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The great thing about hiring a professional guide on a big mountain expedition is the guide goes with you, and is even tied to the same rope. Subterfuge is of no use to the mountain guide, as their own life is dependent on the counsel they give. Central bankers are none the sort, yet have garnered sufficient investor confidence to in many instances replace actionable policy with mere words, words the market refers to as ‘guidance’, guidance the bankers know does not represent a dispensation of truth, but a ploy aimed at impacting consumer and investor behavior. How did Friday’s inflation report reveal exactly this of Jerome Powell’s recent “transient inflation” myth, how will the development impact your family, and what should you do about it?

Fed Chair Powell is of the same mold as former Chair Ben Bernanke, who on the eve of The Great Recession told Congress he saw “no recession coming”,¹ and Chair Janet Yellen, who in 2017, when a higher percentage of U.S. companies were considered to be ‘Zombie Corporations’ than at any time in U.S. history, said she did not believe there would be another financial crisis in her lifetime.² Powell followed the dissimulation of his predecessors in 2021 by declaring without basis and for many months that inflation was “transitory”, only to be forced to shamefully retire the term in December by resiliently high levels of price increases.³ The 10 Year Treasury yield, considered by many astute investors to be the best economic indicator in the world today, has broken above the 35 year downtrend line,⁴ and is warning high price inflation is entrenched.

Friday’s CPI release for May shocked Wall Street, now in a major selloff, by beating expectations to the upside with yet another “highest in 40 years” release. Though declining consumer discretionary spending is causing price inflation in that arena to moderate, it offers consumers and investors little comfort since price increases in the food, energy, and housing sectors continue to run hot. This means more of everyone’s income will be absorbed by these universally needed items, leaving less disposable income for everything else.

Critical solutions include strict budgeting, gaining skills to maintain your own home and property, planning gas-use carefully, enjoying life’s free pleasures, being part of a group of independent and like-minded people, growing a vegetable garden, and working both smart and hard. If there is a blessing in this rampant price inflation, it’s that it is presently driven by supply constraints and war, and not by a widespread loss of confidence in our currency, a far more destructive phenomenon.

Think about it, Shaun.   

 “By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” ~John Maynard Keynes

1 NPR, “Bernanke Sees No Recession, but Big Challenge”, February 27, 2008 https://www.npr.org/2008/02/27/74992288/bernanke-sees-no-recession-but-big-challenge#:~:text=Bernanke%20Sees%20No%20Recession%2C%20but%20Big%20Challenge%20Visiting%20Congress%20to,keeping%20a%20lid%20on%20inflation

2 Reuters, “Fed’s Yellen expects no new financial crisis in ‘our lifetimes”, June 27, 2017 https://www.reuters.com/article/us-usa-fed-yellen/feds-yellen-expects-no-new-financial-crisis-in-our-lifetimes-idUSKBN19I2I5

3 Bloomberg, “Powell’s ‘Transitory’ Retreat is Just the Beginning”, December 21, 2021 https://www.bloomberg.com/opinion/articles/2021-12-01/powell-s-transitory-mistake-on-inflation-risks-destabilizing-markets

4 US Department of the Treasury, Daily Treasury Par Yield Curve Rates, June 13, 2022 https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202206

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. The economic forecasts set forth in this commentary may not develop as predicted.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Slip-and-falls on steep terrain are far and away the number one killer of high mountain climbers, and interestingly, the vast majority of these falls occur on the descent, the part most would describe as the easy half. It’s easy for a climber to die on the way down, for the whole process lends itself to this outcome, and it’s just as easy for investors to financially perish in a bear (down) market, equally supportive of the tragedy. The S&P 500, the most representative index of the U.S. stock market, stands on the precipice of a bear market today. What is a bear market, and what are its identifying characteristics? What mistakes does it exploit, and how can you avoid making one?

A bear market is most generally defined as a 20% decline from the recent high mark. Year to date, the NASDAQ is down 30%, the S&P500 is down 19%, and the Dow Jones is down 15%; the strong indication is we are in the beginning of a major bear market.

