The U.S. economy remains strong and despite the constant complaining, consumers are still spending too much money and remain employed (for now). Gas prices have retreated significantly off their highs (Fed doesn’t affect this), house prices are dropping sharply, and inventories are somewhat getting normalish. However, that pesky inflation rate is still far above ideal levels (for the wealthy) and our economy is just not normal.
It’s not discussed much, but the American Dream does not imply everyone should be wealthy. The AD requires those who have and those who have not. The have nots need to owe those who do. We’ve all had too much money lately and that doesn’t work. Not only does it increase inflation, it gives too many people the power to negotiate wages, stay out of the workforce, pay cash for homes, etc. The top of the food chain wants everything to get back to normal and will tank the economy to get us there. I have no reason to believe that the equities market will recover anytime soon and I’ll likely short bounces (see last week). Don’t fight the Fed, right?
Friday was a market blood bath. Employment levels are going in the wrong direction – we’re sitting at pre-covid unemployment levels (3.5%) which is too strong for the Fed. Until we see over 4%, the Fed will continue to have the confidence necessary to raise rates, wild-child style. Unemployment has a much bigger affect on the market than raising rates. Consumers freak if they feel their job is at risk and now that we’re spending through all of the extra ‘wealth’ built over the last few years, that fear will become a reality more often and more wide-spread.
So, what am I doing? Well, I’m still largely in cash, thankfully. My combined investments are down only 5.8% YTD (not counting real estate values/fluctuations) and although it’s really more than that because of what inflation does to the value of the dollar, I’m comfortably positioned in anticipation of 4% unemployment. Once we get there, I’ll start moving money into oversold equities. The Fed can’t force unemployment to 5%. They’ll have to slow and that’ll be encouraging to equity markets.
The only positions I’ve taken lately of note is in safety. For example, I bought a handful of I Bonds from treasury direct. There are a few restrictions, but it’s gonna help generate a little income (currently yielding over 9%). I also added to my Fundrise account. Outside of that, I plan to wait and listen to what the market tells us. Whispers of the Fed slowing the rate increases; Russian war news; employment numbers and confidence. Until the intentional hammering of the market hints at a bottom, I’ll spend more time away from my computer.
From the ADP:
“Going from 16.2% annual pay growth last month to 15.7% in September was notable to us,” @ADP Chief Economist @NelaRichardson says on the upcoming jobs report data. “And it shows that maybe wages won’t be that big driver of inflation in the future.” pic.twitter.com/EsgmvL3FDi
— Yahoo Finance (@YahooFinance) October 5, 2022
the path of rates relative to start of the year has been tracking 1981
not something many were predicting at the start of this year pic.twitter.com/7v4RxfskMK
— Len Kiefer (@lenkiefer) October 5, 2022
Of interest to me, but not of markets, Texas Longhorns put the hammer down on an uncaracteristically bad OU team.
— Texas Longhorns (@TexasLonghorns) October 8, 2022