KIDS ARE EXPENSIVE:  My wife and I would be filthy rich if we didn’t have three kids.  They were very expensive to raise.  All of you who are raising children or who have raised children know this.  There is absolutely no doubt that I would do it all again.  The benefits FAR exceed the costs.  I say all this in the context of the news that came out this week that a recent Brookings Institution estimate projects the cost of raising a child for a middle-income family to be about $310,000.  This estimate does not include college costs.  This is about $80,000 higher than the estimate made in 2017 and over $26,000 higher than two years ago..

WINNING STREAK SNAPPED:  Stocks fell Friday, guaranteeing a negative week and an end to a stretch of four straight weeks of gains for the S&P 500.  Markets have been riding on optimism that inflation has likely peaked and the Fed will get less aggressive.  Minutes from the Fed’s July meetings were released this week, and statements made by some central bank officials made it clear that future aggressive rate increases are not off the table.  On Thursday, Federal Reserve Bank of St. Louis President said he would lean toward a 0.75% increase in September.  In a week without a lot of other economic news, that became the main driver of the markets which ended up down by a tad over 1%.

LONGER-TERM PERFORMANCE:  Below are the annualized three-year and five-year numbers for these same indices.  

HOME SALES CONTINUE TO DECREASE:  Sales of existing homes in July were 5.9% less than in June.  Compared to July of last year, sales are down 20.2%.  The total inventory of unsold homes increased by 4.8% from June, but is essentially the same as a year ago.

LABOR MARKET REMAINS STRONG:  The amount of initial unemployment claims made last week decreased from the week before, and the four-week moving average is now 246,750, up from the lows, but still a very healthy labor market data point.
(Source: dol.gov/ui/data.pdf)

CAUSE AND EFFECT?:  The chart below shows the history of the money supply in the U.S. compared with the inflation rate.  M2 is the measurement of money supply (represented by the black line below).  M2 essentially consists of currency in circulation, money in checking and savings accounts, and money is liquid “near cash” accounts such as money markets and CDs. You can see that in response to two difficult times in 2001 (tech bubble) and 2009 (housing bubble) the money supply increased dramatically and temporarily.  If those were dramatic jumps, what do we call what happened in 2021!  Both the Federal Reserve and the U.S. Government were trying to get lots of liquidity into the economy to keep it going.  It worked, but the dramatic increase in money supply has been followed by a dramatic increase in inflation.  

THE INFLATION REDUCTION ACT OF 2022:  Last week, President Biden signed this act into law.  Here are some key components:

• A Corporate Alternative Minimum Tax:  Beginning next year, all C Corporations with financial statement income of over $1 billion will be subject to a minimum tax of 15% of adjusted book income.  It is expected to affect less than 200 U.S. companies.  It is a complex law which will require lots of new regulations and many hours of in house compliance people to figure it out. 
• A 1% Excise Tax on Stock Buy Backs:  When a publicly traded company buys back $1 million or more of its own stock during a tax year, this tax will apply.
• $80 Billion in New Funding for the IRS for operational support and systems modernization.  One half of this money will go toward enhanced enforcement.
• Various Medicare Part D changes.
• Tax Credit of $7,500 for purchasing a new qualified electric motor vehicle, and a smaller credit for buying a used electric car.
• Tax credit for businesses that buy environmentally clean vehicles (not gas or diesel).
• Variety of other green-related credits and incentives.

(Source: congress.gov/bill/117th-congress/house-bill/5376/)

THE REAL ECONOMY IN RUSSIA IS REELING:  It is difficult to get credible data from Russia since the outbreak of the war, but a breakdown of the data we do have shows the following since the start of the war:

• Retail spending is down 10%.
• Manufacturing of washing machines and refrigerators is down 50%.
• Prices of household appliances are up 22%.
• The costs of healthcare and personal services are up by 20%.
• Domestic air travel is down by 83%.
• Air freight volumes are down by 70%.
• Total manufacturing is down by 10%.

Foreign investors are shedding their exposure to Russian assets at a record pace, and many Russian citizens are moving as much of their money out of Russia as they can.  A recent report estimates that as of mid-March, 200,000 Russians have fled the country, and many more have followed.  Those who are leaving are those who can, those with money and skills.  As a result, Russia appears to be experiencing a bit of a brain drain.  For example, an estimated 50,000 to 70,000 tech professionals left in the first month of the war, and an expected 70,000 to 100,000 are following.  An estimated 15,000 millionaires are leaving Russia this year, many ending up in Dubai.

ANOTHER FASCINATING BOOK:  Once again, I had a book recommended on more than one occasion by unrelated people.  The book is Antifragile: Things That Gain from Disorder, by Nassim Nicholas Taleb.  You may recognize the author’s name.  Over a decade ago, he published a book called The Black Swan which many of you read.  We spend so much time trying to predict the future: the climate, markets, elections, the direction of the culture (but not football…sorry Buffalo fans but it is inevitable that the Patriots will win the AFC East once again).  Rather than focusing on predicting, the author ponders the question of whether more focus should be on how to become antifragile so that when the inevitable occurs, you get better and stronger.  I am only about a tenth of the way through it, and I can see why it was recommended.  If you have read it, give me your impressions.  This has obvious application in Stonecrop’s business.  We can’t predict the future.  But we can focus on helping client financial plans to be antifragile (the author is not a big fan of the word resilient…you have to read the book to discover why),

THE BMW OPEN:  It has been many years since top professional golfers have played in Delaware.  This weekend, the BMW International Open is going on at the Wilmington Country Club.  It is quite an event, especially for a small state like ours, but this course really does deserve the recognition.  I am glad to be watching the pros come to my state.  I got some pretty cool pictures.

At the very end, my son Riley and I were standing near the fairway bunker on the 18th hole.  I was wearing this red hat.  The eventual winner, Patrick Cantlay almost hit us as he stroked it into the fairway bunker.  I snapped this picture of Cantlay without any zoom.  I then went and re-watched the shot on TV, and as you can see in the gallery, there is a tall guy with a red hat.  That’s me.

Have a great week!

“My cancer scare changed my life.  I’m grateful for every new, healthy day I have.  It has helped me prioritize my life.”  Olivia Newton John

“Anxiety in a man’s heart weights him down, but a good work makes him glad.”  Proverbs 12:25 (ESV)

SOURCES: 
CAUSE AND EFFECT?:  longtermtrends.net/m2-money-supply-vs-inflation/
THE REAL ECONOMY IN RUSSIA IS REELING: (Sources: cnbc.com/2022/07/14/russians-flee-putins-regime-after-ukraine-war-in-second-wave-of-migration.html AND theovershoot.co/p/the-sanctions-impact-on-russia)
KIDS ARE EXPENSIVE: wsj.com/articles/it-now-costs-300-000-to-raise-a-child-11660864334

(c) 2022 A.D., Stonecrop Wealth Advisors, LLC, 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.