2022 Fourth Quarter Newsletter
The Fed started the year behind the eight ball and aggressively increased the Fed Fund Rate seven times to 4.25%. It had to do this to try to control inflation that grew between 7% and 9% for the year. As the Fed was trying to control the money supply, Washington and the States were sending out money which exacerbated the inflation issue. The Fed says rates will continue to rise until it chokes off the inflationary spiral. My fear is they may have to yield to either economic (unemployment) or political pressures. I do not envy them.
By the middle of 2023, I hope the economy will reach equilibrium with the Fed and rate increases will stop at about 5%. If that works out, the markets may start a new life. I will look for increasing productivity (efficiency) and a reduction of investor uncertainty. Those two items may spark the markets along with future corporate guidance. Yes, that is a lot of “maybes”, but it may not take too much to start a true market recovery, similar to March 2009. That is the chief reason both value and growth are in your portfolios. When the markets start to recover, it may be like 2009 and start a new cycle of recovery and expansion. If your time horizon is greater than 2 to 3 years, you may do very well.
Inflation is still rising, but at a decreasing rate and we will know more after the Fed meeting in February. There may be a light at the end of this dark investor tunnel.
Besides the world’s inflation problems, Russia invaded Ukraine which put pressure on all the world’s markets and created the uncertainty that markets dislike. That war and the inflation worry ignited a sell-off in stocks and bonds. I am not sure how this war will end. If it continues, it will create even more suffering and problems. How many young people have died or became disabled and never had the chance to fulfill their dreams? War does not solve problems; it creates them.
Recession is a word most often spoken concerning the world and US economy. Any reports that are favorable are considered bad news because it can mean the Fed will continue to raise rates. Good news is bad news and bad news is good news. Most economists think a recession is already here and the only real debate is how long and how deep. I do not think we are in a recession now, but if/when it does arrive, I think it will be fairly shallow and short lived. There is still a lot of cash in personal checking accounts and, with the various governments still sending out cash, the consumer appears strong and resilient.
Employment is tight with many job openings still not being filled. There are many reasons for this and all are valid. The lack of childcare and the continuing of various illnesses crimp available workers. I also think there are those that do not want to return to the office and find reasons not to work. This is a problem Covid brought about, and it may take a few years to work out. Once consumer finances are tight, most available workers will have to return to the office. Training is also a major problem because many of the jobs require additional education. Local community colleges can help.
The markets are up one day and down the next with a downward bias for 2022. Weekly volumes have been consistent and the markets appear to not have any conviction to move upward. I think all the information currents have confused the investing public and have created the belief that there is nothing good in the near term. One problem is the politicians thinking they can micro-manage our economy by picking winners and losers. Since many of our elected leaders have never had to make a payroll, I do not think they have the background to run our economy.
China and the US appear to be in a trade war. China eliminated their COVID lock downs and many there are feeling the disease. The Chinese economy is struggling and the leadership may have to do something to get the people behind them. Be careful of Taiwan. A trade war is a result of China’s ability to have Chinese companies open their books for the government’s needs. We’ll see how this plays out this year. No one wants a trade war.
My thoughts for 2023 are to hang in there. If history is correct, this market will turn and reward those that kept faith in the American economy. By investing in stocks, you are buying a piece of a corporation that wants to grow and be profitable. I have not changed my own portfolio and you have the same type of investments that I or my family has.
~There appears, to me, to be a suffocating intolerance from those who do not agree with you.
~Hope is not a strategy for investing.
Please let me know if there are any changes in your family or economic status that I should know. Most importantly, check your beneficiaries now because you never know what tomorrow may bring.
Please let me know if you use the calendar I send to you each year or if you throw it away.
Kevin has made a contact for mortgages and reverse mortgages. Please let Kevin know if you would like some information.
This has been a tough year for all of us. Thank you for your trust and your business. We are here to help you and answer your questions.
James F. Mangam, Jr., CFP, CLU Kevin C. Mangam