Half a Percent, Sanctions, and Friend Inventories


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April 24, 2022

HALF OF A PERCENTAGE POINT: Last week, Federal Reserve Chair Jerome Powell indicated more clearly that the central bank will raise its key interest rate by a half a percentage point, not a quarter, at the May meeting. An increase was already expected, the first back-to-back rate increases since 2006. Powell’s comments make it pretty clear that recent events and inflation data are pushing the Federal Reserve to be more decisive with rates and tightening monetary policy by shrinking its bond portfolio. “It is appropriate in my view to be moving a little more quickly,” said Powell last week.

INFLATION PEAKING?: Treasury Secretary Janet Yellen said last week that inflation may have peaked, but that it will stay elevated “for a while longer.” As you can see in the graph below, inflation really picked up in March of last year after about six earlier months of pretty muted inflation numbers. For the past few months, a low inflation month (in the 12 month calculation) has been falling off and being replaced by a bigger inflation month. Now each month a large inflation month will come off the 12-month calculation so she may be right that the 12-month inflation number may peak soon, but it still could take months. Inflation data over the next six months is likely to paint a confusing picture before it settles into a coherent trend.

FRIDAY SWOON CAUSES ANOTHER NEGATIVE WEEK FOR STOCKS: Stock prices sank again on Friday causing another decisively negative week for stocks. Corporate earnings reports have largely been a bright spot. 80% of earnings reports of S&P 500 companies have exceeded consensus expectations. However, the Federal Reserve’s intentions to raise rates more decisively due to persistent inflation is dampening investor enthusiasm at the moment.

WARREN BUFFETT IS BUYING: Warren Buffett’s Berkshire Hathaway has been sitting on a lot of deployable cash for years. The common theory is that he and his team felt that with stocks at record highs, they could not find deals they liked. Now Berkshire Hathaway is buying. In the past month, it has made a string of large purchases or announced purchases in companies such as Hewlett Packard, Occidental Petroleum, and Alleghany Corporation

RIA OR BROKER/DEALER?: Stonecrop Wealth Advisors is a Registered Investment Advisor (RIA). We are not a Broker-Dealer, and we are not a hybrid RIA/Broker-Dealer. A good and short explanation of these terms is provided by Investopedias site, including a 90 second video. It can be confusing, but the more you know about the differences, the better you will be at determining what kind of advisor you feel is right for you.

HOUSING MARKET COOLS: For the second straight month, sales of existing homes in the U.S. decreased. In March, sales were 2.7% less than February, and 4.5% less than March of 2021. Inventory has been at record lows, but increased by 11.8% from February. March’s inventory is still 9.5% less than a year ago. Typically, January and February are the lowest sales months of the year, while sales usually pick up in March. Meanwhile, prices stay elevated. The median price for an existing home in March was $375,300, up 15% from a year ago. The average rate for a 30-year mortgage in March was 4.2%, but those rates are now around 5.35%.

NORMAL YET?: Currently, total travel, as measured by the TSA, is about 9.5% lower than the same period in 2019. Movie ticket sales are down about 15% from the same time in 2019. Hotel occupancy is off by 4.7%.
(Source: calculatedriskblog.com/2022/04/four-high-frequency-indicators-for.html)

ARE SANCTIONS WORKING?: The U.S. and other democracies imposed sanctions on Russia to limit Russia’s ability to pay for the war. (See Janet Yellen’s statements of 3/1/2022). One hope was that it would trigger hyperinflation and a run on the banks. That did not happen. Higher prices for oil, which Russia is still selling, and strict controls on how much Russians can take out of bank accounts have kept the ruble stable and inflation low and the banks in decent condition, although more time could alter that. But, Russia, as recently as 2018, could only support 45% of its own military-related equipment and services domestically, while 35% came from countries now aggressively blockading Russian access to parts and components needed for war making. While Russia is a big arms exporter (especially to India), its defense industry is vulnerable because of its need of imports. Russia’s attempt to rebuild its navy, beginning in 2010, was dependent on cooperation from countries such as Germany (diesel engines), Ukraine (gas turbines), and France (whole ships) and others. These imports were cut off in 2014 after Russia’s first attack of Ukraine, and Russia has been scrambling to upgrade via other means, and falling behind. Ukraine forces recently sank Russia’s flagship of its Black Sea fleet. That ship was commissioned in 1983 and will not be easily replaced. There is some evidence that the sanctions are working in this regard. There have been reports that Russia’s only tank factory had to shut down for lack of parts and that surface-to-air missile production has stopped. Is China filling the gap? If they could, it seems they are not as data is indicating that Chinese exports to Russia have been falling sharply since the war began (perhaps due to fear by Chinese companies of getting caught in the web of sanctions). Wars end when one side loses the capacity to keep fighting. Let’s hope Russia loses their capacity, and this horror ends.

