| RUSSIAN/UKRAINE WEIGHS ON MARKETS: U.S stocks posted a weekly loss. The primary concern for investors was the threat of an invasion of Ukraine. Russia currently has about 190,000 troops around the border of Ukraine. How would an invasion affect markets? First, it would create a mood that would cause investors to seek to get out of riskier assets, sending prices of those stocks down. A war could prolong inflation by further disrupting supplies of commodities. Russia is a major exporter of oil, wheat and metals such as aluminum and nickel. On Wednesday, minutes of the most recent meetings of the Federal Reserve were released and they did not comfort investors. The minutes indicated the potential for an accelerated timetable (March, May and June) for raising interest rates due to high inflation. |
|
| HOW AGGRESSIVE IS THE FED GOING TO BE?: It appears very likely that the Fed will announce its first interest rate increase at their March 16 meeting. Will there be an emergency hike before then? It is unlikely because the Fed does not want the public to give a signal that it is in panic mode. The last time the Fed aggressively raised rates was 1994 under Fed Chairman Alan Greenspan. The Fed Funds rate rose from 3% to 6% in one year. Stocks finished the year nearly unchanged. In 2004, the Fed raised rates at 17 consecutive meetings (all 0.25% increases). Current chairman Powell raised rates about 1% per year from the post-Great Recession trough. All these prior hikes were preemptive to prevent inflation. This time the Fed is a bit behind the inflation curve. Based on investors in fed funds futures, the odds that the Fed increases interest by 0.5% is 61%. The odds for a 0.25% hike are 39%. Fed funds futures are currently pricing in a year-end fed funds rate of between 1.75% and 2.00%. Of course, the tight rope the Fed is trying to walk is taming inflation without triggering a recession. We’ll see how they do. |
|
| STRONG FOURTH QUARTER EARNINGS: Fourth quarter earnings reports continue to roll in with about three quarters of S&P 500 companies reporting so far. Based on the information to date, profits for the fourth quarter appear to be up about 31% from the year prior after the consensus of analysts said it would be 22%. |
|
| EXISTING HOMES KEEP SELLING: In January, sales of existing homes jumped by 6.7% from the prior month. Buyers were rushing in as inventory continues to shrink and as interest rates begin to rise. Is it the last rush? Rising interest rates seemed to spur buyers to move quickly in case rates rise further. Homes continue to sell within days and often for more than their list prices. The median price for a purchase of an existing home in January was 15.4% higher than a year ago. The average mortgage rate for a 30-year mortgage last week was 3.92%. |
|
| THE NEW HOMES ARE COMING: Combining single family homes and multi-unit homes, there are currently 1.542 million units under construction, the most in nearly half a century. It is a good thing because the current inventory of existing homes for sale in the United States is at a record low. (Source: calculatedrisk.substack.com) |
|
| THE FALLING NATIONAL DEBT?: From the first quarter of 2021 to the third quarter of 2021, despite two huge Covid relief bills (the $0.9 trillion bill in December 2020 and the $1.9 trillion bill in March 2020), the national debt actually fell in inflation-adjusted terms. Inflation erodes debt. By reducing the value of a dollar, inflation makes every economic transaction that happened in the past mean less. |
|
| CONTINUING TO WATCH THE DATA: Daily deaths in the U.S. for people with a Covid infection are going down as sharply as infections now. Last week they moved down another 14% I’m happy to be able to report that global deaths are definitely waning as well, moving down by 8% from the prior week. (Bottom graph below). (Source: worldometers.info/coronavirus) |
|
| HOSPITALIZATIONS AND GLOBAL INFECTIONS: Meanwhile, the number of people in U.S. hospitals who are COVID positive keeps dropping off a cliff, dropping again this week by 25.6% (see graph below). U.S. reported infections continue to decrease as fast as they increased (second graph below). Global infections (third graph below) are now doing the same thing. (Sources: covid.cdc.gov/covid-data-tracker AND worldometers.info/coronavirus/). |
|
ARE GIFTS IN YOUR FUTURE?: If you have come to a point in life where you believe your future is secure and you want to make monetary gifts to your children during your lifetime, here are some things to consider.
- Be sure your retirement and financial future are secure.
- Consider giving the gift of financial planning along with the gift. Many of our clients have done just that. They give a sum of money to their child to start them investing and thinking about the future, and we come alongside them and treat them like all of our other financial planning clients to get them off to a good start.
- Know the plusses and minuses of giving now verses giving through your estate.
- Know the limits of how much you can give tax free (annually and during your lifetime)
- Be aware of the capital gains tax rules for the various types of property.
- Consider trusts.
For further reading on any or all of these points, click here. |
|
| THIS AGED WELL: I happened across the MacGray Matter I wrote on March 1, 2010, twelve years ago. It still applies even though some of the references are dated. |
|
|
THINK ABOUT IT: I met with a married couple, clients of mine, a couple of weeks ago. They both recently turned 62, and they said that the last ten years went by incredibly fast. Tonight, after watching the USA lose a close and exciting hockey game to Canada in the Olympics, I told my 16 year old son that the next time we see the winter Olympics he will be in his second year in college. Four years, ten years…these time frames in the scheme of things do not seem very long, but so much changes. As I have encouraged in the past, spend some time thinking about the future. Where will you be, and what will you have accomplished or overcome when Shaun White is defending his gold medal in Sochi, Russia? It can be sobering or exciting to think about it, but it is always interesting. (MacGray Matter, March 1, 2010)
|
|
|
| SHE TAKES CARE OF ME: My wife made some cookies this weekend. Most of the best cookies have chocolate, and I am allergic, so the rack of cookies often looks like this. Those cookies on the upper left are all mine! |
|
|
|
Our mission is to help you see the objective, find the path, and navigate past the obstacles to a more prosperous future.
|
|
Douglas R. MacGray, J.D., C.F.P. ®
President
Stonecrop Wealth Advisors, LLC
225 Wilmington-West Chester Pike; Suite 200
Chadds Ford, PA 19317
Direct | Cell | Fax
(610) 628 4545
dmacgray@stonecropadvisors.com |
|
|
| “Only the dead have seen the end of war.” Plato
“They will beat their swords into plowshares and their spears into pruning hooks. Nation will not take up sword against nation, nor will they train for war anymore.” Isaiah 2:4 |
|
SOURCES:
EXISTING HOMES KEEP SELLING: wsj.com/articles/u-s-home-sales-jumped-6-7-in-january-amid-record-low-inventory AND nar.realtor/newsroom/existing-home-sales-surge-6-7-in-january
HOW AGGRESSIVE IS THE FED GOING TO BE?: horsesmouth.com/investors-grapple-with-fed-geopolitics
STRONG FOURTH QUARTER EARNINGS: Refinitive.com AND horsesmouth.com/investors-grapple-with-fed-geopolitics
THE FALLING NATIONAL DEBT?: cdn.substack.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F088f4871-c426-4e36-a34e-4fbe675cf23b_1168x450.png |
|
| (c) 2022 Douglas R. MacGray, All Rights Reserved |
|
*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.
*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.
*Bloomberg Barclays U.S. Aggregate: This is a measure of the U.S. bond markets. |
|
|
|
|
