Navigating Market Uncertainties & Hurricane Preparedness – 10/9/24

Hey guys, Tim Melvin here. Welcome to the Benzinga Yield Report update. Let me share some insights on recent events, hurricane preparedness, and investment strategies in these uncertain times.

Hurricane Preparedness in Southwest Florida
As I speak, we’re hunkering down in Southwest Florida, preparing for Hurricane Idalia. It looks like our good friend Milton is going to skim along the coast and come in up north in the Tampa area, possibly with tragic consequences because Tampa’s not ready for this. We learned our lesson from Ian and other storms going all the way back to Charlie.

Yesterday, my wife and I were out in the rain trying to get WD-40 into the sand-clogged locks on the shutters and get those closed. We’re all buttoned up now, ready to go. We’re far enough above sea level and about three and a half miles inland, so a 17-foot storm surge isn’t a problem where we are. If we were in Tampa, we would have evacuated. But we’re down here, everything’s sealed off, and it’s very dark in the house. We’re just buckling down, getting ready to ride out the storm, as we have done on numerous occasions in the past.

Recent Market Events: The Port Stoppage That Wasn’t
Last week, the big story in all the newspapers was the port stoppage. We were going to have this big strike, and we did. They started it, and it was going to go all the way around from Texas all the way up into Maine. It’s important to understand it did not impact energy at any point, so it wasn’t really going to mess up that supply chain.

The primary industries that would have been hurt by this would have been some fresh fruit from South America and Europe, and electronics from Asian nations that were not China. European cars and car parts would have been affected too. It was going to shave one one-hundredth of a percent off of GDP every day that they kept the ports closed.

The instant experts of the investment Internet got involved, and you had all these special decisions you supposedly had to make right there to protect your wealth and get rich while the rest of the country died on the vine. FedEx and UPS were going to be the new Amazon monsters because the port was going to shut down. Hopefully, nobody listened to all that hype.

The Danger of Fear & Greed Marketing
We are susceptible to fear and greed marketing, and it’s been around since the dawn of time. At times, you feel like you’re an actor in a play by Camus, the French philosopher who believed in the absurdist philosophy. But I’m going to continue to tell you that you’ve got to condition yourself to be resistant to that type of marketing. It’s not good for your portfolio, your life, your blood pressure, or anything.

Jobs Report & Government Spending
The jobs report was also out last week. It was a great report, much better than the always accurate Wall Street analysts and instant experts of the internet expected. The consensus expectation was 254,000 new jobs, and we hit that number.

Most of the job creation is coming from industries and sectors either directly related to government hiring (federal, state, local) or industries heavily influenced by government spending patterns like social services, healthcare, and construction. A lot of what we’re seeing in construction right now is coming from money that originated from the infrastructure bill, the climate change bill, or the semiconductor chips act.
There’s still $1.3 trillion to spend, with about $800 billion in cash and over $500 billion in tax credits. Most of that’s in the infrastructure bill, but there’s some still left in semiconductors and the climate bill. And there’s even still a little bit left in pandemic relief.

Long-term Economic Concerns & Investment Strategy
Now, at some point, absolutely, all of this debt and deficit spending, we’re going to pay a price for it. You can’t do this forever, although Japan seems to be pulling it off. But there were consequences there too – the Japanese market was a sewer for quite some time.

I’m reminded of Harry Figge, who wrote a book called “Bankruptcy 1995” back in 1992. He laid out the case for why the United States would be bankrupt by 1995. By the numbers, he was correct, just like everybody saying that today is correct by the numbers. However, people kept buying U.S. debt, the Internet boom generated extra tax revenues, and we muddled through.

So what can we do? We can’t just buy gold and stash it away hoping for the best. For long-term rates of return, you can’t just bury gold in the backyard and hope for a catastrophe.

At some point, we have to make choices. Right now, if we’re looking at the long-term outlook for U.S. stocks, the indexes, it’s not great. The U.S. is by far, of the large countries, the most expensive market. The cheapest markets are Colombia, Poland, Chile, Turkey, and Brazil.

Current Market Outlook & Recommendations
The market is extremely expensive, which doesn’t bode well. The returns over the next seven to ten years look, at best, low single digits compounded. At worst, you’re looking at a 2000 to 2010 scenario.

So what do we do? We need to find dividend-paying stocks that are going to pay us in cash. We need to make sure that the businesses and assets we own are going to be here at the end of the time period in which we need the money. We need to find high-yielding instruments that are going to throw off lots of cash that we can put into our pocket – cash that market fluctuations cannot take back.

I want you to emphasize and concentrate on the dividend-paying stocks in our portfolio. That’s Franklin BSP, FSKKR, NextEra Energy, Carlisle Secured Lending, Western Union, and our good friends at Ladder Capital. All of them are at 8% or more, with the first three in the double digits as far as dividends.

Conclusion
Guys, that’s all I’ve got for you down here in a dark and dreary southwest Florida. But by the time we get back, the sun will be out again, and we’ll see what has ensued in the market in the interim.

Remember, ride the trend as far as it’ll go, but start adapting that hunkered-down portfolio a little bit. Focus on dividends, focus on yields, focus on margin of safety, and we can quit worrying about what could be another lost decade for stocks.

Stay safe wherever you are. We’ll talk next week. Margin of safety, cash dividends. That’s where I want you thinking and focusing right now. Have a great week, everybody.