As described in Bob Farrell’s 10 Rules of Investing, the three stages of the bear market are as follows:

• Sharp down

• Reflexive Rebound

• Drawn-out fundamental downtrend

The ‘sharp down’ stage has clearly already occurred, and given the S&P 500’s 11% recovery, and the Nasdaq’s 16% recovery, from March 14 to March 29,² maybe the ‘reflexive rebound’ stage has as well. This means several things about the stock market today: investors are still too optimistic about stocks in the short-term, the worst is likely yet to come, and a ‘drawn-out fundamental downtrend’ likely lies ahead.

Whether this is ‘officially’ a bear market remains to be seen, but if it is, the following mistakes will likely prove deadly for investors:

• Buying aggressively into the peak (late last year, at price levels that may not be seen again for a decade or more).

• Allocating the overall portfolio too aggressively at a major market peak (again, late last year; returns are most attributable to portfolio allocation, not security selection. Fidelity went public in the last year saying its customers were far too risky for their own well-being).

• Overconcentration (too much exposure to a small number of holdings; too little real diversification; too much correlation among holdings).

• Capitulating at the bottom of the bear market (selling indiscriminately at the market bottom to stop the pain).

Easy to comprehend, hard to practice methods of avoiding the aforementioned mistakes include:

• Buy great businesses whenever they trade at a reasonable price.

• Know yourself as an investor, be well acquainted with your tolerance for volatility, and appropriate your investment capital in a manner consistent with these two things.

• Diversify holdings to mitigate a large loss scenario.

• Understand the investing environment, and the types of investments and industries that thrive in that environment. Investors generally associate deflation with a bear market, yet those who do so this time will be sifted by rapidly rising prices.

• Stick to your bear market plan, and regarding high quality holdings, slay your emotions to avoid selling them at depressed prices.

• Build cash, wait for broad capitulation, and pray for wisdom and courage to buy great stocks when others are fearful.    

 Think about it, Shaun.   

“It’s better to buy a great company at a fair price than a fair company at a great price” ~Warren Buffet

1,2 Yahoo Finance, May 20, 2022 https://finance.yahoo.com/

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. The economic forecasts set forth in this commentary may not develop as predicted.

 All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss.

 Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Significant preparations are made for bad weather scenarios when planning a big mountain expedition, but when the battering begins, it’s instantly clear to the mountaineer the time for planning is over; carrying out well-laid plans is suddenly essential for survival. Stagflation is as dangerous to the financial lives of savers and investors as are high mountain storms to the physical lives of mountaineers. The fact it kills more slowly allows for posture adjustments even after its arrival, unlike most mountain storms, and this is an important distinction, since stagflation is already here.

Stagflation is a portmanteau combining the words stagnation and inflation. It depicts an economy with little or no growth, high unemployment, and high inflation.¹ Last week’s newsprint of a 1.4% contraction in GDP confirms the U.S. economy is weak,² and the suddenly plummeting yield on the 10 Year Treasury bond seems to be confirming it. ‘Official’ Unemployment was recorded at just 3.6% in April,³ painting a rosy, but wildly inaccurate picture of America’s employment market. The far more revealing Labor Participation Rate, presently at a 45 year low (outside the Covid19 lockdown), proves real unemployment is an exponentially higher number. This week April inflation came in at 8.3%, the second consecutive “highest in 40 years” reading.⁴ No mountaineer would ever doubt the arrival of a deadly storm; though stagflation is more difficult to perceive, the above facts confirm it is here.   

Given ‘the Fed’ now has to simultaneously fight a weak economy and high inflation, the following threats to savers and investors are escalated:

• High probability of a near-term Bear Market in stocks

• High volatility in the financial markets

• High probability of a near-term recession

• Higher probability of additional critical policy errors by ‘the Fed’

• The systematic vaporization of cash savings by inflation

• Economic and social disruptions due to ongoing supply problems

Final preparations might include:

• If retired, have the equivalent of 5+ years of withdrawals in cash

• If working, think twice before relinquishing earned income

• Properly diversify your investments to mitigate the risk of a catastrophic loss.

• Have a long-term mindset towards quality holdings, and ruthlessly beat your emotions into subservience with a stick, then slay them.

