I’m going to tell you right now: If you’re still speculating with big money on “story stocks,” you need an intervention…
This isn’t the time to go hog-wild hunting for growth in the U.S. stock market.
Your capital will get massacred if you don’t start making some serious changes to your capital allocation right now.
It’s imperative you understand that Federal Reserve Chair Jay Powell is hell-bent on slowing the U.S. economy to bring inflation under control.
That means he’s doing everything he can to block growth.
When it comes to U.S. stocks, there are only a few strategies currently worth pursuing.
One is to buy into well-capitalized stocks set to benefit from the insane amount of government spending going on right now.
(My Palm Beach Letter members can read the deep dive Andrew Packer and I did on this long-term trend right here.)
The other is to use the options market to sell puts to buy well-capitalized blue-chip dividend stocks.
For those who want to speculate intelligently… You can also capture outsized volatility premiums by selling covered puts and calls in the options market.
We use both of those strategies in my options trading service, Alpha Edge. And we’ve been killing it for our subscribers.
Over the last 12 months, we’ve delivered gains as much as 53%, 61%, and 98%. Our average win rate over the last five years has been 97%.
As for crypto, we’re using the bear market to take small positions ($200–400 for smaller investors or $500–1,000 for larger investors) in the projects that will rewrite the future.
The beauty of this approach is we don’t risk a lot to potentially make truly life-changing gains.
It’s the only type of high-growth investing that makes sense to me right now.
The reason for all this caution comes down to the most important number in the world… at least for investors. And that’s the yield on the 10-year Treasury note.
It currently stands at about 4%. And in my opinion, it’s going higher. Maybe much higher…
Here’s why that number is so important.…
Why You Need to Pay Attention to the 10-Year Rate
The 10-year yield is considered the “risk free” rate of return.
The value of all other investments is measured against it. As the risk-free rate of return rises, it acts as a magnet pulling in floods of money from other assets.
This is exactly Jay Powell’s plan,
He wants to drain money from the economy to lower asset prices and slow the economy down.
Institutions once starved for yield can now get nearly 5% on risk-free 90-day Treasury bills and over 5% on six-month Treasury bills.
It’s been 16 years since you could get yields like that.
So think about it logically…
Why would I buy the S&P 500 with its paltry 1.68% yield when I can get 5% with zero risk?
It doesn’t make sense to take that risk. Especially considering that over the next 18 months, S&P 500 earnings are probably going to drop because of the Fed’s anti-growth actions.
This is the reason why I’ve been putting all my excess cash, business earnings, dividends, and rental property income into 90-day T-bills.
On big rally days, I’ve been selling calls against some of my positions to take advantage of the recent wild option premiums.
And on big down days, I intend to sell puts against well-capitalized blue-chip stocks I want to own for the long term.
I think there are incredible opportunities ahead of us as the Street wakes up to the reality that the Fed isn’t going to pivot anytime soon.
Engrave that into your mind. Forget the pivot for now and focus on preserving your excess cash for when the real bargains emerge.
I understand 5% isn’t exciting. It doesn’t even match the current rate of inflation.
But it’s not about the 5% yield. It’s about having a bucketload of money to put to work when the stock market finally wakes up from its delusional fever dream of an imminent Fed pivot.
Because when the market does awaken… The stock indexes are going to crash hard.
It won’t be a drawn-out affair like 2007-2009. I expect a short, sharp break that will leave investors numb from shock and awe.
That’s why I’m piling up cash. I want to be ready to snap up as many high-quality dividend-paying companies as I can.
Notice I didn’t say tech growth stocks. I said high-quality blue-chip stocks.
Interest rates are going to stay high far longer than most people realize. Under that scenario, growth stocks get mauled.
The next round of big valuation premiums will go to the blue-chip stalwarts. The proven players. Value stocks.
It’s their time to shine. And you ignore them at your peril.
What This Means for Bitcoin
Historically, gold has done well in periods of high inflation. But if you look at the difference between gold and bitcoin, bitcoin has been far outperforming gold.
Gold started the year at $1,813 and has been as high as $1,932. Whereas bitcoin started the year at $16,540 and has been as high as $24,768.
That means for every $1 gold went up, bitcoin rose $69.50.
My advice on bitcoin is the same: Keep dollar-cost averaging into it because it’s the ultimate check against out-of-control monetary and fiscal policies.
Bitcoin is my hedge against the world waking up and realizing, “Holy cow, my money is just getting inflated away!”
In my opinion, bitcoin will replace gold as a storehouse of global value. We’re not there yet. But we’re moving in that direction.
Friends, I look at risk all day. And I prefer to get a bigger return than the 5% I’m getting on 90-day government bills.
But when I look at the risk-adjusted returns offered by the broad stock market, it just doesn’t make sense for me to risk real money when I can get 5% on 90-day paper.
I get total liquidity… I can borrow against it. And I can sell it if necessary and use the cash for something else.
My point is this: The equity market will have a difficult time dealing with higher interest rates over the coming months.
Yes, the Fed will eventually have no choice but to pivot. But the pivot isn’t happening anytime soon. It’s a fool’s errand to chase it.
Embrace 5% risk-free now and be ready to pounce when an actual pivot takes place.
Let the Game Come to You!