How You Interpret the Data Makes All The Difference
During WWII, engineers and military minds examined planes that came back from flying into battle. The common wisdom was to look at the bullet holes and fortify those areas thinking that these must be the most common places for enemy fire to hit. Then one man asked the question; what if the opposite is true.
Fortifying planes in places where there were no bullet holes was what should have been happening. The planes that did not return had been hit in those places and hence had not returned. With this question in mind, the allied forces started fortifying planes precisely opposite from the way they had been before. The results were immediate, saving hundreds of aviators’ lives.
The data and statistics are what they are, how we interpret the data makes all the difference. We often need to step back and ask different questions, listen to different perspectives, and possibly make some changes to get the results we want. For instance, one of the most common phrases we use here at Guardian Rock Wealth is that history does not always repeat itself, but it often rhymes. As innovation changes and economic conditions change, our human interaction tends to cause similar but not the same market reactions. Discerning those differences and adapting to them makes all the difference.
In this month’s update, we will cover:
- Prudent Year-End Planning –
- One more time on inflation –
- Greatest risks we see –
Prudent Year-End Planning:
We warned that September was likely to be volatile, and it was. The economic numbers were not bad. However, market sentiment turned negative. Short term, the market tends to trade in anticipation of future possible data rather than on current real data. During October, we saw some recovery as Washington gridlock made tax increases seem less severe and imminent and Investors got used to the idea that the Fed would start tapering its bond purchases.
We remain bullish on the equity markets but still see a high probability of increased volatility over the next 12 to 18 months as the market continues to deal with inflation, supply chain constraints, and political uncertainty.
Some of the reasons we remain bullish:
- We continue to see an ability for companies to pass increased costs to the consumer. While this past week’s GDP numbers were lower than expected and started to show some signs of slowing down, we caution never to underestimate the ability of the American consumer to do their job.
- More stimulus money will likely be injected into the markets once a spending bill is finally pushed through the Washington Bureaucracy.
- We believe steps are being taken by the private sector and the government that will begin to reduce the supply chain strain over the next 12 months, which should help to reduce some, but not all of the upward price pressures.
- There is still plenty of demand from pension funds, sovereign wealth funds, etc., that will continue to take up the slack when the Fed tapers its U.S. treasury buying, which should keep interest rates down and access to cheap funding available for growth.
Reasons why we could be wrong:
- China continues to tighten restrictions on the capitalism it allowed for the past decade, causing fear of a ripple effect.
- Another major strain of COVID derails more reopening of the economy and markets.
- There is no progress towards reducing the supply chain issues over the next 12 months.
- Drought continues to plague Midwest and western U.S., keeping food prices high.
- More major cyberattacks, particularly against one or all the global financial payments systems.
As always, we stress that this note is not personal investment advice; however, we would remind those of you who have required minimum distributions to get those taken care of by contacting your investment advisor.
This may also be an excellent time to examine your cash needs for the coming year. Healthcare open enrollment for many happens this month, and it is unlikely that out-of-pocket healthcare costs will move to the downside. It is crucial to match your cash outflow needs with your portfolio and examine your potential tax liability this year and the next without exposing yourself to unnecessary risks or costs. Do this while there is still time to adjust before year-end.
One more time on inflation:
We did our own informal, unscientific poll and found that about 79% of respondents felt inflation was here to stay and was not transitory. As is often the case, we fall in between the two camps.
On the one hand, we believe innovation will drive down costs of mid to high-end items. We also believe the supply chain issues, to some extent, are being handled by both the private and public sectors.
On the other hand, oil and other traditional energy prices will likely continue to remain high due mainly to the current U.S. government energy policy, which is unlikely to change over the next three years. It is also, in our opinion, unlikely that the increased use of electric vehicles, solar, and wind power will have a substantial impact on the price of traditional fuels for the next few years. (However, we are excited about the current progress along the alternative energy front and believe that higher oil and gas prices encourage even faster progress ahead.)
If our thesis is correct, holding more than is necessary for your situation in cash or traditional fixed income may be a significant detriment to keeping an overall portfolio ahead of inflation.
What keeps me up at night? I am often asked this question. Nothing is sounding alarm bells as I look at the overall traditional market measures. Still, negative exogenous factors could be looming, which we suggest people prepare for as a possibility.
– China’s relatively sudden move to back off its allowance of some form of capitalism combined with its well-known overbuilding issues.
- The action itself or the simple fear of this continuing could cause a significant slowdown in China, producing ripple effects around the globe.
- There are some securities commonly held by westerners that are not specifically legal in China. A crackdown by the Chinese government on these offshore arrangements could also prove detrimental to global markets.
– More and more frequent cyber-attacks
- Attacks that shut down power grids and/or pipelines.
- Attacks on global payment systems or even specific large banking institutions.
- Additional attacks on transportation systems.
We continue to suggest that keeping things in perspective and understanding that money is simply a tool to be used by the craftsman rather than the outcome itself.
Define your outcome and allow a skillful artisan to help you create it for you.
Please remember that this note is our opinion from a broad perspective and is not personal investment advice.
For individual advice and more information about some of the changes happening in the market and economy, schedule a no-cost call directly with John Browning by CLICKING HERE.
We are also happy to provide you with a copy of our Amazon best-selling book Build a Life, Not a Portfolio; A Guide to Your Financial Future Based on Your Values.
Additionally, you can tune into our weekly Building Your Life Podcast and search for topics of interest.
We continue to have one goal; to help you build a life you love supported by a portfolio that fits your specific needs.
Guardian Rock Wealth Investment Mgmt. Inc. (GRWIM) was incorporated on January 16th, 2002, in the state of I.L.
Securities and investment advisory services are offered through GRWIM . GRWIM is a wholly owned subsidiary of Guardian Rock LLC (GRW). None of these entities provide tax or legal advice.
Nothing in this communication should be construed as personal investment advice, and past performance is no guarantee of future results. Investing is not appropriate for everyone. There is a risk of loss associated with investing in the markets. No representation or implication is being made that using any methodology or system will generate profits or ensure freedom from losses. Please remember that investing carries risk. Guardian Rock Wealth LLC and its affiliates are fiduciary investment advisors. Please consult with another experienced, qualified investment advisor or us before making any investment decisions and/or attempting to implement any strategies and tactics we may discuss in any of our publications.