CONTINUING TO WATCH THE DATA: The number of people dying in the U.S. and in the world who are COVID positive continues to plunge. U.S. deaths dropped another 22%! World deaths were also down by 22%. (World data on bottom graph below).
(Source: worldometers.info/coronavirus)

HOSPITALIZATIONS: The number of patients in U.S. hospitals who are COVID positive continued to drop last week. The CDC reported 9,480 total people in hospitals in the U.S. who are COVID positive on April 20, the lowest ever. The amount of people in ICU beds in the U.S. who are COVID positive dropped again last week, according to Johns Hopkins, to 1,912 (down from 1,976 the week before), another record low. (Sources: covid.cdc.gov/covid-data-tracker AND worldometers.info/coronavirus/ AND coronavirus.jhu.edu/data/hospitalization-7-day-trend).

AN INVENTORY OF FRIENDS: We are coming out of one of the most relationship-challenging stretches we have seen as an American society. Many of our relationship-building and relationship-maintaining activities abruptly ended, or were majorly disrupted. Many of these will never be “normal” again. Are there people you used to see regularly that you are just now seeing again, or have not yet seen? An article in the Wall Street Journal last week suggested that it is a good time to take an inventory of your friends to see if it needs some help. According to research cited in the article, we all have the capacity to maintain about 15 core friendships, including “five or so intimate ones.” The best friends they refer to as the ones you can call in the middle of the night. As morbid as this sounds, I sometimes ponder if something bad happened to me, or if something bad happened to my wife, who would be the first person at our doorstep to offer help or comfort? We also need friends in the different areas of our life. We need work friends with whom we can process work issues. We need neighbor friends who help us build a sense of community. We need friends who share our hobbies and interests. I also think it is important to foster relationships with people both older and younger than ourselves, those who stretch us, and those whom we can in some sense mentor. I believe we need friends who perhaps do nothing more than encourage us. Don’t underestimate the power of laughter. I NEED friends who make me laugh (or at least smirk as I’m not a big laugher). Find positive people, especially if you are that kind of friend who is a really good listener who often ends up hearing people vent about their problems. Find people who will uplift you too. This article suggests that you ask yourself some questions. When do you feel most lonely? What parts of your life have fallen off (e.g., you stopped playing tennis or skiing because you don’t have a partner)? Find the support you need. Rekindling relationships is easier than finding new ones, so start there, but find new ones too.

LESS THAN IDEAL CONDITIONS: My sons and I, along with a good friend of mine, went golfing on Saturday at a course with less than ideal conditions. We still had a great time. Is Logan really trying to rake that “sand” trap?

Have a great week!

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. ®
Stonecrop Wealth Advisors, LLC

Direct | Cell | Fax
(610) 628 4545

“Fight for the things that you care about, but do it in a way that will lead others to join you.” Ruth Bader Ginsburg

“For all can see that the wise die, that the foolish and the senseless also perish, leaving their wealth to others.” Psalm 49:10 (NIV)

HALF OF A PERCENTAGE POINT: wsj.com/articles/feds-powell-could-seal-expectations-of-half-point-rate-rise-in-may
ARE SANCTIONS WORKING?: theovershoot.co/p/the-sanctions-are-already-working
HOUSING MARKET COOLS: nar.realtor/newsroom/existing-home-sales-slip-2-7-in-march AND calculatedriskblog.com
INFLATION PEAKING?: https://www.reuters.com/business/finance/yellen-says-us-economy-being-resilient-no-recession-sight-2022-04-22/
WARREN BUFFETT IS BUYING: cnn.com/2022/04/07/investing/premarket-stocks-trading/index.html
RIA OR BROKER/DEALER? https://www.investopedia.com/articles/active-trading/100915/rias-and-independent-brokerdealers-comparison.asp

(c) 2022 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.

Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.




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