Calm Waters or Waterfalls Ahead
The Federal Reserve Board keeps trying to reduce inflation by raising interest rates again and again. The results thus far have caused shock waves. These waves are careening us down river rapids as we watch our financial markets fall and feel our economy slow down. Are we headed for waterfalls, or will this method work and bring us back to calmer waters?
“You can always count on Americans to do the right thing…after they’ve tried everything else.” Winston Churchill
September was a serious splashdown waterfall. The DOW slid 1.5% to close at 29,225; a new low in 2022. The S&P 500 dropped 2.1% to end at 3,640; its lowest level since November of 2020. The tech heavy NASDAQ tumbled 2.3%. On the positive side, July 2022 was an enormous gainer as the S&P jumped 9% and the NASDAQ rose 12% for the month.
We’ve ridden these whitewater rapids many times. Sometimes they are fun and sometimes they are perilous. It was two hundred years ago that Sacagawea, a Native American woman from a Hidatsa Village in North Dakota, guided the treacherous Lewis and Clark exploration of the Pacific Northwest. No doubt she and her expedition faced some dangerous rapids and survived.
We will continue to invest during this downturn in US businesses and real estate. American ingenuity has proven time and again the ability to overcome obstacles and create new worlds. Here’s a brief look at two: satellites and vertical farming. Private companies like Space X and Relativity Space are launching satellites weekly. There may soon be 30,000 satellites covering the globe. The benefits will be much more than the speed of 5G broadband connectivity on land, in the air, and on the sea. These satellites can provide help with fishing, crop growing, ground water discovery, and disaster recovery. Have you seen or heard about growing fruit and vegetables vertically…indoors? The technology used by Plenty and other companies like it is simply remarkable. You don’t need hundreds of acres and millions of gallons of water to produce a crop of lettuce or strawberries anymore. These fruits and vegetables can be grown vertically to save space, watered without waste, and there are no pests, no frost, and no heat to deter growth.
As you probably know, we don’t make predictions…especially about the future. But some of our favorite economists are not shy. They do their research; use their experience and they have a very good batting average when it comes to economic forecasting. Here are a few of the latest tidbits from Brian Westbury and Robert Stein of First Trust:
The Feds will stop raising rates in 2023, 2. Inflation will decline in 2023, 3. Home prices will drop at least 10%, 4. We are not in a recession now, 5. We will probably be in a recession by the second half of 2023, 6. The annualized growth rate will be 3% this year, 7. Large companies will soon have big layoffs, 8. The S&P will bottom out at 3200 and eventually get back to 4800. “There is more economic pain to come.”
The Federal Reserve Board has created a lot of pain for us recently. We feel it Mr. Powell. It seems to be getting worse every time you make a move. Gas prices are high, our grocery bags are lighter, our homes have lost value, and our investments are down. But we are far from down and out. We will not lose our focus on growing our assets in the long term. We will continue to purchase American businesses and real estate at these lower prices. If we need money sooner than later, we will set aside some cash at 4%. If we want growth, we will not be overturned and taken off course by these currently turbulent waters.
What are the investment opportunities and strategies for this pain? For those of you who can’t stand it anymore, you can step aside and park money for 6-12 months in CDs and US Treasuries at roughly 4% today. For truly long-term investors, we think earnings are more likely to come from value investments than growth. Companies with solid dividends and earnings will rule the short term, but when the markets start heading higher again, small and midcaps should be the places for higher growth. When investments are down sharply, many people abandon ‘the plan’. We do our best to stay true to the fundamentals and buy good investments when they are painfully discounted. Like they are now. We believe the following sectors have relatively low valuations and are going to do well in the short term: Energy, Industrials, and Materials. Also, one of the best investments we feel will be Cybersecurity. People need to protect their data and their assets. And always remember these investment mantras because they work: Buy Low, sell high. Rome wasn’t built in a day. Good things take time.
We guard the wealth of the most productive people on earth.
Please feel free to call us for analysis, guidance, reassurance, and strategies to protect your assets.
Mitch Fisher & Ryan Fisher
-  Jerome Powell, Chair of the Federal Reserve Board since 2018