This past year has been an extremely difficult year for stocks and financial instruments in general. The Federal Reserve has been aggressively raising short-term interest rates to try to slow economic growth and contain inflation. Although the 12 month annual inflation rate remains relatively high, the last six months of monthly inflation rates when annualized are very near the Fed’s target range. Also recently, economic growth has slowed significantly as consumers have curtailed their previous aggressive spending. Surprisingly, job creation continues at a modest pace while unemployment has barely budged from its historic lows.Continue reading Year End Summary 2022 – First Ever Soft Landing?
3rd Quarter Update Summary – Market Forming a Base
Although the stock market has suffered immensely from higher interest rates, there are now signs that inflation has peaked and is beginning to recede. The backup in container ships at ports has ended and container rates have returned to pre-pandemic levels. Lumber prices have returned to normal. Oil, gasoline, natural gas and commodities prices are returning to normal. Gold and precious metals prices have been falling most of this year. However, despite dramatic increases in mortgage interest rates, the housing market has slowed significantly and, somewhat surprisingly, has been modestly resilient. The largest component of economic growth, consumer spending thus far remains unfazed and together with the retail industries are contributing to the on-going stability of employment and jobs market. Consumer spending and the services industries have proven to be sufficiently steady to contribute to inflations stubbornly high levels.Continue reading 3rd Quarter Update Summary – Market Forming a Base
2nd Quarter Update Summary – Global Inflation, the Fed, and the Fed.
The financial markets since the beginning of this year have been some of the most volatile that we’ve seen in several decades. And not without good reason. The post-pandemic post-stimulus economic rebound together with supply channels straining at the limits to meet the pent-up demand was further complicated by sanctions imposed on Russia. This strain on our supply channels have sent global inflation to the highest levels in decades. Add in the energy disruptions of the Ukraine war, gasoline and energy price increases have taken a big toll on the markets and the economy. Take note, inflation is not just a U.S. domestic phenomenon. It is global. This fact alone tells us this is not necessarily a dollar monetary problem for the Federal Reserve alone to deal with. It involves many factors beyond those mentioned above and which are largely beyond its control. The Fed however, has no choice but to make its best effort to deal with it with the few tools at its disposal.Continue reading 2nd Quarter Update Summary – Global Inflation, the Fed, and the Fed.
1st Quarter Update Summary – Covid & Inflation, and now War
This was a rough start for the year in account performance. The markets are being hit with a triple whammy of Covid surges, rising inflation and interest rates, and war in Eastern Europe. Covid has become relatively benign here in the U.S. but has been surging in Europe and Asia. This surge has caused additional lock-downs that complicate production and efforts to revive supply chains. It puts new pressures on distribution channel bottlenecks. All of this has exacerbated otherwise modest inflationary pressures and puts the Federal Reserve in a precarious bind. All this while a new hot war has broken out in Eastern Europe that threatens to disrupt energy supplies and distribution of the most important raw material while also re-arranging global trade and geopolitical alignments for decades to come.Continue reading 1st Quarter Update Summary – Covid & Inflation, and now War
Year-end Summary 2021
Our accounts have performed very well again this year. Despite economic headwinds from Covid related restrictions, distribution channel disruptions and labor shortages, the economy ended the year very strong albeit with some inflationary pressures. The Federal Reserve is becoming increasingly concerned that this inflation is not merely a temporary transitory effect from supply disruptions, but that we are running the risk that inflation is becoming entrenched.
The Fed has been quite vocal that in the near future it will be winding down its quantitative easing monetary stimulus operations and will also start to raise interest rates possibly as soon as March. The strong reaction from the markets in response to these comments indicates that these anticipated monetary tightening actions will likely result in severe negative market and economic consequences beyond taming inflation. Intuitively, it seems unwise to try to contain inflation shortly after a massive Omicron surge that has already been a disruption to the economy and a cause of some degree of the inflation. As long as the Fed persists in its projected course of action, we believe the markets will continue to be highly volatile.Continue reading Year-end Summary 2021
2nd Quarter Update Summary – Inflation, Fiscal Stimulus, Covid
The economy continues to grow and expand in recovery from the economic covid shocks inflicted on employment and production last year. Following a flat first quarter, the market has resumed an upward but volatile trend. Some recent inflation is sending warning signals across the economy, however, this inflation does not necessarily derive not from excess cash in the economy, but significantly from insufficiently restored production and supply chains, and from other distribution bottlenecks. The Federal Reserve is convinced the inflation is transitory and insists its expansionary policies will not change until at least 2023 or until the economy reaches full employment together with signs of overheating. This means, importantly, that going forward Fed policy in response to inflation will be more reactive vs predictive.Continue reading 2nd Quarter Update Summary – Inflation, Fiscal Stimulus, Covid