September 2022 MARKET OUTLOOK
Have you ever been in a situation where you know something is wrong but need a professional to tell you just how bad it is? ‘So, Mr. Mechanic, how bad is it? So Doc, how bad is it?
One of my sons recently called with a car issue, and from 1,800 miles away, he said to me so how bad do you think it is? Just from having him describe the issue, my best guess was a $1,500 to $2,000 repair, but I am far from the actual problem, so who knows?
Last month we talked about the long-awaited recession being here. This month let’s talk about how deep and wide this is likely to get, why, and what you can do about it.
- How bad is it?
- What actions can you take now to mitigate the damage
- What are the potential opportunities
How bad is it?
I am going out on a limb here and will say that there is about a zero percent chance of a “soft landing” As the Federal Open Market Committee (FOMC) continues to use the only weapons in its arsenal:
- Raising interest rates to quell consumer and corporate demand.
- No longer purchasing bonds and eliminating new issuance of said bonds, thereby shrinking the money supply.
Subsequently, the federal government has been continuing to send out the money in the form of forgiveness for student loans, the elimination of the federal gas tax, etc., which to some extent mitigates the efforts of the FOMC.
Meanwhile, energy supplies remain and will likely continue to remain constrained due to the war in Ukraine. Food supplies also continue to be in danger due to the war in Ukraine and weather-related issues. These are two things that everyone needs to use. Even if you can walk or ride a bike, the transportation system to move goods and services around still uses oil and natural gas.
The energy needed to power the heater and air conditioning in your home or business or your electric vehicle still primarily uses fossil fuels. To make matters worse, natural gas is a major component of making fertilizer to grow more food. Raising rates is not going to solve these issues.
We are, in my opinion, in a recession now, and we are following what has already happened in China and Europe. I would go as far as to say that we are currently in a worldwide recession. In my opinion, as bad as things are, the U.S. is likely to have been one of the last to enter the recession and will be one of the first to exit the recession. Recessions are part of the long-term economy. Preparing for your actions and being ready for emerging on the other side is just part of what we help people do.
What practical actions can you take now to mitigate the damage?
What you should consider not doing:
First, understand that cash is not helping you as much as you think. Inflation is eroding your purchasing power at an alarming rate.
Considering your specific issues, the right amount of cash to keep on hand should be a well-thought-out exercise.
Second, the safe havens of yesteryear, traditionally long and intermediate-term bonds, are no longer serving you well, neither keeping up with inflation with their yield nor providing much downside protection as rates rise and bond prices fall.
Third, chasing yield by investing in lower-rated companies is unlikely to be a good idea for most investors. As rates rise, lower-rated companies will have an ever-greater debt burden and maybe even be more likely to default.
Fourth, beware of overseas investments. The higher rates in the U.S., along with many other factors, continue to make the dollar more robust, and if your investments are not denominated in dollars, that can hurt.
Fifth, do not abandon your financial plan based on what is happening in the short term.
Make minor adjustments only if necessary. Consider that if you planned well, no adjustments may be necessary.
Now, what you may want to consider doing:
Do that six-letter dirty word – BUDGET – I have all sorts of solutions on this front, from complicated to super simple to implement. Some of you reading this note has not had an actual budget for decades.
Here is the crazy thing though we can point to many studies that show the millionaire next door, the truly wealthy people, generally have a budget they work from.
Now is the time to think ahead of the curve. What Companies are profitable, have a strong balance sheet, and are in industries that are likely to profit from what is happening in the world now?
In our opinion, there is a virtual smorgasbord of great companies available for purchase at excellent prices. When the store has a sale on what you use and need, do you buy more of it or less of it?
Talk to an investment professional about specialty instruments that can provide income and downside protection at the same time. These instruments can be challenging to understand, so please consult a qualified fiduciary professional before using these.
Carefully consider tax loss harvesting in your taxable accounts but beware that sometimes this is not worth doing. See our recent building your life podcast – “Is The Juice Worth The Squeeze.”
What are the potential opportunities?
I am still quite optimistic long term, especially about the United States.
Artificial Intelligence is primarily related to precision farming, food production, energy production, efficient usage, and storage. Cybersecurity, data usage, and management are all excellent places to start. However, I would caution that a complete analysis of the balance sheet of such companies, along with the sales numbers, is necessary.
If you want to know how you specifically should adjust to an environment like the one we are in. Please do not hesitate to contact us through social media, our website, a direct call, or email me at email@example.com or text the word LIFE to 321-421-5213 to gain access to all of our links and information.
“Define your outcome and allow a skillful artisan to help create it for you.”
Nothing in this communication should be construed as personal 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. Guardian Rock LLC and its affiliates are fiduciary investment advisors. Please consult Guardian Rock or another experienced investment advisor before making investment decisions and trying to implement the strategies and tactics we discuss in any of our publications.