At a Glance
- Enjoy the 4th of July
- America has a history of resilience and rebuilding
- Consumer sentiment and balance sheets are down in the dumps
- Bear market rallies are to be rented not owned
Freedom
We want to wish you all a happy 4th of July weekend. We hope it is filled with fun and reflection. We are blessed to be part of this great nation. Since 1776 things have changed a bit yet we are still free and have the right to “life, liberty, and the pursuit of happiness”. Freedom is to be celebrated and we are grateful for the opportunity to do so and to remember the sacrifices that were made for our freedoms.
America Redefines
2022 has been a reminder that financial cycles happen and slow downs in the economy are a natural part of being a free capitalistic nation. The beginning and end of cycles seem to be dictated by the federal reserve, yet they come and go as they always have struggling, redefining, and rebuilding. We have survived civil war, the great depression, cold war, oil embargos, world war, terrorist attacks, the list goes on… but yet through it all we continue to struggle, redefine, and rebuild.
Despite political egg heads on both sides, greedy bankers on wall street, dishonesty from the likes of Enron and our latest… Theranos. Heck who can forget Bernie? No not the “weekend at Bernie’s” but Madoff the greatest Ponzi scheme in our history. How about -flation? Inflation, deflation, stagflation, here’s one “screwflation”, through them all we manage to come out on top. America is like a body builder who tears muscle fibers only to rebuild stronger.
How does America do it? It’s through the redefining. There must be a shout out on Independence Day for the inventors and engineers. The likes of Henry Ford, Orville and Wilbur Wright, Alexander Bell, Thomas Edison, Bill Gates, and Steve Jobs. Thanks to this free country and human ingenuity, we press forward; as investors we have to believe in human ingenuity as our future depends on it.
The Struggle
Never before have we been in an official bear market with the federal reserve continuing to raise rates. This month they raised rates .75%, something that was off the table last month. So, this was a surprise. What’s not a surprise is what is happening with the consumer balance sheet and this is what we will highlight in this month's letter.
Consumer sentiment hit its lowest reading0(0%) at 50 since data began being recorded in 1952. The consumer makes up 70% of our economy and when this number is low that is definitely a warning sign for recession. In addition, consumers are tapped out; they are saving less and borrowing more. So far this year that has been the trend as you can see in the chart below.
This Data is from Schwab from 3/31/2022 credit and 4/30/2022 personal savings
This consumer information is another reason we disagree with economists on TV who say the recession will begin in 2023 or 2024. We believe the recession is a 2022 story and will end somewhere in the second half of next year. As we alluded to in last months newsletter, this is great news for treasury bonds and bad news for stocks.
A Look Ahead
Patience and discipline are necessary in this environment; Mr. Market is telling you as much each time the stock market tries to rally. Bear market rallies are to be rented and not owned and it will take time in this current struggle to play out. Housing prices will need to correct, and unemployment will rise before this is all over. Earnings have yet to be revised down and that will be the next shoe to drop. Retailers like Target and Walmart have been early warning signs on this front and we expect to see more. High quality bonds continue to stabilize and gain strength as the recession story gains momentum; this in turn, is putting more downward pressure on stocks and we expect to see them continue to weaken for months to come. In closing, we have to remind you that everything is going to be ok and that America struggles, redefines, and rebuilds. We have a great future ahead.
Enjoy the 4th and the rest of July. Your situation is unique, please call us with any of your specific investment, retirement or tax planning needs.
Written By Sean West CFP®
Disclosure
This blog reflects the personal opinions, viewpoints and analyses of the White Cloud Wealth Management employees providing such comments, and should not be regarded as a description of advisory services provided by White Cloud Wealth Management. The views reflected in the blog are subject to change at any time without notice. Nothing in this material constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security.