• Tighten your budget, eradicate impulse spending, and payoff your consumer debt.

• Watch less TV; instead, gain and use valuable skills to replace high expense budget items.

• Exercise in the sun, create a restful bedroom atmosphere, and graze on healthy foods to minimize future health-related expenses.

• Be thankful for what you have, and share some of the excess with those who can’t pay you back, then quickly forget all about it.

Think about it, Shaun.   

“The prudent sees danger and hides himself, but the simple go on and suffer for it.” ~Proverbs 27:12

 “God loves a cheerful giver.” ~2Corinthians 9:7

 “A good man leaves an inheritance to his children’s children.” ~Proverbs 13:22

1 The Balance, “What is Stagflation?”, by Kimberly Amadeo, October 29, 2021

https://www.thebalance.com/what-is-stagflation-3305964

2 USA Today, “Economy contracts first time since 2020 in first quarter as GDP falls 1.4%”, April 28, 2022

https://www.usatoday.com/story/money/2022/04/28/us-economy-growth-first-quarter/9562730002/

3 Trading Economics, US Unemployment Rate

https://tradingeconomics.com/united-states/unemployment-rate

4 Yahoo Finance, “Inflation decelerates slightly from 40-year high as CPI rises 8.3% in April”, May 11, 2022

https://finance.yahoo.com/news/inflation-consumer-price-index-cpi-usa-april-2022-123135066.html

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. The economic forecasts set forth in this commentary may not develop as predicted.

 All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss.

 Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Mainstream economists expected a paltry 1% GDP growth for the first quarter, a far cry from the 7% growth realized in the fourth quarter of 2021, yet yesterday’s release showed the U.S. economy contracted 1.4%.¹ The first economic contraction since the Covid19 lockdown considerably raises the probability of a near-term recession, defined as two consecutive quarters of declining GDP. What are the pros and cons of the report? Does it suggest stagflation, a deflationary recession, or a miraculous, ‘Powell-led’, soft landing approaches? What can you do to mitigate the risk of a large loss scenario, should Powell stumble again?

On the plus side of yesterday’s GDP release, consumer spending, which accounts for two-thirds of economic activity, was solid. Business investment was also strong. These are encouraging signs. But later in the day Amazon issued negative guidance for future sales and a disappointing $3.8billion loss for the quarter.² This is concerning, as it may indicate a slowdown in consumer spending is underway, a harbinger for recession. The report also confirms a slowdown in America’s economy is no longer likely, it’s happening; the question now revolves around how bad things will get.

Fed Chairman, Jerome Powell, focused far too long on restoring jobs following the Covid19 recession, which put him behind the more important task of fighting inflation. He is now in a panic to bring his 40 year high inflation under control, and is about to raise rates .5% in a contracting economy. Financial developments are exposing Powell’s errancy at every turn, making a soft landing improbable. The Fed also has a history of going too far in multi-rate hike periods, particularly when fighting inflation. I suspect it will live up to its reputation. A deep deflationary recession is unlikely near-term because supply constraints, exacerbated by the Russia-Ukraine war, de-globalization, and the developments in China and Eastern Europe, all potentially lengthy affairs, are driving worldwide price inflation. Can higher than normal inflation co-exist with a weak, or even periodically contracting, economy for months or years? It not only can, it has, and stagflation is the most probable economic scenario for America over at least the next few years.

I have read several reports from reputable sources in the last week suggesting the market has priced in a 25% probability of recession in the next twelve months. Considering a second quarter contraction, even a mild one, puts the economy officially into recession in June, coupled with Powell’s aggressive inflation posture, suggests the stock market may be grossly misjudging short-term risks.

Consider these moves to reduce risk:

• Build portfolio cash to cover anticipated withdrawals for a few years or more, and as ‘dry powder’ to buy great companies after the market discovers its error.

• Buy income-producing investments with pricing power.

• Own a chaos hedge or two.

• Lower your stock exposure a notch, but don’t over-react and sell all your stocks.

• Stay diversified.

• Take a long-term approach and lower your expectations to reduce unnecessary emotional turbulence.

Think about it, Shaun.

