From the Desk of Jack Kennedy III
Don't Fear This Bear Market
I have had the unfortunate blessing of managing investor life savings through five bear markets – 1994, 2001, 2008, 2020, and now 2022. They are all different but present similar opportunities, they were all led by the Fed raising rates too fast after sitting on low rates too long, with the exception of 2020 pandemic. What I have learned through all these recessions is that managing investor emotions is extremely important. When investors see their life savings declining elevated emotions and fear are normal reactions. In these times, it is imperative we focus on patience for outcomes that will continue to achieve legacy results.
March 9, 2009 was the official end of the Great Recession. The Great Recession was also caused by the Fed Chair, Ben Bernanke sitting on Zero interest rates for too long creating a housing bubble, then raising rates 17 times in 36 months to "cool' off the housing markets. I created a journal in 2008 to make certain I never lost the emotional toll the recession placed on my clients, me, my team and my family. On a daily basis, companies were collapsing. General Motors, Lehman Brothers, Wachovia, Citigroup, AIG, Bear Sterns, etc. all saw their credit ratings slashed from investment grade to junk while all on the brink of bankruptcy.
This is the first passage I wrote in my Journal 10/24/2008:
"It is Sunday October 24th, 2008 at 4:30pm. On 10-5-2007, the Dow reached a record high of 14,066. One year and two weeks later the Dow is down (40.4%) or 5688 points from last year’s record high. The government has provided 750 billion in bailout funds to stabilize the credit markets. The events are challenging for KIG and the clients that place all their faith in us. I can see the fear in the eyes of the public and the eyes of the investment community. There appear to be no safe havens. This is when our clients need us the most. My number one priority is to make certain our clients own the highest quality during this financial nightmare. The bond markets haven fallen with equities, which is unprecedented. Bonds are down as much as 30%. These are the moments when our clients need us the most and why my family has only seen me "inside" my office for the past 11 months. I finally feel like we are ready for high tide without a single hole in any investment plan in KIG waters. I wish my clients could see what I see after 11 months of studying their portfolio ingredients 24/7. Unlike sausage, I know the ingredients exactly in every plan and am finally excited for the outcome. I hope my clients can trust the process to achieve a successful outcome. A few clients have exited the markets despite every effort. The US economy is hanging on by a thread and my clients are feeling the same emotion. The silver lining is gas prices have fallen from 4.77 per gallon to 1.77 per gallon at the pump. Every penny drop in gasoline prices, saves Americans $342 Million per day."
The above was written in my journal nearly 13 years ago to this day. The ultimate silver lining then and the silver lining today is bonds are on sale. Today balance sheets are much healthier. If an investor were to buy a bond today at .80 cents on the dollar, at maturity it would pay $1 which is a 25% total return, along with the interest being collected along the way.
We have been focusing on stocks to avoid in preparing for this recession. We overweighed utilities, consumer staples and healthcare, which historically have been recession proof. These sectors are all down single digit while technology and retail are down well over 20%, which we avoided. We did not anticipate bonds being down as much as 20%. When healthy bonds decline, one of the major risks is selling the bonds before maturity. This is when we must try to remove emotion and understand that a bond, even down 20%, has a maturity date when we get all our principal returned.
This is where uncertainty meets opportunity. Yields are the highest they have been in over 25 years. If a client is drawing 4% of their portfolio to meet retirement living expenses, they could buy a US Treasury bond paying 4.4% and be certain to never touch principal. Municipal bonds and corporate bonds are substantially higher than Treasury’s yielding as much as 6-8% or in some cases even higher. This is the opportunity when "income" produces the outcome. It also creates an opportunity to lock in high interest rates that are fixed and not stock market dependent.
This is the longest newsletter I will ever write. After 27 years, I want you to see the horizon through a glimpse of my eyes and what I have experienced.
I will leave you with this quote,
"I am not telling you this is going to be easy, I am telling you it is going to be worth it."
– Arthur Williams
From the bottom of my heart, thank you for trusting me, our team and our process.
Any opinions are those of Jack W. Kennedy. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Past performance is not indicative of future results. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Sector investments are companies engaged in business related to a specific sector. They are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.
All expressions of opinion reflect the judgment of Kennedy Investment Group and are subject to change. There is no assurance any of the trends mentioned will continue or that any of the forecasts mentioned will occur. Economic and market conditions are subject to change. Investing involves risk including the possible loss of capital. The S&P 500 is an unmanaged index of 500 widely held stocks. It is not possible to invest directly in an index. The market performance noted does not include fees and charges which would affect an investor’s returns. Past performance may not be indicative of future results.
Investment products are: not deposits, not FDIC/NCUA insured, not insured by any government agency, not bank guaranteed, subject to risk and may lose value. Kennedy Investment Group does not render legal or tax advice. Please consult a qualified professional regarding legal or tax advice.