The great first ascent of Meru, a shark fin-shaped peak found at 20,000 feet in the Himalaya Mountains, formerly thought to be unclimbable, was preceded by the infamous trio’s failed attempt. After being confined to their hanging tent through a multi-day storm, Conrad Anker and Jimmy Chin, to the shock and befuddlement of Renan Ozturk, proceeded not down, but up the mountain, and with no food! As Conrad later candidly admitted, they were not far from eating portions of their own boots. The U.S. consumer is no less vital to the domestic economy than food is to the mountaineer, and recent data confirms two things, 1) U.S. consumers better be wearing leather boots, and 2) certain investment and market trends are entrenched.
A recent Federal Reserve report concluded the following:
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U.S. household debt surged to a record $17 trillion in the final quarter of 2022.
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The number of mortgage loans in “serious delinquency” (90 days overdue) nearly doubled in the past 12 months.¹
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Delinquency rates on consumer and auto loans are also up sharply.
If you had been tracking the initial (failed) attempt on Meru, you’d have known when the food ran out that the expedition, one way or another, would soon end. We will be wise to acknowledge the following economic and market trends, confirmed by the above consumer data:
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Consumers are no longer funding purchases with pandemic handouts, but with debt.
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Persistent high inflation, in the face of a tapped consumer, proves inflation is not ‘demand-driven’; it is driven by supply constraints, which are fueled by the Russia-Ukraine war and de-globalization.
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There is no end in sight for either the ongoing war, or the reconfiguration of the global supply chain. The impetus’ for higher than normal inflation are firmly entrenched.
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The global reversion to domestic production will present numerous investing opportunities for astute investors. We should be thinking about formerly imported goods that will now be produced domestically, and the materials this will require.
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A tapped U.S. consumer suggests we may already be in the widely anticipated recession indicated by the inverted yield curve.
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The economy will struggle until consumers get relief, which can’t happen until ‘the Fed’ lowers rates, which it won’t do before admitting we’re in recession, which it rarely does prior to the recession ending.
Consumer data reveals a weak economy is also entrenched. This is STAGFLATION, and history suggests it favors the following investment themes:
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Concentration on present income (interest, dividends, and rents).
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Careful industry selection (concentration on outperforming, and avoidance of underperforming industries).
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Nimble allocation (adjusted more frequently than in other investing environments).
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Dollar cost average the whole market cycle.
The Conrad Ankor-led team did that which everyone thought was impossible. Investors can succeed investing in this environment. The above strategies are few and simple, but can be profoundly helpful. Think about it, Shaun.
“Be wise as serpents and innocent as doves.” ~Matthew 10:16
“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.” ~Ecclesiastes 11:2
1 Chaikin Analytics Power Feed, “The ‘Bearish’ Side of Relative Strength Says Ski Season is Over”, by Pete Carmasino, February 23, 2023
The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.
All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets.
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