|
|
|
|
| ChFC®: Congratulations to our Financial Planning Director, Cassie Queen, who has successfully completed all the requirements necessary to being certified as a Chartered Financial Consultant®! This is a professional designation that requires in depth knowledge of the essentials of financial planning, including insurance, income taxation, retirement planning, investments, and estate planning. Cassie and I have been working together now for about a dozen years, and she is a highly dedicated and competent financial planner. But what most impresses me about Cassie is her authentic joy in helping clients improve their lives. (For more information on this designation, click here.) |
|
WHEN THE FED MAKES PREDICTIONS, REMEMBER PAST PREDICTIONS: The Federal Reserve Bank in the U.S. has access to an incredible amount of valuable data and some of the smartest people on the planet. And yet, they keep forecasting wrong. I don’t think that means they are incompetent. It illustrates the precariousness of all economic and market prognostications.
- In September 2020, the Fed stated that the downturn would be extremely deep and the recovery relatively modest. They predicted that the jobless rate would remain above pre-pandemic levels until at least 2024, and in 2022 the economy would produce 2.5% less goods and services than pre-pandemic.
- In June 2021, the Fed predicted that the economy would be producing 3% more goods and services by the end of 2023 compared to pre-pandemic, but inflationary pressure would not remain high because joblessness would come down gradually, and thus interest rates should not start rising until 2023.
After being wrong twice, what is their current prediction?
- The American economy will produce 3% less in 2023 compared to pre-pandemic and remain worse off in the years after 2023.
Are they wrong again? |
|
| THE FED RAISES ITS KEY RATE ONCE AGAIN: At its September meeting, the Fed raised the fed funds rate to 3.25%. Most prognosticators expect this to be raised to 4.00% by the end of the year (they have two more meetings, so it could go even higher before year-end). Some are suggesting they may go as high at 5% in the first half of 2023. As you can see in the chart below, the Fed has not tightened monetary policy, it has just taken away all the emergency support put in place during the pandemic and raised it to where it might have ended up had we not experienced a pandemic. Where will interest rates end up? At this point, it is mostly dependent on the data on inflation. But it seems clear that the Fed wants to project pessimism, and thus its commitment to slow inflation, until inflation is trending in the right direction. |
|
| END OF A BAD MONTH AND QUARTER: Stocks ended the week, month and quarter on Friday with another decline as the persistent theme of inflation continues to dominate. We have just experienced the worst nine months in a calendar year for the S&P 500 since 2002. It is at its lowest level since 2020. Yields on government bonds rose yet again, and that caused overall bond prices to decline yet again. Remember this inflation theme. It is overshadowing all other economic news right now. But keep in mind that as soon as investors were feeling a just a little bit positive about inflation, the market rallied, quickly and substantially, in the summer months. This is a market that is whipsawing investors in both directions, and so it is an especially poor occasion to try to time the markets. Once investors feel the full extent of the economic damage of inflation is priced in, the market is likely to bottom out, and jump ahead on any good news. That could take days, weeks, months, or even a year or two. But if the Fed with all its brilliance keeps getting it wrong, be careful if you believe you can outsmart this market. |
|
| LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices. |
|
| THE DIRECTION OF HOUSING PRICES: Housing prices have risen dramatically due to overall demographic conditions, record low housing inventory, and a pick up in demand after the pandemic. Now, inflation has hit the broader economy, interest rates have risen quickly, and inventory is beginning to rise. Intuitively one would think that prices will stop going up. Some are now predicting they will actually decrease. Goldman Sachs is now predicting that housing prices will decrease by 5-10% in the coming year. At the very least, I think it is a reasonable conclusion that housing prices have likely peaked. |
|
| U.S. SPENDING INCREASED IN AUGUST: Consumer spending in August increased by 0.4% after decreasing by 0.2% in July. Despite inflation, households in the U.S. have continued to maintain their spending power in a slowing economy that still has a very tight labor market. The strong labor market is giving, and inflation is taking away. But so far spending continues. Personal savings rates in the U.S. averaged 3.5% in August for the second month in a row which is up from 3% in June, but far lower than the 9.5% of a year ago. |
|
THE U.S. LABOR MARKET REMAINS TIGHT: Only 193,000 Americans filed for initial unemployment claims last week, a decrease of 16,000 from the prior week. The four-week moving average dipped to 207,000. Those are very strong, healthy numbers.
(Source: dol.gov/ui/data.pdf) |
|
| HOTELS DOING JUST FINE: Last week, hotel occupancy was only 1.5% less than during the same week in 2019. |
|
| LUCKY GOLFER: I was able to golf at a club I have never been to the week before last. It was a beautiful course with some very challenging holes. I got quite lucky on two par 3 holes. On this first one below, there was a small 10-foot-wide strip of water in front of the hole and a small rock wall. I hit the ball with not enough loft, and it headed right for the small strip of water. The caddie yelled “skip!” to encourage the ball out of the water. Sure enough, it hit the water, skipped over the rock wall, and onto the green. (You can barely make out my ball on the left side of the green below). My two other golfing companions hit theirs in the water. |
|
| On another par three, the green was almost totally surrounded by water. I hit a nice, high arcing shot that landed on the backside of the green. It bounced and rolled out of sight. I turned to my caddie and asked if I was safe. “No,” he said. “You’re in the water.” Ever the optimist, I grabbed my pitching wedge and walked to where I hit my ball. Once again, I was on land, barely. |
|
| Finally, thank you for all the outpouring of support following the death of my father-in-law. We have been celebrating his long and fruitful life, and supporting my mother-in-law, his wife of 67 years, as she adjusts to her new reality. |
|
|
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. ®
President
Stonecrop Wealth Advisors, LLC
Direct | Cell | Fax
(610) 628 4545
dmacgray@stonecropadvisors.com |
|
|
| “Gratitude, warm, sincere, intense, when it takes possession of the bosom, fills the soul to overflowing and scarce leaves room for any other sentiment or thought.” John Quincy Adams
“No one should seek their own good, but the good of others.” I Corinthians 10:24 |
|
SOURCES:
WHEN THE FED MAKES PREDICTIONS, REMEMBER PAST PREDICTIONS: theovershoot.co/p/the-fed-tries-to-get-out-in-front
END OF A BAD MONTH AND QUARTER: wsj.com/articles/global-stocks-markets-dow-update-09-30-2022-11664535090?mod=hp_lead_pos3
THE DIRECTION OF HOUSING PRICES: calculatedrisk.substack.com/p/goldman-sees-us-house-prices-falling
U.S. SPENDING INCREASED IN AUGUST: bea.gov/news/2022/personal-income-and-outlays-august-2022-and-annual-update AND wsj.com/articles/inflation-consumer-spending-personal-income-august-2022-11664484435
|
|
| (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. |
|
|
|
|
|
|
|
