Bear Markets Take No Prisoners

I’m looking forward to when 10-year Treasuries yield 5 percent, now at 4.4%. There should be a retreat into quality at that point. High yield corporates could face plenty of financial trouble so then 6% yields aren’t enough. Some of my ragamuffins show more slippage. Cleveland Cliffs is a chancy steel producer and Macy’s has lost past years’ luster. 

You won’t get any help from our FRB, either. They’ve just told you so. What a dumb thing to utter. Spineless they be! I see the Trump-made consumer recession inevitable with no help from capital goods coming. Consider how the charts on imports will read less than mighty. As 10-year yields on Treasuries work higher, more of us will become religious savers. The escalation of new tariffs on autos makes me shudder and wonder when I’ll be a new car candidate. 

We’re likely to see Ford trading in single digits for some time, but General Motors will cover its cash dividend.  I see capital goods sectors like steel, copper and aluminum fading more. 

Energy sells on its yield coverage. In my scenario the heartland of our country fades, more. 

Stocks like Deere, Caterpillar Tractor go nowhere. Severe earnings upsets like United Health’s overnight trigger 25% or more upsets. The Magnificent 7 becomes another fiasco of excess optimism. 

Think of dozens of trillion dollar asset funds that churn their portfolios. They stay fully invested through thick ‘n thin. Have they even begun to think about cutting back to say 60% invested from 100%? 

Then, what to do if your own investment pie chart moves into the range of 60% equities, 40% bonds. A few years ago stocks and bonds declined in tandem. Pie chart portfolios for families who thought they were covered from a bear market dropped around 18%. Because high grade debt still carries comparatively low interest rates, portfolio declines would run deeper. Don’t rule it out. 

Am I the only one who played in a market that sold over 20 times earnings?  Long Treasuries once yielded in double digits. I was borrowing deal money at around 10% that was callable overnight. 

Lemme deal with what can happen to hard assets in a recessionary setting. First off, there’s the very rich who buy $100 million pieces of art or even $20 million canvases. They easily get schmeissed for big numbers. 

Paintings can become unsalable for a couple of years if financial markets get too noisy and weak. I’ve seen pieces soar from $1,000 to $100 million, too. Basquiat, for example.

Inflation in home prices also can be foolish, but hardly ever more than a double over a decade. What if Trump relents, calls off slapping huge tariffs on most everything? The Fed joins in making short term rates easy, cutting overnight rates by 100 basis points. The money supply is boosted, big time. 

Because of a sudden accumulation of buy orders and short covering they can’t open the stock market for over 5 hours. It’s like when the Russian ship bearing missiles approached Cuba and then was turned back by us. Then, our domestic 

market, which was shut down for 5 hours, came back to life, chitter n’ chatter. 

Today, I’m 25% long equities but not a short seller, too. Stocks I want to own fall into the growth category and in financials. My list would include Apple, Amazon, Morgan Guaranty Trust, and Goldman Sachs. In short, I’d be adding to what I already own.

I don’t see the bull market case in energy. Look what just happened to Occidental Petroleum. A month or so ago OXY traded in the fifties while Buffett filled out his position as a major holding. Now it trades at $40. 

We’re in a setting where a lot can go wrong. There are ragamuffins trading in single digits that could fade out. I’m thinking of the capital goods and commodities sectors. Can a steel producer like Cleveland Cliffs make it through a down cycle? I dunno.  Airlines like American struggles and even Ford rests in single digits.  Icahn’s oil play IEP ticks there, too. 

Macy’s, once a snappy New York retailer, trades at $11 along with George Soros’s Rivian. His nuclear car play, struggling 

and volatile. Goldman Sachs, meantime, ticks over $500. A very liquid house that leads in both the short and long sides.

Guys in hard hats are still losing traction. Over 50 years ago, U.S. Steel was a white collar blue chip. Nobody wore t-shirts and made billions upon billions. Boardrooms,  mainly stayed quiet and uneventful.  Management was insular. They wouldn’t hire Jewish boys out of college for their training programs, a big mistake.