December 2022 Market Update

December 2022 MARKET OUTLOOK

Have you ever been super surprised by something? Not that it had never happened before, but maybe not to you. Things like “that” only happen to “other” people. Right?

A few years ago, I was swimming with my daughter and father-in-law in the ocean off the coast of Florida. I felt rather than saw something close. When I turned, I was confronted by two thousand pounds of manatee bearing down on me. For those of you who are fellow ocean lovers, you know this was a great” experience, except that it was two thousand pounds and did not seem to have any intention of altering its course. I managed to avoid a collision, but it was one of those things that happen but is still unexpected.

It can feel like this as we participate in today’s markets.

• A large Yield Curve Inversion – What does that mean

• How to Position Yourself to Profit

A Large Yield Curve Inversion – What does that mean?

What’s a yield curve? It is the difference between short-term interest rates and long-term interest rates. When graphed, these typically result in an upward slope with short-term interest rates being significantly lower (because they represent less risk to the investor.) and long-term interest rates being significantly higher (because a more extended period would seem to produce a higher risk.)

Occasionally, you will see this curve invert (instead of having an upward slope, it will have a downward slope.) These “inversions” are typically shallow, and the difference between short and long-term rates is a few tenths of a percentage point. Even then, they tend to be indicative of tough economic times ahead.

In the last thirty years, there have only been a few times where this curve has inverted by nearly one entire percentage point between the one-year treasury and the ten-year treasury bond. One of those times is now. (To see an inversion larger than 1%, you have to go back to 1980.)

If we need more confirmation that we are in a recession, we certainly have it now. The largest and arguably smartest collective market has decided that rates will decrease over the next ten years.

The reason is that as rates increase now, defaults (corporate and personal), layoffs and unemployment will likely increase significantly even as fuel and food prices continue to increase due to geopolitical events. This is the 2,000 pounds of raw muscle bearing down on everyone, particularly those in or nearing retirement living on a fixed income.

How to Position Yourself to Profit: 

This article is not meant for personal investment advice. I can only give that to you individually when I know your unique situation.

Positioning yourself to profit depends on your current position now. Last month we bulleted-pointed some specific questions to ask to determine how you might position yourself to profit in this market environment.

The danger is the possibility of arriving at the correct answer to the wrong question for your specific situation. Please seek the advice of a professional before making decisions that could impact the building of your best life.

None of those questions have changed, and you can find those in our November newsletter.

Some new questions have come to mind in the last month.

• At Guardian Rock™, we stepped away from nearly all traditional bonds over the past three years. Is now a good time to revisit that market area for some investors?

• Here at Guardian, we have largely moved away from direct foreign investment over the past two to three years, given the strength of the U.S. dollar and geopolitical events. Is now a good time to revisit the global marketplace?

In my opinion, with some careful analysis and sticking with strong credit stories, the case for bonds is getting much more interesting for some investors. I am stressing “SOME INVESTORS” here because this area is still unsuitable for some investors.

The case for direct investment in companies based entirely outside the United States remains a bit more difficult given the political unrest and weak condition of many economies around the globe. However, the dollar may be attacked and threatened as the world’s reserve currency sooner rather than later. Here it is also important to remember where your future liabilities are likely to be.

If you plan on traveling, living, or having debts denominated outside the United States, diversifying some U.S. dollar-based assets may be a great idea.

These may seem like the worst of times, but we see it as the best of times for those who properly position themselves.

Let’s talk soon!

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Nothing in this communication should be construed as personal advice, and past performance is no guarantee of future results. Investing is not appropriate for everyone. There is a risk of loss associated with investing in the markets. No representation or implication is being made that using any methodology or system will generate profits or ensure freedom from losses. Guardian Rock™ LLC and its affiliates are fiduciary investment advisors. Please consult Guardian Rock™ or another experienced investment advisor before making investment decisions and trying to implement the strategies and tactics we discuss in any of our publications.