Commentary June 23,2022
Samuel Baynes, CRC®
Principal | Executive Leadership
Worried?
Are you feeling worried about, well, everything?
If so, you are not alone. Sentiment is low to be sure. But take heart, a recession is not inevitable, we think good stuff may be around the corner. As people sometimes say, “It’s always darkest just before the dawn.”
Welcome to the weekly commentary everyone! It is great to be coming to you today from Cincinnati, Ohio. And yes, I was stuck in that air travel mess last weekend getting back from Dallas, but I made it safe...eventually! The weather here today is awesome! By contrast it is 100 degrees in Dallas at this moment. That is a bit toasty folks!
Well, the headline says it all really, everyone is worried about something. “When will the pain end and we can we get back on track?” When will we get back in sync? It feels a bit like the economy, the government, the Fed, and the markets are not in link step. Out of rhythm.
The Fed is behind the inflation curve. The government is trying (I don’t think it will go through) to lower the market price of gasoline by eliminating the federal tax, but this will not help lower inflation, it will ADD to the problem! Even an infinitesimally small decrease in price will only add to demand. We need lower demand to get inflation under sustained control.
The markets are bouncing around, lots of anxiety etc. Are we headed for or in a recession? Too much uncertainty!
Let's all take a deep breath together; we think some good stuff may be on the horizon.
The cure for higher prices is higher prices, and we have higher prices! With the current interest rate situation, assuming a 20% down payment, the monthly payment on a 30-year mortgage is up 45% year over year! Sales are down 8.6% nationally and prices should follow soon.
Gasoline and food are mostly responsible for the uptick in inflation and are at some historic pricing levels.
And yet our economy is still fairly strong. Which is a good situation to be in.
Unemployment remains very low; consumers savings is still high. Corporate profits and earnings while estimated lower than last year are still expected to come in strong. Supplies are increasing. The market clearly wants to go higher and a case for being oversold is evident. The last few days it looks like we may have bottomed out and started up. It may not hold though, we'll see.
One thing must happen before we start a bull market, investor confidence must return. The way we see it there are two paths to this.
- The Fed tightens monetary policy enough to reduce inflation rates and we come in for a hard landing. A short mild recession. A new bull market starts during the recession as investors become more confident. Or...
- Scenario two, inflation rate gets back into a reasonable range sooner than later and we avoid a recession. Soft landing. A new bull market starts as investor confidence returns.
Either way we are in for a new bull market and maybe it has already started. The thing about a recession is that it's hard to actually tell if you're in one in the moment. Its only later after the data come in that we say "oh, we were in a recession". And it can end before you know you're in it. There is so much I could write about all this but it would turn into a book so I will save some for later. I am always available and love to talk so give me a call to discuss further.
Here is the bow on the package.
This must be the most anticipated recession in history. Which leads me to feel like it may not ever materialize?
Inflation will go down and investor confidence will return at some point. (we never lost confidence) A new bull market will start and historically the next 12 months the SP500 averages a return of 28%. Which is no guarantee of course but it adds some perspective. The point is we feel that we will end higher this year than we are now.
Thank you for reading and as always, thank you for your business. If you know someone you think we could help and would be a good fit for our firm a referral is always appreciated.
Stay frosty my friends!
Sam
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Data sources: Baynes Investment Counsel LLC ®, Baynes Investment Counsel LLC Research 2022 ©, First Trust, LPL Financial Research, US Dept. of Labor Statistics, AAM, TSA.gov. FederalResearve.gov. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
