Lean on Me

      In 1972 Bill Withers recorded "Lean on Me" and it became the #1 single for both soul and the Billboard Hot 100 chart for 3 weeks in July of that year. Bill wrote this song as a reference to his childhood experiences growing up in poverty in West Virginia. It was ranked 208th in the All Time Top 500 singles by Rolling Stone magazine. 

     These days I find myself doing a little leaning also. With everything going on in the world and our financial system, I'm leaning into a little cautiousness. The risks to the stock market are at a very high level given the fact that interest rates are on the rise, war has broken out in Europe, inflation is raging, the pandemic is ongoing, and oil is in short supply with high demand. If that's not enough, Russia has declared that the sanctions we have imposed on them is an act of war. They have already alluded to the use of nuclear weapons. I trust that our government will do everything to avert a nuclear war because no winners will emerge from that scenario and our retirement accounts will not even matter.

     My strategy for dealing with these conditions is to just lean into some defensive positions like pharma, some utilities, and staples. Since I already have a very diverse portfolio, this is not a big move on my part. My reasoning is that even in trying times, people will still take their medicine, buy gas and electric to light and heat their homes, and buy food. It may also be a good time to lighten-up on some of the winners of the past few years. Even though higher interest rates are generally a plus for financial stocks, I am concerned about the prospect of a flatter yield curve in the near future. A flat yield curve means that the 10 year treasury bond and the 2 year treasury bond yield about the same. Banks have a hard time making money on loans in that scenario. When the 2 yr bond yields more than the 10 yr, that is called an inverted yield curve and usually precedes a recession. 

     A recent scan of my portfolio revealed some stocks that are doing well in these tough times: pharma stocks like Pfizer and Merck, energy stocks like Marathon Petroleum, old tech stocks like Cisco Systems and IBM, cybersecurity ETF like HACK, agricultural stocks like ADM, and drugstore chain CVS. As interest rates rise, I will be looking to take profits in some bank stocks and buy into a ladder of CD's which are federally insured deposits, this will lower my risk and still provide income.

     In conclusion, we are in for a tough 2022 for the stock market. Bonds do not interest me in the face of rising rates. I am not making any rash moves, however some adjustment is in order just to mitigate some risk. There will be some days and even weeks where the stock market will rally during a bear market and that is when I plan to raise cash. One thing I have noticed about the stocks I mentioned is that they all trade at reasonable valuations and pay dividends. What more can you ask for?