2024 First Quarter Newsletter

               The Fed appears to eliminate further interest rate increases and has indicated they will start reducing rates in 2024.  My thinking is during spring you will see declining Fed interest rates with two (no more than three) reductions for the year.  If The Fed reduces more than that, it may signal they see a slow down in our economy.  Once September arrives, The Fed should remain neutral so they will not appear to affect the presidential election.  I’ll have more to say about the 2024 presidential election as the year goes on.  It appears to be a horse race to see who can come in last.

               The 10 year Treasury went from over 5% to under 4% in a few months.  That is a huge move in such a short time frame.  With the markets adjusting to the current interest rates, bond values improved and stock prices increased.  The much discussed recession may be in the rearview mirror.  However, caution flags are still flying for me because the markets seem fragile.  It feels like one economic stress point and the markets can turn.  The combination of higher corporate earnings, better productivity, robust consumers, and declining interest rates may offset any negative threat.

               The dollar has declined slightly helping small and foreign companies.  I’ll be looking to see if your portfolios need to add these stocks.  Right now, I like US stocks and large foreign stocks.  Looking at Europe and Asia, I see some light for their economies.  Germany is the laggard in Europe and China is the laggard in Asia, as far as we can decipher.  South America has its problems with trying to stay afloat.  However, Brazil looks good as does Guyana if they can keep Venezuela away from their oil find.

               I’m looking forward to the first half of 2024.  Our economy is moving forward, consumers are spending, unemployment is low and employment is up.  However, credit card balances are increasing which may impair consumer buying in 2024.  The Federal and State debt is as high as ever during peace time.  That will be a problem as the interest payments on the debt drown out other programs. 

               A reduction in inflation does not mean that current inflated prices will reduce.  Those prices are probably here to stay unless the economy falters.  What it means is future increases in prices may not be as high.  Inflation is still increasing, but at a decreasing rate.  For those who are less fortunate, they will have to continue to carefully budget their income to stay afloat.

               Immigration is still a major problem for us.  The Mexican border appears to be wide open and the administration seems to ignore the lack of laws and control.  Immigration courts are years behind and transgressors are free until their court date.  Try to find them for their court appearance.  Mexico can only do so much to stop the marchers.  I understand the reasons for wanting to come to the US.  If I was stuck in a poor country, I’d do what I could to get here and help myself and my family.  Since this problem is fairly new, what was done previously to discourage this migration?

               Replacing a coal fired plant with solar and wind power only replaces what we have now.  It does nothing to increase production of energy for future needs.  Investment in new technology may not create new products to satisfy future demand.  Hopefully, our economy will grow and we will need new and reliable sources of energy, not replacements.

               What a shame it would be if we were to deny those younger than us the opportunity to live and experience the things we have already.

               The world is seeing what is happening in Israel and Gaza.  To me, Hamas is a metastasizing cancer that can only get worse.  As in any country, Israel has the right to exist and protect its citizens.  Hamas says it will not stop until Israel is eliminated.  What would be our response if Mexico said they wanted the western US deserts back that we “stole” from them?

               Part of my investment caution is the world order.  I think the US should continue to support both Ukraine and Israel or skirmishes will continue.  That is part of the fragility that I sense.

               On Friday, January 12, 2024, corporate earnings quarterly reports will start with large banks and continue with corporate reports through February and a few more in March.  As I have said before, corporate earnings are the basis of stock prices.  Momentum and emotions can come into play, but it normally comes back to earnings; how much money the companies are making.  I think that without earnings, corporate stock will either be flat or decline.

               There is one case before the Supreme Court, Moore VS United States, that bears watching.  Briefly, it involves the government’s (IRS) ability to tax undistributed earnings or growth.  The government’s position in this case says that it is OK to tax growth that has not been distributed.  If the Supreme Court allows this in favor of the government, you may see IRS coming after the growth in your home value, your business, or your investment portfolio that you have not sold.  I would consider this “intended consequences”.  I’ll keep you informed.

               Thank you for your business and let us know how we can help you.  Please let us know if there have been any changes in your finances or family.  Please review your beneficiary designations NOW, before it is too late.

Sincerely,

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

The Mangam Agency

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