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THE DESTRUCTION CONTINUES: War continues to rage. Horrible destruction of livelihoods and lives is occurring daily, and we see it as the headline story each day. The initial shock has abated, but the suffering caused by this event is heartbreaking. It has and will continue to have negative impact all over the world as supply chains of very necessary items (e.g. oil and wheat) are disrupted acutely in the short term with probable negative effects for years to come. How long does it take to get farms back in production when landmines have been used in war? How long does it take to rebuild infrastructure needed for production and import. Will it ever get back to where it was? The war must end before we can answer those questions, and like almost every other war, it is lasting longer than the aggressor thought it would.
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| “I wish that I knew what I know now when I was younger.” Faces, Ooh La La
THE FED: This song may have been running through the mind of Jerome Powell (Chairman of the Federal Reserve Bank) this past week as he remarked that knowing what he knows now, he wishes that the Fed stopped buying bonds earlier and started raising interest rates sooner. Said Mr. Powell, “take a look at today’s labor market, what you have is 1.7 plus job openings for every unemployed person. So that’s a very, very tight labor market, tight to an unhealthy level….” The Fed is concerned about unacceptably rapid wage increases spiraling inflation further. The Fed is expressing optimism about where the U.S. economy sits. Advances and innovations developed during 2020 combined with a massive improvement to household balance sheets caused by federal grant programs provide a foundation for a richer and more productive America than would have otherwise been the case, in the Fed’s view. The Fed wants to get inflation down, but the old 2% target is for the future, probably 2025 or so. Until then, higher prices to the tune of a 4-6% rate for a bit may be the price we pay for COVID and the war. If the Fed was bent on getting us back to 2% sooner, it would have to raise rates faster, but it seems content to let inflation run through the economy and gradually move it back down so we do not sacrifice economic growth and stable employment. |
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| RUSSIA’S WHEAT SQUEEZE: Worldwide farmers produced 776 megatons of wheat in the last year. 85 of those megatons, or about 11%, were produced in Russia. Ukraine produced another 3%. What amplifies the importance of this production is that both countries consume well under half of what they produce, with the surplus generally being exported to the Middle East and North Africa, two areas conveniently close to the wheat fertile region of Russia and Ukraine. Most of the shipments come from ports in the Black Sea. Fortunately, most of last season’s wheat has been shipped, so the disruption has not caused an acute shortage yet. The acute problem would occur if the upcoming wheat season is disrupted. The harvests around the Black Sea typically start in July and runs for only a month or two. Will the fighting be over? Will farmers have the equipment and labor they need. Will shipping routes be open. Will the crops have survived? Then the following planting season occurs, and will that recover? Ukraine’s fields are going to be highly questionable, but Russia is likely to suffer too because they rely on equipment from Caterpillar, John Deere and Komatsu, all of which have pulled out of Russia. The rest of the world does have the capacity to fill the wheat gap. The U.S. may need to shift some corn and soybean production to wheat. Corn’s rise comes largely from demand for ethanol. Soybean growth has been largely driven by demand from China which uses them in their huge pig farm industry. |
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| STOCK BOUNCE BACK: Evidently stock investors decided that prices had gone low enough to jump back in. U.S. stock indices had their best week in well over a year. Oil prices came down from the high of $130 and settled at below $110, which encouraged investors. The Federal Reserve raised its key interest rate by 0.25% and signaled that it would do the same six more times this year, a sign of confidence that the economy remains on solid footing. It also helps that the Fed is doing something to attempt to tame inflation. Somehow Russia avoided default by making its coupon payments on its dollar-denominated sovereign bonds on Thursday, avoiding what would have been a negative shock to the market. |
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| COMPANIES BUYING THEIR OWN STOCK: When companies buy their own stock, it is considered a positive sign. If companies are using excess cash to buy their own company, it is perceived as a sign of confidence in their own stock price and its potential for growth. U.S. companies are currently purchasing their own shares at a record pace. So far this year, S&P 500 companies have outlined plans to buy back shares valued at $238 billion, the most ever at this point in a year. The negative to this activity is that it diverts money away from research and development, capital expenditures and wages. The temptation is to create some short-term gain in share value at the price of long term growth opportunities. |
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CONSUMERS GETTING OUT: Spending at restaurants and bars was up 2.5% in February, the biggest jump since May of 2021. In general, retail sales were up 0.3%, but if you took out autos and gasoline, retail sales were actually down 0.4% in February. This all comes after a very strong January (5.2% rise). Inflation may be making consumers more cautious about spending, but if you put January and February together, consumers are spending at a very healthy rate, a certainly high enough to boost economic growth.
