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Arrowhead Asset Management Investment Update (April 30, 2018)

Time To Shift Our Investments To More Balanced Income & Growth Porfolios

Every week now we seem to settle for a US stock market that begins with a higher open but ends the week with a lower close. In fact, the Standard and Poor 500 stock index has been stuck in a wide 5% trading range for the last three months.

Since our last Investment Update, we have witnessed the stock market's inability to rally convincingly even on the back of strong corporate earnings, which raises our down-side risk.

Caterpillar (CAT) led the way this month with a massive stock price sell-off as it failed to please analysts on their recent conference call. Other market leading companies followed suit, as even stellar earnings reports from Amazon, Microsoft and Netflix last week failed to stimulate the stock market by last week's end.

Maybe more important, the rising 10-year US Treasury yield hit just above 3% last week, spurring some rotation out of stocks and into income-focused investments. 

Gradual rising interest rates are a good thing, as risk-averse Americans can once again take money out of the more volatile stock market and generate some healthy income for their retirement nest egg (or to simply create a more balanced risk investment portfolio).

Also, rising interest rates are good for financial stocks such as the more community-beneficial regional banks, as higher interest rates are more profitable when offering consumer loans and for projects that stimulate local economies. Plus, the 3% interest rate starts to finally make bond income investing more attractive as well - which I address in the "Our Investments..." section below.

To reiterate, during the three month so-called "stock market correction" that began in late January, any market bounce off the correction lows has been anemic, as stock prices seemed mired in a wide trading range, dubbed “in a consolidation mode” by Wall Street pundits.

As a result, the intermediate-term trends could soon turn even more bearish across key sector groups. If this slow grind down trend in stock prices is not reversed soon, the market is increasingly vulnerable to a further sell-off.

In the shorter term, a lot is happening this coming week, including more than 100 corporate earnings reports and a Federal Reserve Board meeting. So their comments could drive stock market trading mid-week. Or perhaps Apple's earnings announcement next week will help shift stock market sentiment to a more positive mood.

American economics is now almost totally about political favors

Although Donald Trump and his Republican accomplices are primarily short-term political saviors desparately elected to try and prop up America’s weakening empire, it is quite apparent the economic wishes of ordinary Americans are very low on their list of Federal budget priorities.

Average American budget priorities are about income inequality (i.e. implementing meaningful wage increases), infrastructure spending, the urban and small town drug addiction epidemics, the intentional underfunding of our public schools, the on-going mass killings of our school children, and better affordable health care for more Americans.

Under our current dysfunctional Federal government, which includes the Democrats, only wealthy individuals and organized special interest groups - especially elite business corporations and the powerful lobbyists of our two-party duopoly - have the political clout to funnel our tax dollars, usually right into their own pocketbooks.

Although this elite political wealth grab has been going on for quite some time, it is now to the point of being negligent, or even criminal. The elites, of course, have changed the laws so any financial malfeasance is no longer a crime, in most cases.

Specifically, Trump’s job creation hype is merely political rhetoric used to justify tax cuts for the wealthy - where we are supposed to pray big business will return some of this money and re-invest it into the Main Street economy to create jobs.

Plus, the projected annual growth rate of 4% used by the Republicans to pay for future deficits created by the December tax cuts (of which 83% of the tax cuts go to the wealthiest 10% of Americans) is simply a pie in the sky growth projection that is historically rarely achievable.

Another sign of US economic decline is Trump’s strongman fantasy of increased military spending. When we consider the yearly military budget, add in the cost of the US Veteran's administration - and include the actual interest expense of the debt used to fund our never-ending wars into the budgetary mix, we use over 30% of all US tax revenues to pay for the US military-industrial war cartel.

Does America really need an even bigger military? Of course not! Ask any of our war heroes of the past 15 years and they will probably say "we don't need politicians (who have never been in a uniform) sending any more of our young men and women off to die in more chest-thumping military imbroglios.”

This military power obsession is also bi-partisan, as Clinton-Bush-Obama also failed miserably in their foreign use of our military - and our tax dollars. We should rename our US military "Operation Unending Global Quagmires"

Also, unfunded increased military budgets (and the foreign wars that often go with it)  usually end in failure and continues to increase the debt by requiring more printing of money to pay for the military debt, which in turn devalues the US dollar and our national net worth.

