2022 Third Quarter Newsletter
Inflation – The Federal Reserve is trying to lower it by increasing interest rates and reducing their bond holdings. Washington is trying to throw dollars to all which counters the Fed’s plan. Inflation reduces the ability to live as we did just yesterday. This inflation started with the pandemic, Washington’s largess and the Fed’s inattention. The Fed also said they would wait to see data before acting. This means they will always be seeing yesterday’s news and will not be out in front. This is not transitory. By raising interest rates, the Fed is taking wealth away from investors; the same people who invest in the US economy and keep us going. For September, inflation was about .64%.
Recession – Unemployment is still low and employment is high. Jobs are available for anyone with ability and wants one. Many employees have indicated they do not want to go back to an office and the commute. Some managers want all to return to the office. As Mr. Jaime Dimon (Chase Bank) said, you can still work from home; just not for us. We may already be in a recession and it remains to be seen how deep and how long it will be. The Fed is trying to control the money supply and Washington keeps spending. This increases inflationary pressures and I wonder who will win this battle. Unknown is if there will be a soft landing coming or will there be a lot more hurt. The Fed is doing what they can. They may have to abort the rate increases if the economy declines too much.
US Dollar – Very strong and hurting many foreign currencies. China, Japan and the UK issued support of their currency and many more may want to do that. I do not recommend the UK method; what a mess. If the country’s economy is not very strong, they may not be able to withstand the strength of the dollar.
Hurricane Ida – It hit Florida very badly and knocked out power and destroyed homes and communities. It may take a long time and a lot of money to rebuild. It showed us that we are still very vulnerable to nature. One small item: electric cars cannot be recharged without electric power.
Student Loan Forgiveness – This was not supposed to cost the government anything. According to the Congressional Budget Office, it will cost $420 billion. There is no plan to eliminate student debt, just a plan to transfer the cost to those that either paid or never had a student loan.
Oil – Prices of oil have retreated and the price of gasoline has come down quickly. I think this is more a result of the slowing Chinese economy and the prospects of a recession in the US. Both should reduce the amount of oil/gasoline that is used. Saudi Arabia has stated that if the price of oil goes much lower, they will curtail pumping to keep supplies tight. They also said that if the discussion with Iran results in that country’s oil coming onto the marketplace, they will reduce output even more to control supplies. The only way an investment portfolio is positive this year was by taking on extra risk last year by being concentrated in energy (and that may prove to be false this year), or by using market timing which in itself is very risky.
Corporate earnings season is starting mid-October. The preliminary reports are that earnings will be slightly lower than last quarter. Since stock prices are lower, that may be helpful to support the current prices. The summer months had a few plus days and a few minus days in the markets. The commentaries I have heard say that it may prove difficult for the Fed to crash our economy to fight an inflation spiral that they and Congress are responsible for. I still think value equities and their dividends will perform better than growth equities. That may change in 2023 if the Fed halts the interest rate increases.
Education – Educators are dumbing down curriculum and tests to try to help make all students appear intelligent. That does nothing for the marginal students when that individual tries to make a life in modern business. It would be better to have extra help during the younger years than to keep passing these students toward graduation and unprepared for their future and the country’s future. I suggest you talk to your children’s teachers to find out what is being taught as sex education in grammar school and find out who is responsible for these mandates. Why can’t youngsters be children?
From the Wall Street Journal, the US debt to GDP is 127%. This means, as interest rates rise, the government must spend more income (your taxes) to service it. In August the interest payment was $63 billion out of a $6 trillion Federal budget.
These are scary times, not just for investments, but for our country also. Politics is everything and anything. The political divisions are deep and good people are unable to work with their opposing party without being unjustly labelled. Mid-terms are coming up shortly. Please vote and try to understand what the candidate stands for when representing you.
I have some very large concerns about our world and what I consider to be the bad actors. I won’t name them and if you want my opinion, please call me.
Thank you for your business and your trust in these trying times. I will continue to do my best for you.
James F. Mangam, Jr., CFP, CLU