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| ALL EYES ON INFLATION: The Consumer Price Index moved up a full 1.0% in the Month of May after rising only 0.3% in April. This leads to an annual rise of 8.6%, the largest 12-month increase since December 1981. Of course gasoline (4.1%) fuel oil (16.9%) and piped gas (8.0%) led the way. Food was up 1.2%. Disruptions in the world’s supplies of food, energy and industrial commodities due to the ongoing war in Ukraine shows no signs of easing and will continue to exacerbate the inflationary period we were already experiencing. There are some mildly encouraging signs in the monthly data. Prices of many manufactured goods that had surged earlier in the pandemic and reopening have either stopped rising or have started going down. The price for major appliances dropped 2% in May. Prices for sporting goods dropped slightly and have been flat all year. Information technology commodities, which jumped last year due to the microprocessor shortage, fell by 2% for the second straight month. China’s lockdowns are easing, but we could still get some blowback from that. Costs for line workers at restaurants look to be leveling off. Domestic services costs rose at a 30% rate in the first half of 2021. These costs have been flat since January. Much of the supply chain issues that started this whole inflation mess, along with the huge amount of available money to chase fewer goods, seems to be settling down. Now, the energy sector, which affects all sectors, needs a solution. There seems no real likelihood of a supply answer to the problem any time soon, so prices will have to rise to the level needed to lower demand and we don’t know what that level is yet. And demand is not likely to decrease in the summer. |
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| …AND THEN CAME THE INFLATION NEWS: The inflation report was too much of a surprise to the high side, and the stock markets that had been bouncing around without a trend dropped suddenly and decisively on Friday. Investors wondered whether the Fed will have to take more drastic action. This caused bonds to decrease in value as well. Any hopes that the easing supply chain would help yank inflation down this month were dashed. All we had to do was look at the one price we all see every day as we drive, gasoline, and we knew the monthly inflation number was likely to be ugly. The Fed meets next week and until Friday, almost everyone expected the Fed to raise its benchmark rate by one half of one percent. Will they now raise it 0.75% instead? Many now think so. |
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| LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices. |
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SUPPLY CHAIN MANAGEMENT IS CHANGING: For years, “just in time” inventory and globally-stretched supply chains were in vogue. This is all changing. Volkswagen had to idle plants when Chinese-supplied components were suddenly missing. VW produced 18% fewer vehicles in 2020. Then came the semiconductor crisis and VW had to slash production again. In February, wiring harnesses used to organize cables in its cars became scarce as they were supplied out of Ukraine. Once again, production had to be idled. VW, along with many manufacturers, had said that it can no longer rely solely on obtaining the cheapest parts. Uninterrupted delivery is taking priority over price. VW is replacing its Ukraine supplier with new sources in Poland, Romania and Tunisia. To reduce its dependence on China, VW announced it is investing $7 billion in the U.S. over the next five years mainly in developing electric vehicles. They are looking for a location to build a battery plant in the U.S.
(Source: wsj.com/articles/volkswagen-prepares-for-a-deglobalized-world-11648373580) |
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| DOLLAR COST AVERAGING: Stock and bond prices move all the time. When is the right “time” to buy? Should you hold your money in cash until we hit bottom? If you are investing in a 401k or a 403b plan, or on your own you are investing every month, you are “dollar cost averaging.” This means you are investing a fixed dollar amount on the belief that the average value of the investment over time will rise. This strategy takes the emotion out of investing. By buying the same dollar amount, you buy fewer shares when prices are high and more when prices are low. So, if you are in the stage of life where the majority of the money on which you will retire is still yet to be saved, don’t fret about the current market. Keep working. Keep participating in the 401k or other periodic investment. |
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| IRS RESPONDS TO HIGHER GASOLINE COSTS: The Internal Revenue Service raised the mileage rate for calculating business tax deductions for vehicle use, making a rare mid-year change. The new rate for the final six months of 2022 is now 62.5 cents per mile, up from 58.5 cents. It was 56 cents last year. The rate for moving costs and medical expenses increased to 22 cents from 18 cents a mile. Mileage rates for charitable driving remained 14 cents a mile. |
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| MORTGAGE RATES RISE AGAIN: Late in the week, mortgage rates jumped with the average for a 30-year mortgage increasing to 5.85%. It is likely that we are getting to a peak in these rates, but they could go as high as the low 6% range. When you add the increased mortgage rates and the rise in housing prices, the monthly cost for owning the same home year over year has gone up by roughly 50%. |
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| RENEWED AGAIN: I have now been a holder of the Certified Financial Planner® designation for decades. We have to meet certain requirements to continue to hold this designation, including hours of continuing education. I just got my renewal for another year. |
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CONTINUING TO WATCH THE DATA: The number of people dying in the U.S. and in the world who are COVID positive continues to decrease. U.S. deaths dropped another 11%. Worldwide deaths decreased another 4%. (World data on bottom graph below).
