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Excuse me but I have questions...

August 22, 2022
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I’ve always been this way; I just can’t help myself.  I’ve always had questions pertaining to the status quo.  It started in grade school, and continues to this day in my financial planning career.  Sometimes, asking questions has served me well, and other times, well, let me just say that I’ve had my share of after class meetings with teachers and professors.  I can’t explain to you as to why my brain works this way, it just does.  I’m always the guy in the back of the room raising his hand and asking what I’ve always considered to be as the quintessential “common sense” questions.

I’ve had three of those “common sense” questions pestering me since the middle of June. 

Question #1:  If the economic outlook is so dire (i.e. we are in the middle of a recession – SELL YOUR EQUITIES TO KEEP FROM RUIN!), shouldn’t that sentiment be reflected in what corporations are earning?  Because, as it looks to me, corporate America didn’t get the memo that their earnings were supposed to tank because of an “impending recession”.  Yardeni Research’s 12-month consensus on forward earning for the S&P 500 companies as of Aug 17th, 2022 is $236.83, and compared to last year’s earnings of $206.38, that doesn’t seem like much of a recession to me. 

Now, I’m not implying that earnings won’t get revised downward, they very well might, it’s just right now, it appears that should Yardeni’s estimates hold, and that if the year ended today, the companies of the S&P 500 would have seen their earnings increase by 14.75%.  Does that sound recessionary to you?  Of course not, but then again a number like that doesn’t exactly fit the narrative.  Perhaps this bear market is near – if have not already passed – the moment of total investor capitulation (see the June 14th closing on the S&P 500 of 3,790.38)? 

Question #2:  If inflation is indeed going to result in the ruination of our economy, why in the world is the U.S. dollar not in full collapse?  Because as the definition implies – inflation is a decline in purchasing power, which should result in consumers being able to purchase less in the future, and as we’ve said many times here, the consumer is the king of our economy.  If the consumer doesn’t spend we don’t have an economy, plain and simple.   And if our economy were to tank because of consumers tightening their wallets, why isn’t the U.S. dollar tanking, instead of getting stronger?  Well, that’s simple – because the U.S. remains the world’s largest economy by a wide margin.  What other currency do you want to own?  Europe, Asia, China, Russia, South America?  Nope – don’t think so.  The U.S. dollar still remains as the world’s highest standard in currency.     

Don’t get me wrong, there are still plenty of problems facing our economy, and I certainly don’t want to give the impression that everything is rainbows, unicorns, and puppy dogs.  Because it isn’t.  Several imbalances still exist and must be worked through the system.  (Money Supply being one of them). 

Question #3:  What if the other shoe, has already dropped?  I keep hearing and reading about certain statistical evidence (i.e. cherry picking data to fit the narrative they are peddling) that gives us an indication that investors are going to feel even more pain in the coming months as the bear market reaches new lows.  First of all, the future can’t be predicted, so put away your cherry-picked data about how this bear market is not over (and a simple follow up questions:  what if it isn’t anyway?), because if I’m not mistaken, I do believe that in EVERY single instance in stock market history a bull market has followed a bear market, yes?  Further, doesn’t the long-term, goal-focused, plan-driven investor who has remained fully invested in both bull and bear markets, already know that both the economy and the markets cannot be consistently forecasted nor timed?

Then what does it matter to the long-term investor when the recession comes?  Answer – It doesn’t.  Oh, sure, the speculators who are recklessly betting on magic coins, and NFT’s, should be absolutely worried about recessions and bear markets.  After all, bear markets are the perfect vehicle for the transfer of wealth from the impatient to the patient.  If you’re impatient, then yes, be very worried about what’s coming.

For the rest of us, go out and enjoy what’s left of your summer, because your multi-decade retirement waits for no one!