Are we are headed for a recession?
QUOTE OF THE WEEK “The size of success is measured by the strength of your desire, the size of your dream, and how you handle disappointment along the way.” – Robert Kiyosaki TECH CORNER There was no letter last week. I was waiting for the results of the Fed meeting and by the time I wrote the letter it was too late to get it out by Friday. The Fed met last week and raised the interest rate by 1/4 of a percent as expected. Speaking at the Economic Club of Washington D.C, Chairman Powell reiterated his comments from last week where he said that we can expect further rate increases going forward. He said it is going to take quite a bit of time and it is not going to be smooth to get inflation down to the Fed’s 2% target and did anticipate that the Fed will keep interest rates high for the rest of 2023. After December’s market decline we have had a nice little bear market rally with the S&P 500 up +7.86% and the Nasdaq up +14.77%. This is not unusual for a bear market rally. During the bear market of 2000 to 2002 there were 11 bear market rallies with one rally of +49%. The markets seem to think that the Fed will back off soon due to inflation dipping slightly over the last quarter but I am of the opinion that the Fed will do exactly as they said they will and keep raising rates and keeping them high for a long period. Chairman Powell has said that the economy can’t thrive with a 4% or 5% inflation rate imbedded for the long term. Under the covers there are many things going wrong with the economy and the trend is definitely going in the wrong direction. The ISM Manufacturing Index just went into contraction mode with a print of 47.40. Any reading less than 50 is contracting. I want you to pay special attention to the rate of change downward of the ISM Manufacturing Index. It doesn’t look like it is anywhere near the bottom. The ISM Manufacturing New Orders Index is also headed straight down. Every time the New Orders Index has printed below 42 we have had a recession. The Leading Economic Indicators (LEI) which is a forward indicator of the economy has been down for seven consecutive months. A recession has commenced in every prior instance in which LEI has been negative for 6 straight months. The press has been talking about how the consumer is in good shape and still spending. On an inflation adjusted basis that is not true. Inflation has caused the cost of living to rise which leads to lower consumption capacity meaning companies won’t sell as much stuff. That means revenues are going down and with wages going up that puts a squeeze on corporate profits. So far 262 of the 500 companies of the S&P 500 have reported earnings for the fourth quarter of 2022 with earnings are down -3.58% so far. That percentage includes Energy being up +68.97%. If you exclude Energy the number looks really bad. Another factor is that Liquidity in the monetary system is drying up. If there is less money in the system, there is less money to buy stuff from companies, thus lower profits. For the first time since 1960 the growth of the money supply went negative in 2022. Take a look at 2020 and 2021 when the money supply went up +24.84% and +12.37%. The stock market did quite well. Now look at 2022 when the money supply was negative -0.64%, the markets crashed. I could go on and on with statistics but you get the picture. We are headed for a recession and it is already baked in because of the direction of the rate of change of the data. We are currently positioned in a Money Market fund in order to avoid the coming recession. At some point in time if history is an indicator we will be moving to U.S. Treasury Bonds as longer term interest rates start to decline. Remember bond prices go up when interest rates decline. KATHY’S THOUGHTS Many of us can be unsure of what to keep and for how long to keep records and so I thought with tax season upon us, I would share this information with you as a refresher. Record Retention: Deciding Which Financial Records to Keep Keep critical documents and records safe and secure but accessible in a time of need Certain documents and records are too important to retain in an ordinary file drawer. Fortunately, they are also the ones you tend to need least frequently. If they are stolen or destroyed by a catastrophe such as flood or fire, replacing them could be extraordinarily difficult, if not impossible. One of the best places to retain such items is a safety deposit box. These can be rented for a small monthly fee at many banks. The boxes are actually locked drawers within the bank’s vault. Various sizes are often available to meet individual needs. A home safe is another option, provided that it is adequately rated to protect contents from fire, water, explosions (gas leaks), and other calamities. Documents deserving extra protection include: Keeping copies of vital records can save time, money, and headaches There may be times when you need to know certain information contained on documents you’ve placed in safekeeping but don’t need the actual document. Avoid the inconvenience of obtaining the original documents by making copies of them for your file. Tip: Create one file that includes copies of all documents you’ve placed in safekeeping (e.g., a “Safety Deposit Box” file). Then, you not only can turn to it for vital facts, but if you are incapacitated, whoever handles your important affairs will be able to locate key documents quickly. Caution: The specific contents of some documents, such as wills and trusts, may be inappropriate to keep in more
