The No. 1 Risk to the Market Right Now
Andy Snyder|January 6, 2022
No stories… no long-winded analogies… we’re getting straight to it this morning.
There’s something on our mind.
It’s the biggest risk to the markets and your wealth today.
Short-term interest rates are shooting higher, while long-term rates remain stubbornly flat.
That will put a drag on some of the strongest and most profitable stock market strategies in use right now.
If the trend continues, massive amounts of unknowing investors will get hurt.
Here is what’s happening…
Thanks to a “recovering” economy and rampant inflation, the fine folks at the Federal Reserve have found themselves at the bottom of a hole. After a year of blindly throwing money at anything that asked for some, they are breathless and in a frenzied panic.
They’ve dug and dug and dug, and now that they’ve hit bedrock, they must turn around.
Jay Powell has promised a hastened uptick in yields. “See… I am a hawk,” he seemed to tell us all last month.
The problem is the market isn’t buying it.
Short-term yields are rising, while long-term yields remain stubbornly flat.
Pay attention here because few folks are following this trend…
Straightening the Curves
This time last year, for example, the yield on Uncle Sam’s two-year debt came in at 0.14%. There was a wide gap between it and the 1.81% yield on 30-year debt.
The difference was 167 basis points.
That gap has narrowed significantly.
The yield on the two-year has soared in recent months and now sits at 0.77%. But the longer-term 10- and 30-year notes have moved much less.
Right now, the 30-year yields just 2.07%.
The spread between it and the two-year is just 130 basis points.
For folks who’ve been around Wall Street’s littered block a time or two, you know this flattening of the curve tends to spell trouble. It’s the market’s way of forecasting a reversal.
It tells us the folks who get paid to worry about such things are quite concerned that the Fed is about to make a big mistake.
This is not news, of course. We've been warning of the inescapable hole the Fed has been digging for well over a decade. Many folks have.
A heroin addict, after all, may say he’s not going to get his fix tomorrow… but his screaming body will beg to differ.
It’s no different with an economy that’s become addicted to cheap money. Some suit can say he’s going to raise the price, but the invisible hands that surround him are wagging their fingers and saying, “Nay, nay.”
The Feds will raise rates, but a quick-moving recession will bring them right back down.
The solution to this mess is part of a much deeper idea. Folks who understand one key concept will do very well.
That concept is this…
The Federal Reserve can create only money. It cannot create wealth.
You see, for every dollar the Fed creates, it creates an equal amount of debt. A bank cannot create an asset without creating a liability.
But investors… ah, we can.
That’s not only where the big profits will come from as this mess unfolds, but it’s also where the real wealth will be made.
We’ve been screaming about the opportunity in banks for many months now. They have a chance to turn this trap into an immensely profitable alchemy machine.
That’s because they represent the cog that turns debits and credits into profits. As the yield curve eventually regains its slope, banks will be there to mop up the easy profits.
That’s because they have the rare ability to turn all that “money” into “wealth” with plain, simple math. Once the fake debt that’s plaguing our economy is converted to real profits, it turns into lasting wealth for the folks wading in the profit stream.
But it’s not just banks. Investors will do very well with low-debt, high-cash-flow companies.
This represents a large shift in today’s investing philosophy, where high-debt, high-margin companies earn a premium.
As the next six months unfold, we’ll switch our focus away from taking advantage of free-money economics and begin focusing on the companies that can turn that money into true wealth – and hand it straight to shareholders.
We’ll show you how to find them.
Andy Snyder is the founder of Manward Press, the nation’s premier source of unfiltered, unorthodox views on money and what it means for a free society. An American author, investor and serial entrepreneur, Andy cut his teeth at an esteemed financial firm with nearly $100 billion in assets under management. Andy and his ideas have been featured on Fox News, on countless radio stations, and in numerous print and online outlets. He’s been a keynote speaker and panelist at events all over the world, from four-star ballrooms to Capitol hearing rooms. Today, Andy’s dissident thoughts on life, liberty and investing can be found in his popular daily newsletter, Manward Financial Digest.