(Source: https://www.census.gov/retail/marts/www/marts_current.pdf AND wsj.com/articles/us-economy-february-2022-retail-sales) |
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SALES OF EXISTING U.S. HOMES DECREASES: In February, sales of existing homes were 7.2% less than January. Compared to February of 2021, sales were down 2.4%. Interest rates have moved up and inventory remains historically low. Inventory ticked up by 20,000 homes to 870,000, but that is the normal pattern after the December/January seasonal lows. Inventory is 15.5% less than a year ago.
(Source: nar.realtor/newsroom/existing-home-sales-fade-7-2-in-february) |
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| CONTINUING TO WATCH THE DATA: The amount of people dying in the U.S. who are COVID positive continues to plunge, down another 24% last week and well below the 1,000 mark for the first time since August 2021. Global deaths are following the same trend, down 17% last week. (Bottom graph below). (Source: worldometers.info/coronavirus) |
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| HOSPITALIZATIONS AND GLOBAL INFECTIONS: The number of patients in U.S. hospitals who are COVID positive dropped another 27.7% last week (see graph below). U.S. infections have gone from about 800,000 per day in mid-January to less than 30,000 currently, and continuing to fall. Worldwide, South Korea’s infection rate has skyrocketed showing that this omicron virus seems to do as it pleases until it has infected so many people in a population that it runs out of victims. This has caused the worldwide infection rate to pause from its downward plunge. China appears to be experiencing an omicron outbreak as well, but it does not publish its data. (Sources: covid.cdc.gov/covid-data-tracker AND worldometers.info/coronavirus/). |
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| APOLOGIES: Last week, I discussed our “return on life” assessment that is found on our webpage, and I included a link. The link did not work. Here is a link that will actually work! Click Here. |
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| WE SEE IT ALL: We see the good, the bad and the ugly here at Stonecrop. Any good business that does financial planning will get to know its clients personally. Over the years we have seen lots of joyous situations and life transitions and celebrated with clients as their lives prosper. Unfortunately, this is also real life, and we see the tragedy of death, disease, family dysfunction, and various casualties. What is inspiring is when we get to observe a client face the negatives with determination to not be defeated and stay positive and grateful. I got the chance to do that this week as I talked to a client going through a long, hard slog that will likely (but of course not with complete certainty) end with having the status of being all healed. He was as upbeat and affable as ever, even joking about part of what he is going through. I have learned something from observing (too many) difficult, unplanned life transitions such as this one. You have to possess a strong inner strength and character prior to experiencing such an event if you are going to walk through a time like this with any semblance of joy, fortitude and gratitude. I have seen that again this past week (and many other times), and it is truly inspiring and encouraging. I am grateful for that. |
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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
225 Wilmington-West Chester Pike; Suite 200
Chadds Ford, PA 19317
Direct | Cell | Fax
(610) 628 4545
dmacgray@stonecropadvisors.com |
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| “The ideals which have lighted my way, and time after time have given me new courage to face life cheerfully, have been Kindness, Beauty, and Truth.” Albert Einstein
“So in everything, do to others what you would have them do to you.” Matthew 7:12 (NIV) |
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SOURCES:
COMPANIES BUYING THEIR OWN STOCK: wsj.com/articles/stock-buybacks-are-on-course-for-another-record
RUSSIA’S WHEAT SQUEEZE: theovershoot.co/p/russias-attack-on-the-worlds-food
THE FED: federalreserve.gov/mediacenter/files/FOMCpresconf20220316.pdf AND theovershoot.co/p/the-fed-is-still-waiting-for-supply |
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| (c) 2022 Douglas R. MacGray, 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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