2023 Remainder Outlook

[00:00:02] I shined up my crystal ball just for this episode. Okay, it's not crystal ball but I did use my computer quite a bit. Welcome to Riches Revealed, but have been in how to improve your finances and lead a richer life.

[00:00:20] Come to you from the Scraping O'City of Maxville, Tennessee. It's certified financial plan and Jack Martin. So today, what I wanted to do is... We've discussed some things that I see for the remainder of 2023 going forward.

[00:00:42] And also, I want to review kind of what happened in 2022 and the reason being is it does provide us context or what we should be looking to see in 2023 going forward.

[00:00:58] And also, because I know that for most of you it's not your line of work to be monitoring the financial news.

[00:01:07] So you're going to be interested in finding out, you know, kind of exactly what happened from somebody who doesn't have a bias to either a alarm you or try and hype a product or service.

[00:01:22] So that's important as well to know that you're getting the information from a trustworthy source.

[00:01:29] So one of the reasons I also want to look at these macro numbers is that it gives you an idea going forward of what kind of elevated or reduced risk you may be looking at,

[00:01:45] depending on what sort of investments you may be looking to add to your investment portfolio as well. One of the ways I would kind of quantify that, you know, is that some people, for instance, will tell you that there's no sense trying to time the market.

[00:02:07] And I'm using some air quotes there by the way, time the market is what they would say and they would point to what is called efficient market theory which basically says that all available information is already priced into the markets.

[00:02:23] Well, there's a difference between being an efficient market for instance and being a rational market just because a market is efficient does not mean that it's necessarily rational. All that basically means is that the information gets priced in quite quickly depending on how efficient it is.

[00:02:40] In fact, when I was in college, I did a report in one of my finance classes on how long it took for stock market information to be priced into the stock and back during that time.

[00:02:55] The average, we went to time before it was basically priced into the stock was about 10 minutes. So you can imagine that it's sense and it's faster and particularly with the algorithms that are out there now everything's very efficient that doesn't mean it's rational.

[00:03:10] It doesn't mean that you should be ignoring what's going on in the macro economic environment because it does affect how you should be waiting your investments.

[00:03:23] That's the way I tend to look at it much like a card counter reason that card counters are illegal in Las Vegas for instance is because they could win. The good ones could long term fairly consistently what they would do is they would wait until their card counting told them that the odds were in their favor.

[00:03:47] And during that time they would increase the level of their bets did they know that that bet would work out for them. No, they didn't.

[00:03:56] But they knew that the odds had increased in their favor and really when I'm talking to you about the stock markets for instance going forward bonds whatever it might be.

[00:04:05] And I talked to you about where I see things going doesn't mean that it's any sort of a guarantee it just means that that's the way I see the field in what the odds are at this particular time.

[00:04:18] So right now let's take a look at some of our numbers the GDP gross domestic product last year for the United States in 2022 grew in January of 2022 was growing at 5%

[00:04:32] Now we're at 0.9% big difference obviously there the inflation hit a high of 9.1% in June of 2022 and it's now at 6.5% as of January 23. Food supposedly only grew as I own way here only supposedly grew at 11.8% in 2022.

[00:05:01] I gotta tell you now I'm going to kind of go down maybe a rabbit hole here and this is going to be kind of a free form discussion that I'm going to be having with you here today.

[00:05:13] It's not going to be real strictly tied to any one thing so if I diverge just because I want to go in that direction I think it'll help you.

[00:05:22] I got to tell you food prices some of the food prices that I have seen particularly on a low lower cost items have easily gone up 50% to the last just in the last year easily.

[00:05:36] And in fact there's reports that I'm seeing in the news that food prices food producers are raising their rates and they're raising them and not seeing much push back and in fact at the beginning of the years a couple major food producers are in the news saying that they've already.

[00:06:01] Decided they're going to raise prices for 23 by 13% because they're not seeing much push back from consumers their sales have not been particularly hurt by their price increases from last year so they're continuing to do it.

[00:06:18] So the thing that I had mentioned to in a previous episode where the consumers the last line of the defense here and really it starts with the consumer the push back required to start to bring these prices under control.

[00:06:30] Doesn't seem to be happening at least not in the food area. So look for more of those price increases and some of the supermarkets like the one that I shop here at here in Knoxville one of the supermarkets.

[00:06:46] I'm pretty sure that they have gone away from doing what would be a normal situation where they would just base their prices on their cost plus generally in and supermarket prices is generally just get the cost of the product and then you add one or two percent does this does the super market.

[00:07:07] Based on what I'm seeing at the super market it completely gone away from that because I'm seeing nice big round numbers everything's 399 and 499. Just big nice fat numbers that would not exist if we were seeing just a cost plus that they're add on.

[00:07:29] It's more like what can we get away with at this point so you might want to look at your supermarkets and see if they seem to be doing the same thing at your super market because the supermarkets and the food producers are basically saying.

[00:07:44] They think they can get away with these large increases because. Consumers have basically. Capituated on this and are just expecting higher prices and are accepting higher prices.

