April 2022
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March 2022 is in the books, and we have a fair amount to talk about. First, returns this month were actually quite decent at 3.72% for the C Fund. As I stated last month, I do not see a safe haven for the issues we are facing, but I felt the C Fund would give us the best investment considering the high inflation we are seeing. The G Fund is reflecting the increase in interest rates by the Federal Reserve but will still fall far short of the actual inflation rate. The F Fund is going to continue to suffer while inflation remains high as well. Investors will seek returns that can beat inflation and only the market has that capability. The S Fund is being impacted by inflation as well as small caps usually have a higher WACC (weighted average cost of capital) and with an increase in interest rates they will be disproportionally impacted compared to the companies in the C Fund. This is not enough to warrant a complete avoidance of the S Fund, but smaller caps are also going to be vulnerable to increases in energy and labor costs-driving me completely away from the S Fund at this time. Finally, the I Fund is off my radar for the technical issues prevalent in that market and the worldwide uncertainty due to the conflict in Ukraine.
Looking forward, we saw a very concerning event with an inverted yield curve this week. The spread between the 5-year notes and 30-year bonds inverted for the first time since March of 2006. For many of you, I don’t have to remind you of what happened just a year later. But for some of my younger readers, Bear Sterns collapsed 12 months later, followed by Lehman Brothers 6 months after that. My parents remembered where they were when JFK was shot, I remember where I was when both of these events happened. Now, an inverted yield does not mean the collapse of our banking system, but it does mean our market is out of sync with the economy, and many people think this is a harbinger of a recession in 6 to 12 months. Breaking from this thought, I think it means we are at a higher risk for a recession unless actions are taken.
With all the above in mind, I’m still comfortable remaining 100% in the C Fund. I still think there is really no good safe haven, and the C Fund, although still risky, is the most protected fund. Keep Investing!