The question is: “With more and more tax cuts to the well-off, obscene military budgets, ideologically-based deregulation that mainly profits the large business sector at the health and safety expense of our families, and the continual corporate welfare privatization programs, how much farther down the economic sinkhole must we go before Americans admit their political folly and realize who our two-party duopoly really works for - and who really gets our tax dollars.

We should all seriously ask: “Why should we pay Federal taxes if the Feds no longer provides needed domestic services to the average American?“

If the modern role of the Federal government is only to direct our taxes to foster big business profits, then the corporations should pay for their own infrastructure costs, their security, and the tax-funded health care costs that their low wages force on the budgets of the Medicaid social welfare system.

To reiterate, the majority of Americans seriously favor programs to help provide jobs, increase wages, help the unemployed, provide universal medical insurance, ensure decent retirement pensions, and pay for such programs with meaningful tax reform that benefit all Americans, including the rich.

But as usual, the will of the citizen majority is thwarted by the affluent and the well-organized elites, who block popular economic policy proposals and only enact special favor legislation for themselves.

Hopefully, Americans will one day decide to rescind the entrenched US corporate welfare economy that has become so deeply ingrained in the policy mindset of the neoRepublican elites and the shady corporate Democrats.

Its time we look to new leadership; not from above - but from next to us, like the growing national teacher strikes, as a hopeful sign of wealth empowerment and better things to come.

Hurray for our public school educators who are taking responsibility for their own economic lives. These teachers are not relying on the politicians, who scapegoat the “others” while secretely trying to privatize education. These teachers are not waiting for their do nothing politicians to take up their cause.

Our Investments - Short and IntermediateTerm

Since our last Investment Update, my analysis and how the stock market has reacted is telling me that it's now time to become more conservative when it comes to 1) income versus growth and 2) when we buy and sell our invested positions (either to lock in profits or to protect our assets from volatility).

Our political and economic leaders are no longer problem-solvers for the nation as a whole. They primarily represent their business cartel benefactors and their own dysfunctional agenda to get themselves re-elected indefinitely.

Middle income and upper middle income Americans must now take care of ourselves, with the realistic knowledge that Wall Street money will largely determine where to invest our money and what investment vehicles we need to use to make our investments work.

But we can invest constructively and without the greed that has become so pervasive in the elitist circles of legal money laundering entities such as the big Wall Street investment banks and their hedge fund counterparts. 

So, regardless of what ends up happening economically - given the fact that the wealth of the US economy is slowly being sucked up into the hands of fewer and fewer, it is my job to research and implement your investments toward whatever economic reality we see. That new reality will probably include:

1) In our IRA and brokerage accounts, more investment in a diversified portfolio of US individual bonds that earn 3-6% annually - with no market risk as long as we hold the bonds to maturity;

2) Assuming the yield (fluctuating interest rates) on the benchmark US 10-year Treasury rate stays somewhere between 3-4%, we hold a reasonable percentage of less volatile, decent income paying bond funds and ETFs in our various investment portolios; 

3) When the stock market fundamentals start to adapt to the new reality of higher bond yields and begins a new bull market, we will adjust our portfolios accordingly (including the use of funds that make money when the stock market goes down).

4) In both our IRA and 403(b) portfolios only, we focus on less holding time investing in ETfs and stock funds that are stuck in the wide stock price trading ranges discussed above;     

5) As interest rates rise, simple money market funds will become more attractive, as I'm sure many of you remember the good old days of 10% money market interest rates. Even a 4-5% money market return with no market risk is a good invesment for a portion of your overall brokerage or IRA portfolio.

In other words, it is time to adapt and change our investment strategy.


From a professional fiduciary responsibility, an investment advisor‘s job is to make your money work for your benefit. It is now more important to make sane money management decisions for your economic and financial benefit - but only as long as it doesn't add to the various forms of "legal" corruption that has become prevalent in the current US political economy.

Rocky Boschert

”When the 2nd Amendment of the Constitution is more important than the 1st Amendment, you know "1984" and "Brave New World" have become reality"

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