Where Do I Invest Post Rate Cut?

Historically, when the Federal Reserve believes we are tipping into a recession, they lower interest rates.

That’s exactly what they’ve been doing for the past decade and a half. The Federal Reserve has come to the rescue by lowering interest rates.

What the Fed Actually Thinks About the Economy

Because we had massive inflation for the first time since the 1980s, the Federal Reserve was forced to raise interest rates.

This caused mortgage interest rates, credit card interest rates, auto loan interest rates, and all other interest rates to go up. This decreases the borrowing power of consumers and businesses.

The credit markets tighten up, and business operations can't expand. Asset prices historically go down. This is what we call disinflation, which is the goal. Reducing inflation is the goal.

But now we have a different situation.

Jay Powell and the other Federal Reserve Chairmen realized they might be walking into a trap. They most likely already have by inadvertently causing a greater downturn in the economy than they wanted to.

To be fair, they're trying to balance our economy on a seesaw with an approaching election in less than a month. I’m sure there’s a political side to this as well. 

All this to say… They may tout that they made this interest rate cut because inflation has been “defeated,” and they’ve hit a “home run,” but I don't think that's true. I don’t think they believe it’s true either.

They’re running on fear of the economy tipping too largely into a recession, but they don’t want to say it. They lowered the interest rates because they believe the economy is heading for the worst.

We’ve Been Trained to Gamble

Investors love to be in growth mode. We love investing in equities such as businesses, real estate, the financial markets, tech stocks, etc. (Tech stocks, in particular, have ballooned due to a low interest rate environment. What happens when that environment changes?)

The Federal Reserve and the government deficit spending (Trillions of dollars, I might add. It's not your typical change lying around your house) has fueled much of the growth of equities in the past decade and a half.

The reality is what investors have been trained to love has simply been to gamble in a house of cards.

The family living off credit cards and HELOC loans must eventually face reality. It may feel good for a time… Until you lose, and the house of cards topples over.

The Success of the U.S. Superpower – Can It Last Forever?

The United States has been a superpower for well over a century because of our ability to be entrepreneurs in capitalistic markets. Historically, we've been powerful producers.

But that is changing. Other economies are surpassing our ability to produce. We've overextended ourselves.

Our irresponsible politicians have overextended our nation and continue to do so on steroids today. At some point, whether they believe it will or not, this will hurt us. 

I think that's what the Federal Reserve is afraid of… They've gone too far.

Okay, Where Do We Invest?

We love to be in a market where things are going up because it’s easier to create wealth. But the market cycle is turning from a half cycle of upgrowth to a downturn/recession/correction, the other half of the market cycle.

This is not a time to be in equities in general. You can decide where you stand, but you must proceed cautiously because we will not have the same upswing in the marketplace until we go through a correction.

As an alternative to equity investments, at this stage of the market cycle, I prefer to utilize private credit investments as a way of mitigating risk and maintaining steady returns through a market downturn.

This means I’m acting as a bank and loaning money for interest. You can lend money, supported by strong collateral, to borrowers you can vet and get a contractual return on your money.

What kind of return can one expect on these loans? Certainly into the double digits if you know how to structure it.

It's like buying Treasury bonds backed by the U.S. government. Treasury bonds and short-term or medium-term bills are considered risk-off because the government backs them.

But T-Bills are only giving a 5% return and are now decreasing. That's okay for the short term. But with inflation still ripping much higher, my purchasing power is decreasing.

So I need to do better than four or five percent. With private credit, I can double that while reducing my risk by lending money (being the bank) in the private credit sector. This greatly increases my ability to stay ahead of inflation. 

There will be a time to invest in equity assets again, but until then, I’ll keep my money safer in private lending.

The Opportunity Available to Investors Who Take Action

Investors have an opportunity today to open their eyes to the marketplace's volatility. It’s not too late to protect your money.

A shift in the markets and even a potential market crash is not what anybody wants, but today, we can prepare and protect from those shifts by putting our money into places that others typically can't or won’t.

If you want to know more about private lending or protecting your investments today, I’ve recently released two podcasts that you’ll find particularly insightful.

The first is an intro to the private lending world with a good friend currently active in that space. The second is an interview with somebody I’ve come to respect in reading the market and economy and seeing where to move your capital. You can find both of the podcasts below.

1. Ep 503: Private Lending Investing – Less Risk and Steady Returns with Tom Berry
2. Ep 504: The Fed Rate Cut is a Sign of a Deeper Problem – The Era of Long-Term Investing with Anna Kelley