How To Invest No Matter Where Interest Rates Go

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An old-fashioned donnybrook between the President and the Chairman of the Federal Reserve is exactly what the financial markets did not need to see right now.

Naturally, that's exactly what we have.

In the face of obvious warnings about the implementation of his tariff plan, the President has done the only thing that makes sense.

He is blaming the likely slowdown on the Fed's refusal to lower interest rates on command.

It does not matter if you agree with the targeted results of the President's trade plans or not.

No matter your politics, you have to accept that they will cause an economic slowdown.

You also should accept that there is a much greater than zero chance that they are inflationary. Doing nothing is exactly the right decision for the Fed at this point.

Remember your history.

In the early 1970s, inflation was already starting to rear its head and would not go away.

It was becoming sticky.

Richard Nixon had appointed Arthur Burns, an economist with a reputation for brilliance, as Chairman of the Fed.

The last words of the oath Burns swore as Chair were still hanging in the air when Nixon began haranguing Burns to lower rates to support his political agenda.

Nixon even recorded some of his tirades and went so far as to plant negative stories in the press to pressure Burns to get in line with the program.

Eventually, Burns did fall in line.

There was a boost to the economy, but the rate reductions also helped create one of the worst bouts of inflation in the history of the United States.

Arthur Burns should be remembered as a brilliant economist.

He is not.

Jerome Powell is well aware of this sordid little episode in economic history.

He has no intention of joining Burns in the history books as a Fed Chair who caved into political pressure.

If anything, Powell will become more determined to resist political influence.

The likely outcome of the tariff strategy that the Trump Administration has outlined is mild to moderate stagflation with lower GDP growth and a bump higher in inflation.

Even the economists that are ardent Trump supporters acknowledge this.

We have talked about the Melvin Bell Curve several times.

On the far left of the curve is all the bad stuff about the tariff strategy—runaway inflation, deep recession, geopolitical fracture.

In the middle—stagflation, slow growth, grind-it-out years.

On the right—a manufacturing and construction boom, tax cuts, stable rates, and the U.S. economy rediscovering its industrial backbone.

Those slow growth, grind-it-out years are something that was mentioned on the campaign trails.

Trade realignments and agreements take time to get worked out and implemented.

We are talking about remaking trade policies that were set in the aftermath of World War II that have been in place for 80 years.

It may take a minute or two.

We could bring both sides of the bell with a period the bad stuff that eventually leads to an economic boom.

Will it happen?

No clue.

Nor does anyone else.

We are in uncharted territory.

What we can do as investors concerned with growing and protecting our nest egg is take a look at what has worked during periods of stagflation and slow growth.

Forget the politics of all this and what the various tribes and parties have to say.

This is about our money, our hopes, and our dreams.

We need to get in a position that allows us to survive and thrive no matter how this plays out.

Income-producing, high-quality real estate purchased at bargain valuations was a huge winner for investors in the 1970s.

So was buying fixed income like bonds and preferred stocks.

Buying heavily discounted closed-end funds has been a winning strategy during rough patches in the economy as well.

If these strategies sound familiar, it is because they are the core strategies we use at The Real Income Report (especially in our Real Income Portfolio).

It is highly likely that large stocks and high-multiple technology stocks are heading for another lost decade.

If we see massive selloffs, then we will see opportunities in small-cap ultradeep value stocks, and we will share these opportunities with you when we find them as well.

While most people think that is unlikely, it is simply because they were not active in the markets 25 years ago when the last one started.

Even fewer were around when we went into a 14-year drought (aided in great part by the aforementioned Mr. Burns) beginning in 1968.

We want to be in a position so that if we have a lost decade in stocks, we still do well.

If we do not have a lost decade in the stock market, we still want to do well.

A win-win approach makes a lot more sense than an all-or-nothing approach.

PS Speaking of win-win approaches, a few days ago I restarted my longest-running and most successful newsletter service, and the one I’m probably best-known for. I’m talking about small-cap bank investing - an area where, no matter what’s going on in the markets as a whole, tiny banks are being gobbled up at huge premiums left and right, and will keep being gobbled up for years to come. Here’s how it works, and why.