(Source: worldometers.info/coronavirus) |
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| HOSPITALIZATIONS AND INFECTIONS: The rate of reported infections and hospitalizations in the U.S. did not make any decisive moves in either direction this past week, hovering in the same range. (Sources: covid.cdc.gov/covid-data-tracker AND worldometers.info/coronavirus/ AND coronavirus.jhu.edu/data/hospitalization-7-day-trend). |
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| “HOW DO YOU WANT TO LEAVE A MARK ON LIFE?”: Whenever we meet with a potential new client and go through our first meeting, some time toward the end of the conversation we ask this question. Earlier in my career, I just tried to learn the answer to this question by getting to know the client well. The last thing we want to do is help a client manage their financial resources in a manner that is not congruent with the answer to that question. But….it is a hard question for most to answer. Our culture has so conditioned us to scratch the surface without thinking deeply. “Short attention span.” Marketing people tell me to keep this email short and pithy, or no one will read it. The presentation of news we receive is either in 30 second to 3 minute soundbites or a maximum of 280 characters. People love stories titled “the five things about….” or “the ten top….” We can ultimately fill our lives so full of short attention span distraction that we never think deeply or critically. Without doing so, it is actually difficult to answer that question. It is possible, as never before in history, to go through a whole day receiving input (TV, radio, podcast, YouTube videos, Echo, laptops, tablets). There is always something on that is taking our attention, not allowing us to think deeply or even daydream. And most of the input is negative and has an agenda! When was the last time you had more than five minutes to wrestle with a thought? |
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| TRAVEL: Is it just me, or is everyone on social media traveling right now? Or is it just the travelers who are posting? Italy, England, Dominican Republic, all areas of the U.S. With travel costs going up, many people seem to be getting in planes and/or hitting the road. |
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Our mission is to help you see the objective, find the path, and navigate past the obstacles to a more prosperous future.
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Douglas R. MacGray, J.D., C.F.P. ®
President
Stonecrop Wealth Advisors, LLC
Direct | Cell | Fax
(610) 628 4545
dmacgray@stonecropadvisors.com |
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| “No one sighs regretfully on his deathbed and says, ‘I can’t believe I wasted all that time with my wife and kids,’ ‘volunteering at the soup kitchen,’ or ‘growing in my spirituality.’ No one ever says, ‘I should have spent more time watching TV and playing Angry Birds on my phone.’ Arthur C. Brooks
“It is appropriate for a person to eat, to drink and to find satisfaction in their toilsome labor under the sun during the few days of life God has given them.” Ecclesiastes 5:18 |
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SOURCES:
ALL EYES ON INFLATION: bls.gov/news.release/cpi.nr0.htm AND theovershoot.co/p/us-inflation-in-may-more-mixed-news?s=r
MORTGAGE RATES RISE AGAIN: calculatedrisk.substack.com/p/30-year-mortgage-rates-increase-to?s=r
IRS RESPONDS TO HIGHER GASOLINE COSTS: wsj.com/articles/irs-raises-mileage-rates-as-gas-prices-increase-11654805222
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| (c) 2022 Stonecrop Wealth Advisors, LLC, All Rights Reserved |
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*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. |
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