Change in Direction

New Direction

I did a lot of talking and thinking yesterday.  It is clear we are beginning a time of change here in the US.  We have been in a 30 year bull market for bonds, ever since Volcker started making his efforts to push down inflation.  That seems to me to have reversed.  We will now be in a bear market for bonds for the foreseeable future.

What does this relatively obvious statement mean for my portfolio and investing style?  It means that investments that are more bond-like, will become less attractive.  I know I have commented here many, many times that in MFI, dividend stocks (over 2.6%) have out-performed since 2006.  I now believe that part of that out-performance is that dividend stocks are perhaps more stable overall, but also dividend stocks became more and more valuable as interest rates ratcheted down.  Now that is changing, the out-performance may very likely wane.

What Should I Do?

I still believe in the US stock market.  I just think the more "bond-like" an investment is, think Verizon, think REITs or think utilities, the less upside the stock has. Conversely, stocks with good growth prospects and ones that do not need access to cheap capital markets, may out-perform.

There is actually a second part to my change of direction.  China. China will continue to grow, but it will be less of an infrastructure build out.  That 60 Minutes piece that showed the ghost town in China is a clear sign China has over-built.  So I am going to move away further from material stocks.

Yesterday, I sold CIM (probably my most bond-like investment) and FCX (exposed to materials).  I will continue to hold (for the time), other stocks in these categories (TC-PT and TCRD come to mind); but will be monitoring closely.

Then in my new stocks (this puts me at about 25% cash), I will be more focused on growth prospects and/or companies that will benefit in rising interest rate environment.  Stay tuned!