March 2023 Market Update

March 2023 Market Update

Mountains of Money

Do you remember back to those days on the playground when you were a kid? Did you ever have that one kid or group that wanted to change the game’s rules when they started to lose? How about as adults when we get around the scrabble board and someone wants to make up a new word?

We are in one of those market environments where many (notably politicians) would like to change the rules of the game. The problem is that economics is a lot like physics. There are specific laws that cannot be changed. That said, the economy and the markets are complex adaptive systems. Many disparate forces interact with one another, and these laws have been broken for some time.

Situations like these can feel like being caught in a riptide. You cannot see the force that is pulling you. Still, experienced swimmers know that no matter how scary it seems, you have to swim with the current and watch or feel for your opportunity to get back to solid ground.

The bad news: 

• Credit card debt is approaching an all-time high, albeit not adjusted for inflation, and interest costs continue to skyrocket as the Federal Reserve has increased rates at a rate never seen anywhere in the world.

• Inflation remains persistent.

• Essentially, all major leading indicators have been pointing toward recession.

• Arguably, we already had one recession over a year ago, so this would be a second one in a couple of years – Could this mean the beginning of rolling and more frequent recessions?

The good news: 

• Innovation is proceeding at an exponential rate.

• Manufacturing is coming back to the U.S. modernized and more efficient.

• Market sentiment is now in neutral territory, according to the most recent AAII survey.

• Love it or hate it, the infrastructure bill should increase capital expenditures.

How I see it: 

Sifting through all the data, the noise of the popular press, and the particular reports generated by specialists in every industry and company that I can get my hands on, I see very little way of escaping another recession in 2023. That word invokes justifiable fear in the hearts of most of us—fear of losing jobs, fear of losing value in our investment portfolios, etc. Planning and preparation can lessen the fear, but it will still be there for most of us nonbillionaires.

Since it is likely inescapable, and we could talk about why for the next 50 pages, why not look at ways to position yourself to profit instead?

Some sectors of the market tend to weather downturns better than others historically. Other sectors seem well-positioned to profit from the coming economic changes. One thing (see the laws of money below) that is also true is that cash will likely continue to depreciate as it has for a century or longer.

Understanding the sectors most likely to benefit and why is the first step. Analyzing the companies well-positioned within those sectors is the next step. The third step is protecting yourself from the potential of being wrong.

Aside from this, analyzing your situation as best you can from the information you currently have available to arrange your investments the right way for you is a whole different set of steps, and that is something we would need to talk about one on one because it is uniquely personal. This note is not meant to provide individual advice.

The sectors have mostly stayed the same in previous months.

Traditional fossil fuels and non-traditional energy development, transportation, and storage remain attractive—

Food production, transportation, preservation, etc.

Defense & Cybersecurity is another sector that may be profitable in the current environment.

Commodities have also joined the list for the first time in quite a while.

Certain Artificial Intelligence companies that can integrate productively into these sectors will also likely benefit.

This market environment necessitates, in my opinion, focusing on companies paying sustainable dividends or actual (not just announced) share buybacks.

I still see many investors looking to make up for 2022 losses by taking more speculative positions. In my opinion, this is far too early to become more aggressive. At the same time, as you will see below, I am not in the camp that would suggest that “cash is king.”

The laws of money 

The term “sound money” came from checking the authenticity of a silver coin by dropping it on a hard surface and listening to its distinctive sound.”

You see, Rome began mixing other metals into the silver coins used to pay Roman soldiers, so the soldiers figured out how to determine how they were being paid.  The whole thing seems remarkably similar to modern-day paper currency. 

The idea of money is that it is scarce, but as you will see below, I’m afraid I have to disagree with this idea. It may surprise you that I would suggest that our paper money may not be as important as many believe.

Oxygen is important but is free because it is abundant. Jewelry-grade diamonds are not all that important, but because De Beers closely controls the supply, they are scarce and thus expensive. I don’t need them, but my wife and girls tell me they are a girl’s best friend! Time is scarce, cannot be reproduced, and thus is arguably the most valuable thing we possess. We often trade significant portions of our time for this paper we call money, even though more of this paper money can be created with the stroke of a pen because we need it as a method of exchange for necessary goods and services.

Each time more paper money is created, it loses value because it becomes less scarce. A few ways paper money is made are when barrels of oil are released from the strategic reserve, artificially lowering the fuel cost to consumers. Reducing the cost of borrowing also creates more money. Regardless of what it is used for, issuing government debt creates and thus devalues paper money.

I say this to help you understand better that holding cash in your proverbial mattress or a very low-yielding bank account may “FEEL” safe. Still, each time money is created, that cash loses value. In my opinion, and mathematically speaking, only by productively putting that money to work will you be able to create a situation where you can create your best life as you define it, one day replacing your paycheck with a paycheck you have made for yourself.

Define your outcome and allow a skillful artisan to help you create it.

Please remember that this note is our opinion from a broad perspective based on over three decades of money management experience and is not personal investment advice.

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Talk soon,

John

Phone: (561-) 327-4646

Email: info@advocacyinvesting.com

John Browning, MBA, and CSA®

* Securities and investment advisory services are offered through Guardian Rock Wealth™ Investment Management Inc. (GRWIM). GRWIM is a wholly-owned subsidiary of Guardian Rock™ LLC. Neither of these entities provides tax or legal advice.

Nothing in this communication should be construed as personal investment advice, and past performance does not guarantee future results. Investing is only appropriate for some. 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 trying to implement any of the strategies and tactics we may discuss in any of our publications.