“Rule #1 is don’t lose money. Rule #2 is don’t forget Rule #1.” ~Warren Buffet

“He who had received the five talents came forward, bringing five talents more, saying, ‘Master, you delivered to me five talents; here, I have made five talents more’.” ~Matthew 25:20

1 Stansberry Digest, Thursday, April 29, 2022 2 USA Today, “Economy contracts first time since 2020 in first quarter as GDP falls 1.4%”, April 28, 2022 https://www.usatoday.com/story/money/2022/04/28/us-economy-growth-first-quarter/9562730002/

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. The economic forecasts set forth in this commentary may not develop as predicted.

Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

 Companies mentioned are for informational purposes only.  It should not be considered a solicitation for the purchase or sale of the securities.  Any investment should be consistent with your objectives, time frame and risk tolerance.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Two rare and highly disruptive market events appear to simultaneously be in their early stages today. Price inflation is at a fresh 40 year high,¹ actively devouring the cash savings of all consumers everywhere, and at an alarming rate. There have been but four commodity supercycles, or prolonged periods of broadly rising commodity prices due to elevated global demand, in the past 115 years,² yet credentialed investors are suggesting a new commodity supercycle is underway. What is the connection between these two rare market events, what factors suggest they may both be ‘sticky’ trends, and what should you do about it? 

Price inflation is measured in terms of national currencies, so when we’re told inflation is 8.5%, it means the purchase of a basket of goods and services costs 8.5% more US dollars today than it did a year ago. Consumers are willing to exchange real goods, like agriculturally productive land, or productive elements like copper and silver, for monetary currency units for many reasons, including convenience, practicality, or even habit, but one additional reason must be present for that currency to remain relevant: the consumer must believe it will retain its purchasing power while held. Artificially low interest rates mean dollar holdings provide virtually zero present income; coupled with 8.5% annual inflation, holding dollars today equates to owning a rental property that sits perpetually unoccupied while depreciating by half every 8.5 years! Only a negligent investor would delay the immediate liquidation of such a property!  

Commodities are the natural resources our Creator supplied with which humanity may be sustained and constructively engaged. Commodities, as investments, have generally experienced occasional, brief booms, followed by long, drawn out busts, and are, therefore, volatile and risky assets to hold long-term. When a currency is no longer perceived as a store of value, however, exchanging an asset that will reliably lose half its value every 8.5 years, for an asset with intrinsic value that will likely hold its value (or appreciate) short-term, becomes prudent; commodity price trends today reveal the smart money is doing precisely that.

The inseparable bond between inflation and commodity prices is that both can be viewed by savers as a store of value, and when the currency isn’t, commodities will be; that’s when commodity supercycles have historically occurred. 

An ongoing war between major commodity-producing nations which lacks resolution, ongoing global supply constraints, a government addicted to money-printing to pay fixed expenses, and the fact inflation is hard to ‘reign in’ once it invades the psyche of savers and consumers, all suggest inflation will remain high for years, not months.³ These same factors, coupled with a growing distrust in the dollar as a reliable store of value, suggest a supercycle for the ages may be developing in the commodities complex. 

One thing we should do as investors is consider whether commodity investments are more worthy of a small portion of our investable savings than more sorely depreciating dollars.         

Think about it, Shaun.   

“It makes no difference to a widow with her savings in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation or pays no income tax during years of 5 percent inflation. Either way, she is ‘taxed’ in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 100 percent income tax but doesn’t seem to notice that 5 percent inflation is the economic equivalent.” ~Warren Buffet

“He who earns wages does so to put them into a bag with holes. “Thus says the Lord of hosts: Consider your ways.” ~Haggai 1:6-7

1 The New York Times.com, The Morning, “Inflation’s 40 Year High”, April 22, 2022

https://www.nytimes.com/2022/04/13/briefing/inflation-forty-year-high-gas-prices.html

2 Seeking Alpha, “3 Stocks for the Impending Commodity Supercycle”, April 12, 2022

https://seekingalpha.com/article/4500969-3-stocks-for-the-impending-commodity-supercycle 

3 Stansberry Digest, April 19, 2022

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. The economic forecasts set forth in this commentary may not develop as predicted.

