October 2022 Newsletter
Submitted by McCay Wealth Advisory on October 20th, 2022
“For God gave us a spirit not of fear but of power and love and self-control” -2 Timothy 1:7
As we go into our third quarter in a row of negative returns, I find it easier to forget the bountiful harvest of the last three years. Negativity breeds more negativity; just like positivity breeds more positivity. Over the last 16 years as we have worked with many families and over the last 27 years as an individual investor, we have found through this experience the opportunities for future success abound more than in times of extreme positivity. On September 23rd we made some significant changes to our investment portfolios, and we believe better times are ahead of what we have seen the last three quarters.
Fixed income yields as a result of new Fed policies have risen to levels; we have not seen in 20 years. This opportunity has allowed us to move out of our inflation hedged bond funds into bonds funds in some cases with yields in excess of 8% and our standard yields in excess of 5.6%; this is an incredible opportunity to take advantage of higher rates that are not likely to last based on our countries 31,000,000,000,000 national debt. For example a 4% rise in debt level interest would exceed the 2021 Federal Reserve total outlaw for Social Security; it is clear that a long term rise in interest would be self-defeating as the increase in total interest paid would require the Federal Reserve to print more debt to fund a rise in rates; this can only be a short term solution, as raising rates long term would cause eve more money printing. So, we sought to take advantage of this situation by locking in a higher rate with anticipation that rates will fall in the future. In general, we did buy a little bit of S&P500 funds at values that I feel are 15% below fair market levels and we continue to reduce our exposure to direct investments in China, as for numerous reasons it is a bad investment bet without a change in government policies. At the heart these are the changes we have made and if markets continue to slide on the downside; we will continue to look for even better opportunities to position your portfolios to the upside.
“The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell” -Sir John Templeton. According to Ned Davis Research as of 12/15/2021 Bear markets for equity investments usually lead to an average loss of 36% and bull markets lead to an average gain of 114%. The average bear market is 289 days or 9.6 months, and the average bull market is 991 days or 2.7 years. We tend to have a Bear market every 3.6 years and if you look at it over a 50-year time horizon you will go through 14 Bear markets. The bottom line is Bear markets are common and the recovery has been far quicker than what most people expect. If this Bear market is like what we have seen in the past than we are closer to a recovery than the beginning of a Bear market; however, the unfortunate truth is there is still likely to be more downside risk in the short term before it is over. My wife never runs away from a sale, and it is not logical as an Investor to sell low and buy high. It seems clear to me anyway based on the S&P500 trading at 15.8x earnings verses a long-term average of 19.1x earnings that we are in a definite sale territory, and this is a good place to be when we look out over the next three years about investment potential. Brian Rogers Loop quotes “Do what today others won’t, so tomorrow, you can do what others can’t”, and that is exactly how we want to look at investing and our future.
As always we greatly appreciate the opportunity to work with your Family and if you have any questions or concerns please reach out to me at Brent@mccaywealth.com or call me at 931.728.2130. Investing in uncertain times has always been harder than in easier times, but the percentages tell me it is much more rewarding.
Always at your service,
Brent Alan McCay
CEO McCay Wealth Advisory LLC
