Over the past few months, I have fielded questions from clients on a wide variety of worries. I have recounted some of those questions and made some brief comments, below. At the end of this article, I will conclude with how Shadowridge deals with big hairy issues like these.
Q: What will happen if Congress does not raise the debt ceiling and the government shuts down or defaults? A: First of all, this is political theater that plays out every few years, and always resolves itself. I don’t see anything different this time.
Q: I’ve heard that the Federal Government is running low on cash. What happens if they run out? A: Despite falling revenues, the Feds won’t run out of cash since they have those government printing presses that can churn out more money as needed.
Q: Are my investments going to be OK if inflation stays high? A: Shadowridge strategies outperformed the broad market indexes last year as inflation soared, so I would say yes, I believe you will be OK.
Q: What does it mean for investments if Russia’s war in Ukraine drags on? A: The energy market will likely stay strong, food prices may remain elevated with limited wheat production available from Ukraine, and defense stocks ought to do well. Otherwise, it will be business as usual in the other 99% of the world.
Q: What will happen if China invades Taiwan? A: Computer chip prices will probably soar as 85% of the world’s semiconductors are manufactured there. However, Taiwan Semiconductor, the world’s largest producer of computer chips, is building several huge plants in the US to mitigate this risk. One of their $12 billion plants, scheduled for completion next year, can be seen under construction in north Phoenix, (West of I-17 on the loop 303 for you locals) and a second, even larger plant in Phoenix is in the works. CNBC estimates that the two plants will be able to supply enough chips to meet the annual chip demand in the US.
Q: Are our holdings going to be OK if the recession really happens? A: The recession began rolling through certain industries in early 2022. After recognizing this and making portfolio adjustments, our clients’ holdings did better than the indexes during 2022. So I believe you will be OK.
Q: What will happen to the stock markets if interest rates keep rising? A: Bond prices will continue to drop, but bonds will eventually become more attractive as they yield higher and higher rates. This may cause some stock buyers to start looking at bonds instead, which may weaken stock markets. However, the time to buy bonds is after the rate rises are largely over, not before. Be patient.
Our style at Shadowridge is not to depend on some magic crystal ball that tells us what various markets will do. We merely follow indicators that tell us what the markets are actually doing at the moment. History then shows us what is more likely or less likely to happen after these occurrences. We follow the probabilities.
Is our system perfect? No. There is no perfect way to invest. Our methods are merely very good.
Shadowridge has our fingers on the pulse of the markets so you don’t have to watch them. Our trading team is made up of Ryan Redfern, Chief Investment Officer, Christine Ely, Trading Specialist and myself as Investment Counsel. Between the three of us, we have eyes on every investment we have bought for our clients, every day. We can’t say specifically what economic or political factors will affect the financial markets, but with the discipline of our daily analyses I believe we will recognize when these issues begin to affect markets so we can react to them, quickly.
Do we have biases or opinions on which way some of these factors may break? Do we read the news? Sure, but 90% of what we do is based purely upon the data of what is actually happening today, not on the daily news that is crafted to get us all excited.
So, relax. We got this, so you can do something you find more interesting!