The fast price swings in commodities will result in significant volatility in an investor’s holdings.  Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

I’m long past athletic peak, but the playoff atmosphere, in which decisions and execution become palpably more consequential, still excites a resilient competitive ambition. I wonder if Jerome Powell, recently exposed to “World Series pressure” by the 40 year high inflation he personally created, feels confident or afraid right now. What is the financial backdrop, what are Powell’s policy options, and how will ‘the Fed’s’ decisions affect your investments?

The 10 Year Treasury yield, the most accurate economic forecaster in the world today and the most influential financial component, has recently sounded the alarm on both escalating inflation and coming economic contraction. Ordinarily, in this phase of the economic cycle, the Fed would raise interest rates until the economy ‘breaks’, and then quickly revert to lowering rates and printing money to restart the cycle. I’m not saying this is what ‘the Fed’ should do; I’m saying this is their program. Facing the two unique dynamics in this particular cycle of 1) 40 year high inflation, and 2) the greatest debt any government has ever amassed, what are Powell’s options, and what are the implications?  

Scenario 1: The 10 Year yield, now bumping up against a 30+ year downtrend line, rolls over and begins to decline with the economy and inflation rate. The yield curve inverts further, and ‘the Fed’ raises rates into recession and then reverses course. The stock market enters a bear market, bottoms, and then begins to climb the “wall of worry”, eventually beginning a new bull market. ‘The Fed’ and its Reserve Note live to inflate another financial bubble. 

Scenario 2: The 10 Year yield rises through the downtrend line due to high inflation and a lack of demand for U.S. government debt. The Fed aggressively raises rates to fight inflation, causing a deep economic contraction. Higher interest expense on outstanding debt, coupled with lower tax receipts from recession, mean the government will then have to a) stop paying interest on Treasury bonds, b) slash entitlement spending, or c) borrow the difference.¹ ‘The Fed’ comes to the rescue with additional quantitative easing to purchase the government debt no one else wants. America has a perpetual inflation problem and the demise of ‘the Fed’ and its Reserve Note hastens.

Our central bank’s highest priority is to monetize the U.S. government’s debt; if we can remember this, the financial world will make far more sense to us. It’s no coincidence both scenarios result in additional money printing, it’s just a matter of how fast we get there, and how much pain American workers and investors must endure in the process. Keep in mind the 10 year Treasury yield calls the shots, not the Fed; ultimately, it will declare the “Federal Reserve Note” the failed currency that it is. This means we generally need to be investing for inflation, yet always protected from the occasional deflationary collapse.

Think about it, Shaun.   

“He who earns wages does so to put them into a bag with holes. “Thus says the Lord of hosts: Consider your ways.” ~Haggai 1:6-7

1 Inside Tradesmith, by Justin Brill, “What the Fed and Inflation Could Mean for Your Investments, April 5, 2022

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. The economic forecasts set forth in this commentary may not develop as predicted.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Today numerous issues complicate and endanger the retirement plans of millions of working Americans. Many find it increasingly difficult to save and invest due to the high cost of living, while others throw their investable dollars out the window on high rents every month due to a lack of affordable homes. The present inflation rate reduces the purchasing power of bank savings by 53% every nine years! The stock market appears to be approaching an inflection point, which may subject recent and near-term retirees to the devastating “early retirement bear market”. Taxes are going up, and traditional retirement accounts are a focus of legislators. Social Security is likely to be “means-tested”, meaning delayed and reduced for many. Medicare benefits are being cut, increasing the cost of Medigap outlays, and longer life expectancies compound the problem. I could go on, but suffice to say future American retirees have it far more difficult than previous generations.

Challenges create opportunity for solutions, and only a carefully constructed, personal financial roadmap will identify the specific solutions, or principles, sufficiently powerful when consistently applied, to overcome such formidable obstacles. Most people put a retirement plan together months before retiring, astutely utilizing about 1% of the time they had to plan the portion of their financial life that will lack earned income. I suggest a consideration of the following facts, followed by a resolute commitment to build and follow your roadmap this year:

• Net positive monthly cash flow, or a take-home income exceeding gross spending, is THE indispensable condition for achieving your retirement goal. Many workers invest for retirement while accumulating more debt than assets, thinking progress is being made.

