate is at the core of American leverage. You have massive supply, vacancy rates skyrocketing, and $1.5 trillion in commercial real estate debt maturities is coming due. \u00a0<\/p>\n
MarketWatch: In that same interview, you slammed the Federal Reserve and its Chair Jerome Powell, calling the Fed \u201ccomplicit\u201d in inflating the \u201cMother of All Bubbles\u201d with liquidity \u2014 which we\u2019re paying for now through higher interest rates.\u00a0What\u2019s your view of the Fed now?<\/strong><\/p>\n
McCullough:<\/strong> The Fed is way late and they\u2019ve already screwed it up. The Fed has made their second massive mistake. <\/strong>They underestimated inflation and now they\u2019re underestimating the recession.\u00a0They are calling for a potentially mild recession in the back half of 2023.<\/p>\n
We\u2019re in a recession now. Unfortunately the country is going to have to deal with that. We\u2019ve empowered an unelected central planning agency to be categorically wrong on forecasting inflation and now recession. If you\u2019re going to be hostage to that, you\u2019re going to have to deal with the ramifications.<\/p>\n
MarketWatch:<\/strong> Given your outlook, what assets are you avoiding now?<\/strong><\/p>\n
McCullough:<\/strong> We\u2019ve been bearish on growth stocks, inflation and cyclical stocks including financials and industrials. What\u2019s interesting about that is we finally have 21 different asset allocations on the long side. Once you start to slow into a recession, bond yields start to fall irrespective of what the Fed thinks. Eventually the Fed figures it out and assumes a rate policy that the bond markets have already assumed.\u00a0The bond markets have already figured this out and so has gold.<\/p>\n
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\n \u201c<\/span> \u2018Investors just want their bubble back.\u2019 \u201d<\/span>\n <\/p>\n<\/p><\/div>\n<\/p><\/div>\n
MarketWatch:<\/strong> Which investments are on the long side of the Hedgeye ledger?<\/strong><\/p>\n
McCullough:<\/strong> There\u2019s a lot of long equity positions; it\u2019s just not what everybody owns. Once bond yields start going down, people look for bond proxies. So we\u2019ve bought utilities with the SPDR utilities ETF, ticker XLU \n XLU, \n +0.55%<\/bg-quote>.<\/span> \n We have defense-industry exposure through the iShares U.S. Aerospace & Defense ETF \n ITA, \n -0.22%<\/bg-quote>,<\/span> \n health-care stocks through Simplify Health Care ETF \u2014 ticker PINK \n PINK, \n -0.29%<\/bg-quote>.<\/span> \n We hold materials-industry stocks through XLB \n XLB, \n +0.18%<\/bg-quote>.<\/span> \n We\u2019ve added Japan with EWJ \n EWJ, \n +0.48%<\/bg-quote> \n and South Korea with EWY \n EWY, \n -1.32%<\/bg-quote>.<\/span>\n <\/p>\n
We\u2019re long gold GC00, using the ticker GLD GLD, silver SI00 through SLV, platinum PL00, and the ETF for that is PPLT PPLT. We\u2019re long physical gold, with the ETF AAAU AAAU. We\u2019re long duration using the 20-year Treasury ETF, ticker TLT TLT, and the intermediate-term Treasury ETF, ticker IEF IEF, plus the 10 year Treasury and, through an ETF with the ticker IIGD IIGD, \u00a0investment-grade defensive credit.<\/p>\n
We used to be long Tesla \n TSLA, \n -2.38%<\/bg-quote> \n ; we were long crypto, long growth \u2014 all that stuff. But our process goes both ways. When the cycle turns we reverse it. By the time the Federal Reserve figures it out and cuts interest rates, my long gold position will have gone up faster. What\u2019s most interesting to me is investor behavior now. People still are buying polka-dot coins and Tesla.<\/p>\n
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MarketWatch: Many investors do believe the music will never stop, especially when Wall Street and others tell them what they want to hear. <\/strong><\/p>\n
McCullough:<\/strong> Investors just want their bubble back.People want to be told a story.\u00a0It\u2019s much easier to believe a story than it is to do the work.\u00a0When you\u2019re coming out of a growth bubble it\u2019s easy to believe a lot of things about the future, because your past experience was a period of growth. Year-over-year U.S. GDP accelerated over 12% in the second quarter of 2021. <\/p>\n
If you go back and look at any of these strategies \u2014 happy talk, growth investing, the future is going to be about Elon Musk burrowing tunnels \u2014 anything is believable after growth has accelerated. And in this case you also had money-printing and government handouts. It was all there. Just tell me a story. It\u2019s one thing to believe; it\u2019s another to understand. <\/p>\n
More: <\/strong>Fed lending survey has perfect track record when it comes to foreshadowing recessions: strategist<\/p>\n
A<\/strong>lso read: <\/strong>Fed \u2018accident\u2019 could slice 20% off the S&P 500, stock market strategist David Rosenberg warns. Here are 3 ways to protect your money now.<\/p>\n<\/p><\/div>\n