2023 First Quarter Newsletter

               Inflation is increasing but at a decreasing rate. This has brought about guessing when The Fed will stop increasing short term rates and may pause or reduce them. The US equity markets reacted to this information and the first quarter returns reflected those guesses. Depending on your perspective, it could be the start of a new bull market which may depend on the employment/unemployment rates and corporate earnings which will start in earnest mid-April. Inflation may take longer to cool than The Fed wants. They seem impatient and I hope it is not because of politics. Despite The Fed’s desire to contain growth, the US economy appears strong, although March numbers showed the Fed action may be starting to take effect. If The Fed curtails its interest rate increases, I think the bond market will self-correct over time.

                Because of the current bank problems with duration, which is longer maturities compared to shorter needs, lending has slowed. Banks have become more selective, which could hurt the economy in 2023/24. The bond market is also selective and appears to have some measure of stress in the high yield market. The Administration massaged the FDIC regulations to help quiet the banking problems. I think this will bring about unintended consequences and maybe a moral hazard if all deposits are guaranteed by the government, not just up to $250,000.

                Recession fears are either growing or diminishing, depending on who you listen to. My thoughts are still the same; maybe, but shallow. Jobs are plentiful, but skilled workers are not.

                Russia’s invasion of Ukraine is in its second year. There appears to be a World War 1 atmosphere of trench warfare, fighting for an inch of ground and killing all those young people. Russia’s economy and people are suffering, but much less than the population of Ukraine. From what I have read and heard, the truth about Russian losses and costs are not divulged to anyone. Making war does not solve problems; it creates them. I am always hopeful that the political adults will stand up and end the bickering and name calling. I’ve been hopeful for a long time.

                China’s economy appears to be back on track. I’m not sure about the numbers, but there are some signs of growth. There are also signs that their political class wants to take on a more economic posture around the world through loans and military threats. China and Iran are backing Russia with its war with Ukraine.

                Oil production is about what is needed to maintain the current price and supply. If China’s economy is truly starting to grow again, that will require additional production. There is already a bidding process that might drive the prices higher. The US administration wants to reduce our production of oil and related products, which may make us more dependent on foreign sources. I remember the 1970’s and that was not a good position for the US to be in. If we continue to reduce our production of oil and gas, we could be held hostage again by foreign producers. That is why the US set up the Strategic Petroleum Reserve, not to reduce the current price of gasoline. Any increase in the price of oil would add to inflation and present further problems for The Fed.

                Relying on wind and solar presents problems for our country’s energy. They are good intentions, but good intentions cannot heat a home nor cook a meal. They seem to be missing the practical side of the equation. Maybe some time in the future when energy storage is less cumbersome, wind and solar can become the main source of energy for the world. Most of what we have has an element of oil in it, either in manufacturing or design. This would be an intended consequence and I am very concerned about our future needs.

                On the investment side, growth has again outperformed value during the first quarter. If this is the start of a new bull market, growth investments may continue their upward trend. If not and if a recession is near, the dividends from Value investments look very good.

                If you are age 73 or older this year, the Required Minimum Distributions (RMD) regulation from qualified investment accounts, has been changed as of January 1, 2023. You must take a distribution and pay tax on it or face a 50% penalty tax on the amount not withdrawn. The RMD tables are based on age and can be difficult to follow. Please call us and we can help clarify the amounts required for you.

                I remember when an individual was able to discuss different opinions openly without fear of being branded. Now, if an individual does not agree with the loudest voice, no one will ever get to debate an opinion. It appears that all must conform, or appear to conform. Where is the respect, where is the ability to learn from another individual’s thoughts?

                Please let us know if there have been any changes in your family or financial situation. Please keep us up to date on any changes. Please also look at your beneficiaries in your insurance policies and in your will. There may be reasons to make changes. Reviewing them can help you be sure the designations are what you want.

                Thank you for your business. Please call us with your questions.

                                                                                                Sincerely,

                                Kevin C. Mangam                                                             James F. Mangam, Jr., CFP, CLU

The Mangam Agency

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