Merry Christmas, everyone. I hope the world finds you well this Saturday morning.
2022 was a hell of a year, and we all deserve some peach and good fortune this holiday season.
The basket of goods is expensive!
The CPI hit 40-year highs after a tremendous stretch of quantitative easing.
Rents soared. Mortgage rates spiked and cooled off a way to hot real estate market across the country.
Inflation is a nasty regressive tax. It makes maintaining a standard of living much more difficult for lower-income households. High prices in food, shelter, and transportation, the big three, make life very hard for most people. Now is a year to be extra kind to those in your community and those in need.
Is inflation cooling off? It has been slowing recently. How fast the rate of change continues and what the Fed does next is weighing on the markets. I’m bullish that the highs of inflation are behind us for now.
Papa Powell and Federal Reserve
The impending recession might be the most telegraphed and anticipated in recent history. Over 90% of economists and CEOs are expecting a 2023 recession.
Is a recession a self-fulfilling prophecy? Kind of. Our expectations drive the markets. If we expect scarcity in the future, we will reduce spending today. Reduced spending and investment slow sales and economic growth. Around and around we go.
The Fed has made it very clear there are going to use interest rates to crush inflation. And they will do this, knowing it will drive down asset prices immediately. Asset values will fall victim to the demand-crushing function of high-interest rates.
However, the bond market appears to be calling the Fed’s bluff. As 2-year treasury rates remain below 4.5%. Are the rest of us missing something?
The bond market tends to show up first to the recession is over time to dance party. Before the stock market and way before the Fed acts and pivots on policy. I’m curious to see how this plays out and if Mr. Bond Market figured this out before the rest of us.
A tough year for investors
Investors got hammered in the markets. Stocks, bonds, and public real estate lost double-digit value. Private real estate values will lag as repricing is much slower than public markets.
We can take a positive note into the year’s final week.
Everything is on sale! Stocks, bonds, public real estate prices, and their forward-looking yield are attractive! Time to use that Christmas money to buy assets that make you even more money 🙂
Can prices fall more if the recession is worse than current expectations? Yes, they will. You should expect that and know that.
What’s next?
I’ll be doing what I always do. Buying more assets each month like clockwork. More stocks, more bonds, more real estate. I’ll buy at the bottom because I buy every month! It doesn’t matter if I buy at the bottom or not. My monthly investments are small relative to my overall portfolio. Which will happen to you if you make investing a habit!
Buying bonds for the first time in forever adds solid amounts of passive income to my portfolio. I looking forward to another year and another all-time passive income high score. A silver lining to asset prices getting crushed across the board in 2022.
Keep calm and invest on!
Happy Holidays to you and your family. Being an investor makes you an optimist. And that’s the only way to live 😉