• A detailed household budget enables us to distinguish between fixed and voluntary spending, a figure wealth producers are eager to exploit, but which wealth consumers never address.

• An accurate assessment of your present financial position, the resources required to fund your well-defined retirement life, the difference between the two, the means and principles to be applied to close the gap, and a vigilant application of your plan, is the only solution to the dilemma. We call it, “Assess, Address, Apply”.

• General figures alone fall short of effective planning: “Aim small, miss small”! Important detailed considerations include: the percentage of income to designate towards retirement, the most beneficial tax-advantaged plans to employ, the age at which Social Security benefits should begin, and the income solutions to harness (which most benefit those who use time to their advantage).

Financial stewardship, and its rewards, is almost never about how much money you make, and almost always about what you do with the money you make. Think about it, Shaun.

“Live today like no one else, so that later you can live like no one else.” ~David Ramsay

“A good man leaves an inheritance to his children’s children.” ~Proverbs 13:22

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. The economic forecasts set forth in this commentary may not develop as predicted.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

How can it take 20 minutes for my tea water to boil when I stand and wait, and just 90 seconds when I walk away, ‘all other things being equal’? Perception drives many important facets of our economy; in fact, the indispensable component is a largely subjective phenomenon. How are changing financial conditions certain to eventually swing the pendulum of consumer sentiment, and, therefore, consumer spending, and, therefore, the state of the corporate credit market, and, therefore, the direction of the economy and financial markets? What should you do about it?

The U.S. government judges the growth rate of the domestic economy primarily by Gross Domestic Product, two-thirds of which is consumer spending.¹ One wouldn’t be far off saying, “Consumer spending IS the U.S. economy”. This is the real reason President George W. Bush, following the Trade Center bombing, pleaded with Americans to do their part by going shopping. What drives consumer spending, and how are those conditions changing?

Present drivers of consumer spending are:

• Following the massive handout by the Treasury Department during, and following the Covid 19 lockdown, consumers paid down debt, banked savings, and are today comparatively cash rich.

• The highest inflation in 40 years, coupled with supply constraints, is causing consumers to buy future necessities now, borrowing consumption from the future.

• There is a shortage of willing workers and an abundance of jobs.

• The “Illusion of Wealth” effect has consumers feeling wealthier than they are, and this is invigorating voluntary spending.

• Credit is artificially cheap, and loans are artificially easy to obtain.

Changing conditions which drive consumer spending include:

• The handouts have decreased, and rising costs from high inflation has begun to nibble at consumer savings.

• Loan costs are rising. By my count, the rate on a 30 year fixed mortgage has increased from 2.85% in late 2021, to 4.58% today, and increase of 61%!²

• Only so much consumption can be borrowed from the future before a spending lag ensues.

• Supply constraints will alleviate as new distribution channels are forged, and as domestic production increases for many products.

• The Fed just promised to increase a key interest rate at every meeting this year, a driver of most other rates.

The conditions are changing which drive consumer spending, the rudder on America’s economic ship. Take cover now for what follows by:

• Tightening your financial household via strict budgeting.

• Building cash savings, and carrying a higher cash position in your investment accounts.

• Diversifying income sources.

• Focusing on investments with a present income stream, and that possess pricing power.

• Becoming handy around the house. You Tube helps!

• Be part of a closely knit group of like-minded people who practically help each other. In short, secure your supply lines!

Think about it, be creative, and enjoy the process. Shaun.

“Everyone also to whom God has given wealth and possessions and power to enjoy them, and to accept his lot and rejoice in his toil-this is the gift of God.” ~Ecclesiastes 5:19

1 FRED, Economic Research, March 18, 2022

https://fred.stlouisfed.org/series/DPCERE1Q156NBEA

2 Nerdwallet, “Current Mortgage and Refi Rates”, March 18, 2022

https://www.nerdwallet.com/mortgages/mortgage-rates

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. The economic forecasts set forth in this commentary may not develop as predicted.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.