|
|
|
|
| THE FED: This quote from Fed Chair Jerome Powell tells you all you need to know when trying to predict what the Fed will do next:
It is the Fed’s job to bring inflation down to our 2 percent goal, and we will do so. We have tightened policy significantly over the past year. Although inflation has moved down from its peak—a welcome development—it remains too high. We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.
It all depends on the direction of the economy. |
|
| STOCKS EKE OUT A GAIN: On balance, investors seemed to like a speech by Fed Chairman Powell and stocks edged higher, giving the S&P 500 a positive week after three straight decreases. High interest rates, and data showing its effects on the housing market and consumer spending have caused investors’ concern, hence the stock market’s recent stall. Last week, Macy’s and Dick’s Sporting Good both saw their stock prices decline after giving reports indicating declining revenue and decreased profit targets. On the other hand, Nvidia has been surging due to record sales in its artificial intelligence business. |
|
| LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices. |
|
| HOW IS THE U.S. CONSUMER DOING?: We consumers are a major driver of the economy. Are we able to keep it moving? There has been a lot of chatter lately about the depleted, cumulative savings. What are they talking about? When COVID hit, Americans saved like crazy. We were not traveling or going out to eat. We were getting all sorts of new government benefits. The total cumulative excess savings peaked at about $2 trillion. Our spending down of that money has been pushing the economy along, but now that money is gone. The estimated excess $2 trillion has all been spent. So where does that leave the consumer? Total U.S. liquidity, meaning cash and checkable deposits, is still near an all-time high even though the COVID handouts are gone. That excess liquidity, at the current rate of spending, is estimated by JP Morgan to last until at least mid-2024. Delinquency rates on credit cards are back to pre-COVID levels. Household debt service ratios and debt as a percentage of disposable income are both at pre-COVID levels. We still have some dry powder, but we are spending faster than we are saving at the moment. |
|
| MORTGAGE RATES SOAR AGAIN: Last week, mortgage rates hit 7.23%, the highest since 2001, up from 7.09% one week ago. Applications for purchase mortgages dropped to their lowest level since 1995 according to the Mortgage Bankers Association. Right now, the average rate of interest being paid by homeowners on their mortgage is 3.6%, while the rate for new homebuyers is more than double. |
|
| THAT LAST TIME WE HAD OUTSIZED INFLATION, WE HAD DEMOGRAPHICS ON OUR SIDE: We keep referring back to the 1970s and the 1980s when we last had inflation anything like we’ve seen in the past few years. Experts always try to draw us back to comparable situations to see how things might turn out this time. It might be worthwhile to explore how that last time was different. Fifty years ago, inflation was a big problem. At the same time the baby boomers were entering the workforce and having kids. Populations in other developed countries were still growing. Population was soaring in less-developed countries. A birth rate greater than 2.1 implies a growing population. This means that every woman has an average of 2.1 children, replacing herself, her partner, and accounting for child mortality. Worldwide fertility rates were 4.5 in the early 70s. It is 2.3 today. China’s rate dropped dramatically with its one-child policy that lasted until 2016. But as economies across the globe modernized with less dependence on sustenance-related agriculture, the need for large families decreased, and the economics actually encouraged smaller families. Birth control became more widely available. At the same time, life expectancy has increased, from 62 in 1980 to 74 in 2019. COVID reduced life expectancy by three years, but we will see if that continues. There is a site that has created population pyramids for the world and the various regions and countries of the world. The distribution of age groups is telling. Africa is incredibly young, and India also bulges at the younger end of the spectrum. Overall, the economies that the world currently relies on are going to be challenged by demographics, and these demographics will likely trend inflation down. |
|
| It is amazing how many more people there are in Africa, India, and China compared to the U.S. and Western Europe. It’s not close. Keep in mind that those between 35-55 are widely recognized as the most productive members of the labor force. To maximize economic productivity, you need this age group to make up the lion’s share of the labor force. An economy with a workforce increasingly dependent on older citizens will have a harder time generating GDP growth compared to a younger and more dynamic work force, all things being equal. Overall, it is likely that countries are going to have to increase the retirement age (or the age when retirement benefits begin) and perhaps means test the pool or retirees so the benefits only go to those who need it. These are controversial, but demographics are stressing these systems. |
|
| BRICS IS EXPANDING: In related news, the BRICS countries held a conference this past week. BRICS stands for the emerging economies of Brazil, Russia, India, China and South Africa. This coalition is now expanding. Twenty three counties sought to join, and it appears that six countries will get invited, Argentina, Egypt, Ethiopia, Saudi Arabia and the United Arab Emirates. This coalition will now represent about 46% of the world’s population and 37% of the world’s GDP. This is a group that is still trying to figure out what they are, and these countries have a lot of stark differences among them. But they are pledging for mutual development, multilateralism, global governance reform, and solidarity. Essentially, they are pledging to work together to create more sustainable growth for the less-developed economies. This has obvious ramification for the U.S., Europe and Japan and other developed economies, and this movement is worth watching. |
|
| GO ROSE!: I have the distinct pleasure of being able to do consulting work with some young entrepreneurs in Africa. One, Rose, is from Kenya where she works as a financial and retirement planner. She just finished her second book! Her first was a holistic retirement planning book, and this one is called Before You Earn Your First Income, to help younger people start off with good financial habits for long-term prosperity. I am so excited for this book launch and what it is going to do for Rose’s career and for the people of Kenya! |
|
|
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 |
|
|
|
“Even darkness must pass. A new day will come. And when the sun shines it will shine out the clearer. Those were the stories that stayed with you. That meant something, even if you were too small to understand why. But I think, Mr. Frodo, I do understand. I know now. Folk in those stories had lots of chances of turning back, only they didn’t. They kept going, because they were holding on to something. That there is some good in this world, and it’s worth fighting for.” Samwise Gamgee, The Lord of the Rings
“Victory is won through many advisors.” Proverbs 11:14 |
|
SOURCES:
THAT LAST TIME WE HAD OUTSIZED INFLATION, WE HAD DEMOGRAPHICS ON OUR SIDE: Agincourt, August 2023 Investment Update AND PopulatonPyramid.net
THE FED: https://www.federalreserve.gov/newsevents/speech/powell20230825a.htm
MORTGAGE RATES SOAR AGAIN: https://www.wsj.com/economy/housing/mortgage-rates-hit-7-23-percent-72688ccd?mod=economy_lead_pos2 AND
https://grits-newsletter-78396b.beehiiv.com/p/stocks-like-rising-yields-wait
HOW IS THE U.S. CONSUMER DOING?: https://grits-newsletter-78396b.beehiiv.com/p/reverse-clickbait
BRICS IS EXPANDING: https://grits-newsletter-78396b.beehiiv.com/p/investors-retreat-ahead-jackson-hole |
|
| (c) 2023 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 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.
SDG
|
|
|
|
|
|
|
|
