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Podcast #16: Market Conditions, Inflation, Rates

January 26, 2022

Listen to the podcast below to hear Jill talk about:

  • Her recent cruise
  • Current market conditions
  • Inflation and rates


Happy New Year Everyone

Bonnie and I left for a cruise on the Ruby Princess from San Francisco on December 27. There were only 719 passengers – capacity was around 3200. Crew members totaled 953. Our first stop was Los Angeles. We had tickets to the Getty Museum. Unfortunately, it was pouring rain. LA doesn’t know how to handle that much rain. We made it but half the pavilions were closed and because of the weather – no trams were operating. We did have a nice lunch at their restaurant.

Unfortunately, the sea was so rough they couldn’t use the water shuttles to take us to shore. So, we had to skip Catalina and move on to San Diego. Overcast but no rain so it was good to walk around a bit.

Our next stop was Cabo San Lucas. It was wonderful. Low 70s, the water was a beautiful blue and the sky clear. For two days we went whale watching. We enjoy being on board even if we weren’t in port. We met a number of people who just stay on going from cruise to cruise. They felt it was safer than being off the ship. One couple had been there a month!

We felt very safe. Everyone was vaccinated; masks worn at all times and they were constantly cleaning. They did random testing. The infection rate was just over 1%.

When we returned January 6th, I was greeted with a market going down. I thought perhaps it would be helpful to share my thoughts.

As I’ve mentioned before, down markets are normal. A drop of over 20% is called a bear market. They can be triggered for multiple reasons. Geopolitical events such as war, the collapse of Wall Street in 2008, a pandemic are examples. A bear market can also be triggered because a continuous upmarket – known as a bull market, runs its course.

It is impossible to predict a bear markets depth, duration and recovery. Looking at our current situation, the COVID news in February 2020 wasn’t different in April, but the markets dropped 34% from February 19 – until March 23rd and then swung back up. It was the shortest bear market in history.

According to Hartford Funds, a bear market declines an average of 36%. On the other hand, the average gain for a bull market is 114%. The average length of a bear market is 9.6 months but the average bull market is 2.7 years.

Today, it appears the markets are reacting to a number of issues which didn’t just start in January but have been around a few months. Inflation and the supply chain are major concerns and their impact on corporate earnings.

I wrote about inflation in the most recent newsletter. Is it transitory or not? An economic truism is that when demand outstrips supply, prices go up. I’m sure we’ve all gone to CVS or Safeway and found empty shelves where products used to be available. We anticipate that prices should reach an equilibrium when the supply matches or surpasses the demand. The Omicron variant has slowed this process down.

Columnist John Mauldin had an interesting statistic. We all know there is a labor shortage which is part of the supply chain problem. One of his associates forecast that with Omicron entering the picture, if we assume 20 million people contract Omicron the first two months this year and 60% of them work; and each person misses 5 days of work, that equals 60 million lost work-days. I find this shocking. No wonder there are problems.

The Fed said as early as last fall that they anticipated raising interest rate at least 3 times in 2022. This is not new news.

It looks like we take two steps forward and one back.

Back to inflation. Vanguard projects lower inflation than we have today though it is unlikely to go back to pre-pandemic levels. Investment return forecasts over the next ten years whether from JP Morgan, Vanguard or Schwab, are in the range of the high 4% for a portfolio comprised of 60% equities and 40% bonds.

If you would like to discuss your investments, please get in touch. Also, if you are interested in Impact investing aka Socially Responsible Investing, give us a call.

So, let’s move to a couple of good news items.

According to the U.S. Energy Information Administration, solar power will generate almost half of the U.S. Electricity in 2022. I know I had solar panels installed in 2002 and just replaced them with new ones – which are far more efficient than the old ones.

As part of Ikea’s commitment to carbon neutrality, they purchased 3200 acres of forest in Florida that was damaged by hurricanes. They will be planting longleaf pine to restore the forest.

Circling back to my cruise, while we refer to it as the Christmas cruise, it was also an anniversary cruise. Bonne and I celebrated our 45th anniversary on January 22nd.

The Captain was quite a character. Each day at Noon, he would talk to the passengers. He would tell us interesting information about the ship and end with a pithy comment. Unfortunately, I didn’t have pen and paper to write them down until the last one. I don’t know why this struck me as funny but it did. I wanted to share.

Never go to a doctor who has dead office plants.

Until next time, please stay well!


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