Jason

You’ve probably heard how Albert Einstein failed math as a child. It’s a nice story that comforts us mortals when we make a mistake with numbers.

But it’s not true.

Einstein was a child prodigy and aced pretty much everything. At age 16, he got a 1 out of 6 in arithmetic and algebra. But 1 wasn’t a failing grade… 1 was the highest score, and 6 was the lowest.

The next year he got a 6 out of 6 in math. Yet that wasn’t failure either. The school reversed the grading system that year, making 6 the highest grade.

Despite this simple explanation, though, the false claim is often repeated.

Why let the truth get in the way of a good story, I guess? That’s certainly what the news media seems to believe.

Lately, we’ve been inundated with fearful stories about interest rates rising to cool inflation.

Headlines argue the ripple effect will be crushing – slower growth, stocks tanking, higher borrowing costs, recession, and so on.

But we should take all these dire predictions with a grain of salt… And today, I’ll show you why.

Not Just Speculation

I’m Jason Bodner, editor of Outlier Investor. I spent 14 years working for major Wall Street firms and getting an inside view of the financial system.

After that, I struck out on my own, starting two small hedge funds, and my quantitative research firm, Map Signals.

There, I developed an advanced system that uses artificial intelligence (AI) and bleeding-edge data analytics to find opportunities in the stock market.

That’s the system I use in my Outlier Investor research service… identifying the “outlier” stocks that outperform all the rest.

I share all of this to show I’m not just speculating when I say the current situation isn’t as bad as the news media might want you to believe.

I have decades of experience tracking where the money is flowing… which gives us a much better picture of the state of affairs.

And there are very real reasons I think interest fears are overblown… 

The Fed’s Dilemma

It’s true interest rates are rising. Back in March, the Fed approved the first increase since the end of 2018. But while the consensus was overwhelmingly expecting a 0.50 percentage point rise, the Fed enacted only a 0.25 percentage point hike.

Even with that small increase, rates are still at historic lows and will be for a while:

Here’s the simple truth… Rates can’t rise too much when the U.S. government has such a huge balance sheet.

Right now, we have more than $30 trillion in national debt. If we raise rates too high, the interest alone on the debt becomes crushing.

And looking at the past, the last time the Fed tried to raise rates, it couldn’t increase them over 2.5%. Since that time, of course, the Fed, along with U.S. households and businesses, has accumulated even more debt… worsening the Fed’s dilemma.

Any tightening will make existing debt more expensive to service and hinder economic growth.

So one thing is sure… The Fed can’t raise rates too aggressively… no matter what it claims.

What the Stock Market Tells Us

Fears about rising rates have hit the stock markets hard in 2022.

The SPDR S&P 500 ETF Trust (SPY) fell nearly 13% to start the year. Even after a recent uptick, it is still down over 6% year to date.

Yet my research shows that institutional investors – who I call the “Big Money” – might already be calling the Fed’s bluff…

My firm created the Big Money Index (BMI), which measures institutional money flows.

The BMI nets all buying and selling signals on a 25-day moving average to get a sense of inflows and outflows. It’s a great market gauge.

And despite the “doom and gloom” news stories, the BMI has been rising lately, indicating there are more stock buyers than sellers overall.

In fact, it’s reached the highest level since November 22, 2021.

That’s important because mid-November marked the peak for many growth stocks, especially in technology:

A rising BMI means big equity investors don’t seem to believe the fearful headlines… And neither should we.

We may still have some bumps in the near future. The recent big bounce from lows means there may be room for the market to consolidate.

Yet recent buying indicates the “death spiral” is over for now.

And looking years out, I remain bullish…

The World Is Not Ending

Right now, rising rates are a cause for concern. Yet as investors, we need to look at stories like this with a broader perspective.

Historically, markets have overcome recessions and depressions, wars and regime changes, and pandemics – among all sorts of other things.

Even more broadly, the arc of human progress is undoubtedly positive. I mean, at one point we lived in caves… Now we send tourists to space.

Yes, war is horrible… Inflation can be nasty… And rising rates risk damaging the “American dream” of homeownership.

That’s all happened before, and we’ve gotten past it. We experience setbacks, and sometimes they’re big… But ultimately, we’re still here advancing.

So, let’s keep a few things in mind:

The narrative of imminent ruin is not destiny…

Don’t believe everything you hear (the “Big Money” certainly isn’t) …

Humans are a resilient species that have survived a lot, and this isn’t the end of the world…

And, despite popular lore, Einstein didn’t bomb math.

Talk soon,

Jason Bodner
Editor, Outlier Insights

P.S. Tracking the Big Money is one of the ways I spot opportunities for my readers. When Wall Street is piling in on a stock with strong fundamentals, we aim to ride the wave up. That’s how we’ve achieved triple-digit returns in Outlier Investor.

To learn more about how my system follows the Big Money, simply go right here for the full story.


Like what you’re reading? Send your thoughts to [email protected].