Here’s What to Buy Now

You can still just about feel the investor panic through your computer monitor now that the yield curve has inverted.

It’s true: Short-term rates are higher than long-term rates right now.

But that’s not the worry. The big problem is that much of what’s being plastered all over television and the Internet about this is flat-out wrong.

And that is potentially dangerous for your money.

Here’s the thing: The relationship between short-term interest rates has changed over time, and for that matter, it continues to change.

Just as anybody who spends all their drive time looking in the rearview mirror is liable to run head-on into a telephone pole, investors who don’t adapt to these changes risk losing out on the superior returns these conditions make possible.

Especially in the kinds of stocks I’m about to show you…

The Difference Between What Interest Rates Are and What They Do

It’s an undeniable fact of history: Since 1963, interest rate conditions like those we have in play right now have preceded above average returns for the S&P 500.

Of course “they” say an inverted curve supposedly signals recessionary conditions, but that’s an argument better suited to the halls of academia and people a whole lot smarter than me.

I’d rather concentrate on helping you make and keep more profits.

As a practical matter, interest rates are just a barometer of constantly changing risk premiums associated with the cost of money.

Stocks, on the other hand, are a reflection of future earnings potential. Simply put, one looks backwards; one looks forward.

Don’t get me wrong, the inversion is important… just not in the way you’re being told.

Rates are being artificially driven lower as bond traders price in 2020 election-related uncertainty associated with Democratic presidential candidates who are widely perceived to be downright hostile to the Trump administration’s pro-business conditions and pro-growth policies.

At the same time, the markets are dealing with $15 trillion in negative-yield assets in play around the world, which means an inflow of capital here in search of returns – and this is key – at any price.

It’s simple supply and demand.

Remember how bond prices and yield work. Unlike stock prices that go up when there’s strong demand, bond yields go down. So while falling yields can signal rising risk, what they really signal is rising demand.

The “why” of the increase in demand – be it a recession, an economic slowdown, geopolitical uncertainty – is really nothing more than the media searching for a story.

So now what?

It’s simple: Take your money where it’ll be treated best.

Here’s What to Buy Right Now

For instance, most investors are surprised to learn that low-interest-rate environments are great for large-cap stocks with strong balance sheets, consistent earnings, and higher-than-average cash flow. Like Apple Inc. (NASDAQ: AAPL), PayPal Holdings Inc. (NASDAQ: PYPL), Cisco Systems Inc. (NASDAQ: CSCO), and Orchid Island Capital Inc. (NYSE: ORC).

They’re also great for certain bond holdings like Nuveen AMT-Free Municipal Credit Income Fund (NYSE: NVG) or even the Vanguard Short-Term Inflation-protected Securities Index Fund ETF (NASDAQ: VTIP) – two of my favorites.

My No. 1 choice right now, though, is Raytheon Co. (NYSE: RTN)

It’s a defense contractor with strong growth, and it’s a logical safe-haven against market shenanigans. I like the fact that earnings continue to expand while it provides a wide range of products and services – including air and missile defense; land- and sea-based radar solutions; cyber and intelligence solutions; naval combat, electronic, and sensing systems; airborne radars for surveillance and fire control applications; and precision guidance systems, just to name a few – all of which are absolutely critical components to our national defense.

On a related note, I get asked about gold a lot lately, and that’s a subject of intense debate at the moment.

Like the yield curve, the relationships that once drove gold prices have changed, as has the “why” of owning it.

You shouldn’t buy gold because it might rise as an inflation hedge, but you should load up because of the relationship it enjoys with interest rates.

That’s another truth you won’t hear in the never-ending media “debate” around gold. As Chief Investment Strategist, it’s my job to give you the facts – to help you make money by sharing the information Washington can’t, Wall Street won’t, and the media isn’t prepared to tell you.

Especially when it goes against the grain.

— Keith Fitz-Gerald

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Source: Money Morning