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Wimberley, TX 78676
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Arrowhead Asset Management Investment Newsletter (February, 2024)

There's an old Wall Street adage that says: "What's important is the return of your money, not the return on your money."

This may be one of those times.

On the surface, with the major US stock indexes making new highs and market sector breath expanding as well, it's hard to argue with the current upward momentum in stocks.

Yes, he Federal Reserve Board held its first meeting of 2024 on Wednesday, holding interest rates steady and letting investors know they probably won't lower rates anytime soon. As a result, Wall Street didn't like the news and sold off the major U.S. indexes in the last hour.

This reaction will likely set the stage for what happens in the stock market for the rest of the first quarter. While the Fed has been forecasting rate cuts in Q3, the market has been hoping for rate cuts in March.

Part of the growing market uncertainty has to do with persistently above-average consumer spending in the wake of the ongoing issues in the Red Sea, the rerouting of cargo ships, and the potential for supply chain disruptions bleeding into consumer prices, which combined would likely restoke inflation.

Bonds Remain Volatile 

The bond market has been in a yield retracement since late December, when the U.S. 10-Year Note yield (TNX) fell back to 3.8%. Currently, the TNX has seen a recent move above the 4.1% area.

Current inflation data suggests that the rise in inflationary pressures has stabilized, but geopolitical threats of higher prices remains.

Moreover, the rise of the 10-year yield has bled into the mortgage market, and the recent drop in mortgage rates has likely bottomed out.

As a result of the confluence of these events, risk management is the prime directive for our investments. Here's how we manage potential market risk:

  • We stick with what's working; if an ETF/fund position is holding up, we keep it;
  • We raise cash by reducing our position size while maintaining exposure to strong ETFs/funds;
  • We consider short-termprotection, such as “inverse” ETFs. These ETFs could soften the blow if the Fed spooks the markets;
  • We keep watch for out-of-favor sectors of the market that are showing renewed signs of investor interest, building invested positions slowly; and
  • We protect our year-to-date gains with sell price triggers and keep raising them as the price of our holdings rise.

Finally, the potential regional war powder keg in the Middle East must be diffused for our investments to have any chance of succeeding.

All this talk about attacking Iran is about as imbecilic as our American politicians can get. Iran is simply a politically convenient scapegoat to temporarily recharge our US foreign policy delusions. American military personnel should not be at risk in the Middle East.

The reality is, ever since 9/11, under every U.S. president, our foreign policy has been one geopolitical blunder after another. Hopefully US citizens won't allow themselves to once again get suckered into another cynical for-profit war disguised as national security.

Rocky Boschert 

"Standing on the gallows with my head in a noose 
Any minute now I'm expecting all hell to break loose 
People are crazy and times are strange 
I'm locked in tight, I'm out of range 
I used to care, but things have changed" - Bob Dylan

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