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ALMOST BACK: In May, the U.S. economy added another 390,000 new jobs and the unemployment rate remained 3.6%. 27 months after the COVID lockdowns, the jobs are almost all back (still 0.8 million fewer jobs than pre-pandemic). If you exclude leisure and hospitality, the economy has more than added back all the jobs lost at the beginning of the pandemic. The labor force participation rate ticked up to 62.3% from 62.2%. The April jobs report was a bit better than was being predicted. Of course, that made investors nervous because if things are too good, they worry that the Fed will get too aggressive in tightening monetary policy, and thus the market slipped after this report came out.
(Source: https://www.bls.gov/news.release/empsit.nr0.htm) |
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| U.S. STOCKS RETREAT A BIT IN A SHORT WEEK: If the labor market remains strong, and inflation persists, then the Fed will feel little constraint in raising interest rates. This worries investors, and despite good, fundamental economic news, stocks lost ground. Stock trading has been a bit less volatile in the past couple of weeks, indicating a bit less fear for the moment. |
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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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| FED IS NOT USING “INVESTOR-FRIENDLY” LANGUAGE: During prior rate-hike cycles, such as the early 2000s and the second half of the 2010s, the Fed took great pains to reassure investors that increases would be “measured” or “gradual.” The investor-friendly language has been jettisoned. In hindsight, the Fed should have started tightening the monetary screws with rate hikes last year. It didn’t. It insisted that last year’s rise in inflation was “transitory.” It wasn’t. In response to the sharp rise in inflation, the Fed is being forced to play catch-up. In May, the Fed hiked its key lending rate, the fed funds rate, by 50 basis points (bp, 1 bp = 0.01%) to 0.75% – 1.00%. It was the first 50 bp rise in over 20 years. While 75 bp is off the table, at least for now, the Fed is signaling that another 50 bp rate hike will be delivered in June and again in late July. Recently, Fed Chair Jerome Powell said, “What we need to see is inflation coming down in a clear and convincing way, and we’re going to keep pushing until we see that.” We want a return to price stability. But over the shorter term, an aggressive policy to rein in inflation increases economic uncertainty and angst among investors. While the Fed should take some responsibility for today’s high inflation, we won’t blame it entirely on them. Excessive fiscal stimulus encouraged a consumer-led buying binge (and a fast return to full employment), and supply chain woes that limited the availability of some goods are part of the problem, too. Further, severe labor shortages have lifted wages, and businesses are passing along the higher costs. Market volatility is also being exacerbated by Russia’s invasion of Ukraine, which has pushed up energy prices and appears poised to slow global growth. Recent lockdowns in China have aggravated supply chain issues. Lastly, whether it is warranted or not, odds of a recession have risen, which is adding to uncertainty. |
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| CANADA: Inflation is currently running at 7%. The Bank of Canada just raised its rates by one half of one percentage point, its second consecutive such increase, to 1.5%. |
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| HOUSE PRICES: According to the most recent Case-Shiller report, at the end of last March, house prices were up 20.6% year over year. According to Zillow research, the next report coming out later this month will continue to show prices rising at this elevated level, or even higher. This should begin to moderate soon as inventories are increasing and prices and interest rates will slow activity at some point. |
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| OBSERVING CHINA’S TACTICS UP CLOSE: For quite some time, I have been reading how China is aggressively investing in Africa. When I was just in Uganda, I was able to observe China’s tactics up close. On my first day, a driver was taking me from Entebbe Airport to my hotel in Kampala. We got on a modern road (see below), and the driver, Adam, told me that it was built by China. Ultimately I learned a good deal about the road. It is a toll road built and owned by the Chinese. The Chinese manage it, collect all the proceeds, and keep the profits. Uganda gets a nice road, but China keeps all the future profits. Over and over I heard about other businesses like this. We drove past a large grocery store (most stores selling groceries were local and very small). The Ugandan told me that the store we drove by was owned by Chinese. All the top jobs were held by Chinese. Ugandans only got the low level jobs. A nice restaurant I ate at had a similar structure. China is exploiting economic opportunity, but not investing in a manner that will help Ugandans develop their way out of poverty. China is not the only country that does this, of course, but from my observations, China was the leader in this tactic in Uganda. India does this in Uganda as well. What Uganda and other similarly situated countries desperately need is investment capital that turns into long-term development of locally profitable and job-creating companies. |
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| MEDICARE PART B PREMIUM: Last November, the Medicare Part B premium was raised from $148.50 per month to $170.10, the largest increase in dollar terms ever. The reason was the $56,000 per patient price tag on Aduhelm, an Alzheimer’s drug. The price of Aduhelm has since come down to $28,200. The Centers for Medicare and Medicare Services just announced that it will not reduce the premium mid-year, but it expects to lower the premium in 2023. |
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| SOCIAL SECURITY RUNNING OUT OF MONEY: The Social Security and Medicare Trustees reported last week in their annual report that the Trust Fund will be exhausted by 2035. At that point, the Fund would be able to pay about 80% until 2096 and then lower again to 74%. It said that if the current 12.4% FICA tax were immediately raised to 15.64%, the Trust Fund would last until 2096. Note that the Trust Fund’s assets are largely made up of I.O.U.s from the government that spends the actual FICA taxes on other things, and promises to pay back as needed. Excuse me for being a tad cynical, but based on this report, I’m guessing that Congress will do something in 2034, give or take two or three years. |
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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 to their lowest point since this whole thing began. The last time the seven-day moving average in the U.S. was this low: March 26, 2020. The same is true for worldwide deaths. (World data on bottom graph below).
(Source: worldometers.info/coronavirus) |
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| HOSPITALIZATIONS AND INFECTIONS: The rate of reported infections in the U.S. fell after hitting a peak about two weeks ago. Hospitalizations had been slowly rising again, but that rate has slowed as well (following the slow down of infections that makes sense). (Sources: covid.cdc.gov/covid-data-tracker AND worldometers.info/coronavirus/ AND coronavirus.jhu.edu/data/hospitalization-7-day-trend). |
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| SURREAL: I got back to the U.S. on Monday night. I’m still having a hard time believing that I just spent a week in Uganda. I jumped right back into meetings and phone calls and all the things my “normal” life includes, and I’m just about over the jet lag (first full day was brutal). Indulge me a few more pictures. |
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| On the way to Wobulenzi to see a water well project (life-saving work). |
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| Our last meal in Uganda, outside with a beautiful view of Lake Victoria. |
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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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| “If a man is called to be a streetsweeper, he should sweep streets even as Michelangelo painted, or Beethoven composed music, or Shakespeare wrote poetry. He should sweep streets so well that all the hosts of heaven and earth will pause to say, ‘here lived a great streetsweeper who did his job well.'” Martin Luther King, Jr.
“Whatever your hand finds to do, do it with all your might.” Ecclesiastes 9:10 |
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SOURCES:
MEDICARE PART B PREMIUM: investmentnews.com/hhs-will-not-readjust-medicare-part-b-premiums-this-year
SOCIAL SECURITY RUNNING OUT OF MONEY: investmentnews.com/social-security-report-projects-trust-fund-exhaustion-in-2035
HOUSE PRICES: https://calculatedrisk.substack.com/p/when-will-house-price-growth-slow
CANADA: wsj.com/articles/bank-of-canada-raises-rates-again-and-vows-to-be-forceful-on-inflation-11654093603
FED IS NOT USING “INVESTOR-FRIENDLY” LANGUAGE: wsj.com/articles/transcript-fed-chairman-jerome-powell-at-the-wsj-future-of-everything-festival |
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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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