“Next Monster Please”
In the Weekly Update for 4/21/2023 (Read it Here) I detailed that the next monster to scare the market would be the “debt ceiling” crisis. Well, here we are about a month later and the debt ceiling debate is doing a great job scaring investors.
But, like every single scary monster before the debt ceiling, it will fade into the wind after just a few words are uttered, “we have a deal”!
So, now is a perfect time to tee up the next scary monster, which will also be slayed, “deflation”. This is scary because, as the business news will inform you, it will lead to a “severe”, “moderate”, or “mild” recession.
The key to notice in the data trend below is that the Federal Reserve not only missed inflation two years ago, calling it “transitory”, but now they continue to increase interest rates while the inflation data is flashing “deflation”. You can’t make up just how wrong smart people can be when assembled into “group” think!
The law of numbers will automatically and arithmetically slay the inflation monster. How can I be so sure? Because, as you will observe below, inflation was peaking in May, June, and July of 2022 at +8.60%, +9.10%, and +8.50% respectively. As those drop off of the rolling 12 months and are replaced with annual inflation numbers like +4.70%, +4.50% and +3.90% respectively for May, June, and July of 2023, the numerical reduction is going to look like an elevator shaft. Check it out!
The Consumer Price Index (CPI) is meant to measure inflation at the household level. This month’s CPE came in at 4.90% (still high), but again, let’s look at the trend:
June 9.10% ------likely peaked (Soon to be replaced with much lower annual inflation numbers…much lower!)
Once this becomes obvious, the ridiculous and false news around inflation will be the catalyst that rolls out the OMG it’s a deflation monster!
In just a few months, think mid-July, the Fed will very likely be tripping all over themselves to reduce interest rates to prevent a “severe” recession.
That, my friends, is when the “summer rally” will be getting geared up, in my opinion! So, we will continue to allocate our assets toward our well thought out investment positions.
Our goal here at The WSG is to continue to nibble back thoughtfully, intentionally, and purposefully into the ownership of lower risk and lower volatility investments with the cash we hold from our thoughtful liquidations in early 2022.
Remember the old phrase, “Those who focus on the news think things have never been worse and those who study history think things have never been better”!
I’m interested in your thoughts, comments, and observations. Feel welcome to call, email, or stop by the office and say Hi.
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.