I was too upset to write last week, after watching Chairman of the Fed Jerome “Elmer Fudd” Powell, give a “speech” from his junket (that we all pay for) at Jackson Hole.
In a repeat performance of his 2018, 20% market dropping speech, Fudd, I mean Powell, tells the market that we will continue to raise even if it is at the expense of growth. What a totally naive thing to say. The only answer he should ever give to ANY question that he receives, should be “We will review the data as it comes in, next question”. “Chairman Powell, what did you have for breakfast? We will review the data as it comes in.”
He referenced three lessons in his speech, about inflation dynamics from the 70s and 80s. First, things look radically different than they did in those two time periods, and second and more importantly, Fed Chairman at that time didn’t give press conferences. This is a relatively new dynamic.
This Fed, and in particular this Chairman, have a big communication problem, which results in Billions, if not Trillions of dollars being wiped off personal net worths. The market giveth and the market taketh away. That I can live with, but this guy is playing the role of a higher power with your investment balances, is not only beyond belief, but beyond his scope. His speech, (you can read it by clicking here, if you can stand it), is so contradictory it’s ludicrous. At one part he tells us that (2) 75 basis point hikes are unusual, but it’s likely that we will need one in September. Then, a sentence earlier he acknowledges that inflation readings are heading in the right direction. Two sentences later he goes on to say, “Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook.” What the…….
OK off the stool Mick, let’s put this into perspective. Although I acknowledge, good for nothing Fed Reserve members can put economies into recessions by restrictive policies, corporate CEOs are smarter and can react. That’s important because the market, and your ultimate return from investing in these companies, are based on corporate earnings. Bear markets and recessions are part of the landscape for long term investors. We know it. On average you’ll get a recession every 8 years, and most of those times bear markets come with them. Long term investors (yes that’s you and me) look past it and focus instead on the longer-term predictability of returns, as evidenced by my favorite chart.
Shorter term, and what we can expect from here will likely be a little more volatility, before we go into the midterms, and year three of a Presidential cycle. All setting up well for a positive 23 and beyond. I believe, inflation has already peaked, most if not all, of the metric the Fed looks at are starting to move in the right direction like PCE, and the labor force, through both unemployment and wage growth, has eased. Energy prices have started to stabilize, and the supply chain is improving every month (except for autos, which is being very stubborn).
Therefore, as I’ve said many times, volatility creates opportunity, and this time is no exception. I live with the premise that big fears of little things is extremely bullish, and the things that got punished the most, have the propensity to bounce back the best. Also, inflation is bad, but deflation is way worse. Yes, it’s likely we are in a recession, even if the labor force unemployment numbers don’t allow it to be technically called one. But…it will likely be mild, and the bounce is where a lot of money is to be made, AND the bounce has usually already happened by the time the data tells us we are in the clear.
You believe in the process of investing. It only works if you have the discipline. I have it for all of us.
With all that, here’s the buy/sell.
Mick Graham, CPM®, AIF®
Branch Manager Raymond James
Financial Advisor Melbourne, FL
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