Dear Reader,
[Editor’s Note: Dylan’s away this morning, but very much wanted to share this message with you after election day, so he recorded it for you a day in advance.]
Wow!
So we have a new president. Or will soon have a new president.
I know half of you watching this are thrilled. And the other half of you are crushed.
But you know what?
Remember something I try to keep in mind…
Thankfully, there are no monarchs here.
We elect people, and then we get to decide again in four years what we want.
On and on it goes.
But what occurred to me in the past week was that, at the end of the day, the president on January 20th will face the same major fundamental challenges the current president faces.
Think about the crazy debt …
The threat China poses …
Russia, Ukraine, Israel, Iran …
China’s focus with Russia on destroying the dollar as the world’s reserve currency.
We face all the same geopolitical challenges that we did yesterday, and the day before that, and the day before that.
And I’ll tell you, one president is not going to change that.
They can certainly have an impact, but it’s going to take more.
It’s going to take sustained work.
What I’ve been thinking about as an investor is that we still find ourselves in a market that is historically overvalued – by any metric you want to use.
It came out this week that Buffett is now sitting on a $300 billion pile of cash, which is mindboggling.
He froze buybacks for his stock for the first time in six years and has been selling stocks like it’s going out of style.
When the Oracle of Omaha sells stocks like this I think of it like us here in Florida putting up our shutters preparing for a hurricane.
And at Behind the Markets, you know, we’ve been doing the same thing – making the best of a raging bull market while simultaneously preparing for the worst.
You can’t say, on January 13th at 3pm the bear market’s going to start.
You can’t set your watch to it.
That’s just not the way it works.
But what we can say is that we are in a market that is really highly valued – again, overvalued by any objective measure.
So we have an overvalued market, and the Fed lowering interest rates. Yet, the 10-year yield has gone up 80 basis points.
So the markets are telling us, inflation is coming.
The bond market is telling us, this deficit is out of control.
If we don’t get the deficit under control the bond market is going to force interest rates higher.
The “Bond Vigilantes” of the 1990s are back – no doubt about it.
Now, the good thing about the Bond Vigilantes is they had a very big hand in forcing Clinton to negotiate with Newt Gingrich and really get our fiscal house in order.
Because the Bond Vigilantes said, “look, you can keep spending all you want – but we’re going to face interest rates of 10-12%. So if you don’t get your fiscal house in order, understand the penalty of that.”
And I suspect our bond vigilantes circa 2024-2025 are going to end up saying the same things to Washington, D.C. …
Look, you guys can do whatever you want. Make the tax rate whatever you want. But just know, you’re going to see 10-year bonds pay 8%, 9%, 10% interest.
Our government will realize it’ll be a heck of a lot less painful to actually rein in our spending and get our tax regime and spending regime more aligned with the reality we face, than to watch interest rates spike to 10%.
So we are entering a new era.
As always, through many presidents and administrations, I am here with you – helping sort this out as we go forward one day at a time.
I am humbled and grateful to do this with you.
“The Buck Stops Here,”
P.S. I’ve said it before, and I’ll say it again – there are threats perceived on the left; there are threats perceived on the right …
I’m here to make you profits in good and bad times, and boy, have we had some good ones this year!
But my number-one priority is protecting your money and mine from real threats.
And this is the biggest threat I see facing America right now. Please, don’t ignore this one.
