sat in on an investor's call yesterday discussing current and future market positions, US economy, Govt spending, etc... Liberals you won't understand any of what I wrote below so don't try
Overview:
This is not an optimistic economic climate with massive govt spending during unacceptably high inflation which is widespread and entrenched being made worse with the Fed's too-late response to it. Must prepare for 4-6 quarters of struggle and limited growth which does not include the first 2 quarters of 2022. Once you get through this 12-18 months of pain there will be some excellent buying opportunities with 3-yr and 10-yr bonds, value stocks, and a selection of growth stocks. Value will continue to outperform growth for the next decade reversing the trend of the last 30 years. But be prepared because pain through 2023 will be historically long and ugly because unlike other negative-growth recessions we're spending trillions in a record-high inflationary environment while the Fed is dramatically increasing rates to make up for their inaction of the previous 2 years.
Politics:
2 months ago economists and investment bankers would have told you the midterms don't matter. Biden's spending-spree was being held in check and that gridlock is always a positive for Wall Street because the market and environment is easier to predict. Uncertainty in markets happens when govt takes drastic action and now we all believe these midterms are truly impactful. If the Democrats retain the house and add seats in the Senate this will be a disaster for the economy as it will lead to more govt spending and more uncertainty. The student loan forgiveness program could swing the senate to the Dems but the GOP should win the house, but by enough votes? They expected 25-30 seats to switch but the conditions are calling for more like 40-50 seats to swing GOP to give them enough of a margin that gridlock should stop the Biden spending for the 2nd half of his presidency. The market wants/needs govt gridlock right now
Investment Strategy:
Growth stocks are to be avoided for the next year. There will be some nice growth stock buying oppy post-recession but right now the growth stocks are too volatile. So that leaves the two types of value stocks which are cyclical and defensive. Cyclical ebb and flow with the economy and consumer confidence (cell phones, new EV, buying-up in housing) while Defensive are market-proof that consumers must buy no matter the economy...we're talking diapers, home heating oil, food, and medicine. When growth is poor (aka: recession) you want to be off of growth stocks, picky with your cyclical stocks, and heavily aligned to defensive stocks. Bonds have taken a beating this year but we're going to see great bond-buying opportunities producing 10-12% interest for 3-10 year durations
Closing comments:
The reset the market will see is that companies will no longer pray at the altar of efficiency. Covid disrupted efficiency so the US in onshoring previously outsourced jobs at a record not seen in half a century. Post-recession we will no longer target 2% growth with 1% inflation, we'll push for 3.5% growth with 2% inflation. The negative is the USA has more growth stocks than the world combined so a lot of strong buying opportunities will come from international cyclical and defensive stocks. The growth stock market will no longer dominate the bond market so the concerns come in how many cyclical/defensive companies internationally can survive the next 1.5 years. If they pull out of the recession there will be a large buying opportunity for all investors.
- The Biden 10k-20k student loan program was to buy votes to hopefully retain House and Senate and early numbers indicate it might be working. Make no mistake that the student loans + inflation reduction act + chips act + gun bill are major inflationary policies in the $2T-3T range but nobody has ever spent money like this in a 1-2 month period when growth was stagnant, inflation was 8.5-9%, the Fed is drastically raising interest rates, and energy costs are at an all-time high as are credit card balances. In addition to votes the hope of the student loan program was to make middle class and upper-middle class (the people with student loans) feel positive about the economy and spend money in the economy like take a vacation, put a down payment on a car, or buy something you normally wouldn't. This could have been stimulus as this demographic tends to love to spend money but they're holding record low savings balances so this whole program might backfire on the economy. That $500B will likely turn into $750B or $1T just like the Inflation Reduction Act will blow past the $700B price tag and land somewhere around $1.25-1.5T.
From a pure economics standpoint spending $2.5-3T with 8.5% inflation, rising interest rates, and no GDP growth is recipe for a deep and nasty recession so get prepared for significant pain through early 2024 but know that there are still buying opportunities today with really great opportunities in the following 10 years.
Overview:
This is not an optimistic economic climate with massive govt spending during unacceptably high inflation which is widespread and entrenched being made worse with the Fed's too-late response to it. Must prepare for 4-6 quarters of struggle and limited growth which does not include the first 2 quarters of 2022. Once you get through this 12-18 months of pain there will be some excellent buying opportunities with 3-yr and 10-yr bonds, value stocks, and a selection of growth stocks. Value will continue to outperform growth for the next decade reversing the trend of the last 30 years. But be prepared because pain through 2023 will be historically long and ugly because unlike other negative-growth recessions we're spending trillions in a record-high inflationary environment while the Fed is dramatically increasing rates to make up for their inaction of the previous 2 years.
