I have been anti-International indexes for awhile. I’ve advocated leaning on the large cap SP500 index the last couple of years at this point in the market cycle (post bull top… bubble).

COVID stimulus poured into financial prices and stimmy checks boosted demand and thus corporate profits. It was all inefficiently overdone but it helped cover up the pre-COVID financial crisis at the end of 2019 when the Fed pumped over $4 trillion into the Repo market… did anyone notice?

Here is 2021 for TSP funds in a single chart. The SP500 wins.

While the large corporations plan to burn $900 billion in cash on buying back their own stock on the open markets in 2022 because I guess they have no business ideas to invest in, the small caps are loaded with debt. I would stick with large companies until the bubbles pop.

Remember…

Gov’t deficit = Corporate Profits + Trade Deficit + Savings

So…

Our massive Gov’t deficit explains temporary high corporate profits, the large trade deficit and the so-called high savings rate that you read about.

The 2022 reversal in Gov’t deficits will normalize (shrink) profits, savings and the trade deficit sometime in 2022.

There is more of course, but I think this along with a reversal in Fed policy explains the riskier small caps pullback which is telling us 2022 may not look like the last few years.

Invest smart,

Michael Bond

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Categories: Perspectives