Cooties.. There Ain't No Cooties on Me
Thank you Frank Zappa. Dinah-Moe Humm, revisit it.
Speaking of cooties, I have the Covid and it isn’t pretty but thankfully I had the full spectrums of shots and boosters so it’s just a sickness and not anything far worse.
The first half of the year wrapped up and it wasn’t pretty. Every index was down and the momentum has not changed one bit. No reversals coming soon. Sorry.
The biggest fear now is about a recession and that is a very valid fear. I think it is going to happen and I will try to implement a strategy to protect myself against the impact but, gauging from experience, there really isn’t any one effective investment strategy to protect against a market that is turning on you.
Short term players will be knocked around for sure but longer term players will weather it like they weather every other market gyration. Buy and hold and watch Netflix.
No need to rip the Fed anymore. They blew it. I think they may be blowing it even more with limited action and that may just drag this out longer than anyone cares to have it. Raising rates is fine. Maybe pop a 100 basis point move this month and then sit back. A shock, sure, but sometimes a shock is the thing that becomes the catalyst to stymie inflation. Again, it takes a while for rate hikes to actually have the desired effect. Banks will gladly take advantage of the higher rate environment immediately, but the economy can’t slow down that fast. Demand can not slow that fast. It will take time.
The inflationary environment we are in has root causes: Increased Federal spending, Increased Federal spending and wait for it, increased Federal spending. Not Putin’s war. Not Global warming. Not entirely because of the supply chain miscues. No, the root cause is the Federal government dumping trillions of dollars of cash into a system that was functioning ok, not great, but ok. That money had to go somewhere.
People spent, then they paid down debt, then they saved. Sounds all good. Like a well oiled economy yet it wasn’t. You had the demand chasing supply, check. You had debt being reduced, causing a lowering of demand for debt, check. Then you had money being pumped into a system that paid nothing in return and needed to be put to work by the banks, so interest rates on home loans dropped and money was available and people went out and bought, bought and bought, fueling demand increases and lack of supply problems, which caused the run up in living costs. Check.
Inflation generally is a circular economic pattern. Left unchecked it theoretically could go indefinitely but two things generally happen. As prices rise faster than incomes, the tendency is to slow purchasing because there is only so much money to go around. That gap (between income and prices) can eventually slow inflation but it takes years and the damage it wreaks is far and wide. The other tool is rising interest rates. It does work but that damage is pretty extensive as well.
While we have an administration that has done little other than blame everyone and everything, I think it may be time where they should actually take responsibility, admit they screwed the pooch and come up with a comprehensive plan to bring inflation under control and what they plan to do with the possible recessionary period we may encounter.
This goes for all political parties, they need to come up with a legitimate, understandable course of action. That just never happens. Ask a politician a direct question that requires a three line answer and you get five paragraphs of nonsense. Just tell us what the plan is and how it will be implemented. Spending a trillion dollars to help Americans get back on their feet caused this situation, it is not the solution.
I think that right now, people are bitching about inflation because they are not used to it and after coming out of a pandemic, they are just glad we are not all on lockdown. People are spending. They are trying to travel. They want to get back to a normal life and paying 6 dollars for a pound of butter is the price to pay, so be it. The administration knows this and they will try to use it towards their advantage come November.
It is real but is it that important? That is the number one question today. I think it is important because we feel it near term with the price of gasoline or groceries going up. We will feel it long term when this supposed hiring frenzy dries up and you have all those people on the sidelines who decide to come back into the workforce and the slowdown eliminates their prior roles. That will be a sticky wicket for sure. They rolled the dice and lost. The power of work will return to the owner and not the employee.
Coming back to the market, it will be painfully obvious that investors are looking forward to an earnings slowdown and possible recession. Fundamentals now are actually ok as far as pricing is concerned so this might be more technical than anything else. I do think when the technicals and fundamental align in the next three to six months, it will be a major buying opportunity. Similar to March of 2020 or January of 2009. Don’t try timing it but keep an eye on things when we get toward the 3400 level on the S&P. If you see some companies longer terms forecasts perking up and you can get a stock cheaply, buy it and hold on.
We aren’t there yet.