Politics:
2 months ago economists and investment bankers would have told you the midterms don't matter. Biden's spending-spree was being held in check and that gridlock is always a positive for Wall Street because the market and environment is easier to predict. Uncertainty in markets happens when govt takes drastic action and now we all believe these midterms are truly impactful. If the Democrats retain the house and add seats in the Senate this will be a disaster for the economy as it will lead to more govt spending and more uncertainty. The student loan forgiveness program could swing the senate to the Dems but the GOP should win the house, but by enough votes? They expected 25-30 seats to switch but the conditions are calling for more like 40-50 seats to swing GOP to give them enough of a margin that gridlock should stop the Biden spending for the 2nd half of his presidency. The market wants/needs govt gridlock right now
Investment Strategy:
Growth stocks are to be avoided for the next year. There will be some nice growth stock buying oppy post-recession but right now the growth stocks are too volatile. So that leaves the two types of value stocks which are cyclical and defensive. Cyclical ebb and flow with the economy and consumer confidence (cell phones, new EV, buying-up in housing) while Defensive are market-proof that consumers must buy no matter the economy...we're talking diapers, home heating oil, food, and medicine. When growth is poor (aka: recession) you want to be off of growth stocks, picky with your cyclical stocks, and heavily aligned to defensive stocks. Bonds have taken a beating this year but we're going to see great bond-buying opportunities producing 10-12% interest for 3-10 year durations
Closing comments:
The reset the market will see is that companies will no longer pray at the altar of efficiency. Covid disrupted efficiency so the US in onshoring previously outsourced jobs at a record not seen in half a century. Post-recession we will no longer target 2% growth with 1% inflation, we'll push for 3.5% growth with 2% inflation. The negative is the USA has more growth stocks than the world combined so a lot of strong buying opportunities will come from international cyclical and defensive stocks. The growth stock market will no longer dominate the bond market so the concerns come in how many cyclical/defensive companies internationally can survive the next 1.5 years. If they pull out of the recession there will be a large buying opportunity for all investors.
- The Biden 10k-20k student loan program was to buy votes to hopefully retain House and Senate and early numbers indicate it might be working. Make no mistake that the student loans + inflation reduction act + chips act + gun bill are major inflationary policies in the $2T-3T range but nobody has ever spent money like this in a 1-2 month period when growth was stagnant, inflation was 8.5-9%, the Fed is drastically raising interest rates, and energy costs are at an all-time high as are credit card balances. In addition to votes the hope of the student loan program was to make middle class and upper-middle class (the people with student loans) feel positive about the economy and spend money in the economy like take a vacation, put a down payment on a car, or buy something you normally wouldn't. This could have been stimulus as this demographic tends to love to spend money but they're holding record low savings balances so this whole program might backfire on the economy. That $500B will likely turn into $750B or $1T just like the Inflation Reduction Act will blow past the $700B price tag and land somewhere around $1.25-1.5T.
From a pure economics standpoint spending $2.5-3T with 8.5% inflation, rising interest rates, and no GDP growth is recipe for a deep and nasty recession so get prepared for significant pain through early 2024 but know that there are still buying opportunities today with really great opportunities in the following 10 years.
clown makeup gets thicker each day
Despite August seeing the highest hike in food prices in over 40 years, President Joe Biden claimed that the passage of the Inflation Reduction Act helped reduce the impact of inflation “at the kitchen table.” In August, the cost of food at home was up by 13.5% compared to the same time last year, while the cost of rent and electricity were up by 6.7% and 15.8% respectively, according to data from the Bureau of Labor Statistics’ (BLS) Consumer Price Index (CPI).
The prices of common grocery items have gone up significantly over the course of the past twelve months, according to the BLS, including eggs (39.8%), butter (24.6%), frozen foods (18.5%), mil k(17%), chicken (16.6%), bread (16.2%) and peanut butter (15.2%).
Biden claims 'kitchen table' victory as food prices reach highest level in 40 years
Index for prices exploded by 11.4%, highest rate since 1979
Despite August seeing the highest hike in food prices in over 40 years, President Joe Biden claimed that the passage of the Inflation Reduction Act helped reduce the impact of inflation “at the kitchen table.” In August, the cost of food at home was up by 13.5% compared to the same time last year, while the cost of rent and electricity were up by 6.7% and 15.8% respectively, according to data from the Bureau of Labor Statistics’ (BLS) Consumer Price Index (CPI).
The prices of common grocery items have gone up significantly over the course of the past twelve months, according to the BLS, including eggs (39.8%), butter (24.6%), frozen foods (18.5%), mil k(17%), chicken (16.6%), bread (16.2%) and peanut butter (15.2%).
Bureau of Labor Statistics, consumer prices rose 9.1% from June 2021 to June 2022, the highest rate since 1981. This is an average of price increases for food, gas, electricity, and more than 200 categories of goods and services. #Bidenflation keeps going up!
- FedEx shares sank nearly 24% Friday after the delivery giant scrapped its financial guidance for the year.
- It now calls for much lower quarterly profit due to the speed of worsening in the economy.
- The economic bellwether will close 90 offices, freeze hiring and keep aircraft on the ground.