[00:07:56] So moving on I did want to mention to you also when we talk about inflation I've mentioned to this to you before the rule of 72 rule of 72 basically says that you can take any number and divide it into 72 and that takes tells you how long it takes for something to basically.

[00:08:16] So in terms of interest in terms of inflation the way to look at it is let's say we are looking at 8% inflation. Which is you know we were looking at 9% last year but let's say it's 8% divide that into 72 that's nine.

[00:08:34] That means to you if we continue running 8% inflation your wages just to keep up are going to need to double in nine years. So going back to my inflation episode where I talked a little bit about that.

[00:08:49] This may be the kind of thing again if it continues that is going to change the fabric of the United States back in the 70s and early 80s.

[00:08:59] In 70s going up through the 70s it was common for households to be able to survive on one income and then as inflation creased and persisted it became necessary for both both spouses to. And that has had not been the situation leading up to that time period so.

[00:09:18] Persistent inflation is a destroyer of economies change of society so when we talk about it it's not because we're just talking about you know small items that you know you will be able to adjust to.

[00:09:31] For most of you did not as I had predicted before most of you probably did not get enough of raise to cover the inflation that we saw last year particularly not in things like.

[00:09:42] Food the unemployment right now looks like that's pretty stable so unemployment in June of 2022 was 3% point 6 right now we're at 3.4 so so far the interest rates have not negatively affected the employment outlook but we're going to touch back on that.

[00:10:01] The US debt and I do want to I have mentioned this to you in the past US debt mushroomed continues to mushroom but in 2018 for instance it was at 105% of GDP.

[00:10:15] In 2022 it was 129% of GDP for context back in the 90s we were at 40% of GDP and the reason you use GDP that's the usual way of looking at it is it kind of gives you an idea of where we are compared to income of the country and that.

[00:10:38] And there to be one way of you know measuring it and taking into things like account like you know things like inflation what can back at 2022 interest rates.

[00:10:48] I'm sure you've been hearing this in the news of course the raising interest rising interest rates by the Federal Reserve January of 2022 we were at a quarter of 1%.

[00:10:59] .25% we are now at 4 and 3 quarter percent 4.75% and that's going to number is going to continue in increasing I'm going to tell you that right now it's going to continue increasing because as I told you previously the Fed is on a mission to crush inflation in that jobs dot accomplished yet and furthermore it hasn't had negative repercussions yet.

[00:11:29] That they that we're seeing as I mentioned to you the unemployment rate is if anything it's lower than it was before now let me circle back a little bit I guess to.

[00:11:41] No, I'll touch on that wait or let's see stocks for 2022 down nearly 20% if you're looking at most metrics most most indices. The bonds market.

[00:11:56] I believe I warned you about this in the past but bond funds as I think I've mentioned to you before do not do well in a rising interest rate environment.

[00:12:06] So the typical bond fund was down 13% in 2022 for those of you who think that you are in a safe spot by putting your money in a bond fund I just have always tried to warn anybody have had a financial discussion with.

[00:12:24] The bond funds can and will lose money in certain market environments and certainly the steep rising interest rate environment that we saw in 2022 that was definitely one of them real estate real estate tell let's see that typical US home in January of 2022 with 377000.

[00:12:44] I think that's a high of 433 in May and then fell back to 383 in January of 2023. So we ended and began this year roughly where we were a little bit just slightly higher than we were at the beginning of 2022.

[00:13:05] Of course is largely in response to interest rates so as I'm sure anybody who's ever owned a home knows the higher the interest rates go the higher your payments are going to be the less sticker price you can afford on a home.

[00:13:21] So right now we were really kind of in a war between the low supply and rising interest rates and if I was to guess here I would say that probably as the Federal Reserve continues to ratchet rates I think you're probably going to see further erosion in prices.

[00:13:45] Again the the women it's surprised kind of the the thing that's keeping the prices artificially high so there will I think be some support there as well.

[00:13:56] One thing that I haven't seen anybody talking about lately and I'm kind of shocked by it because at one time you know I was talking to you know advisors about this the inverted yield curve.

[00:14:10] So generally the yield curve when they say it's inverted they're comparing the bond rates on a two year to a 10 year.

[00:14:18] So the way to think about it is usually bond rates on a two year bond if you were to buy to your bond your your expected return would be lower than it would be if you were willing to type your money for 10 years.

[00:14:32] The other way to look at it is. If you are a lender and somebody comes to you wanting a loan generally you're going to charge them higher rate if they say they want to retain your money for 10 years rather than just two.

[00:14:46] That's not the situation we've got right now usually the gap between a two year bond and a 10 year bond is generally somewhere in the ballpark of you know.

[00:14:57] Plus I have percent one percent something like that here in the United States on something like a treasury for instance right now.

[00:15:06] It is the well west that I saw going all the way back to the 1980s so right now the difference between a two year and a 10 year again normally that number would be a positive right number right now it is a negative point nine.

[00:15:24] So things are not right in the credit markets and that's as I believe I've told you in the past.

[00:15:34] The it's usually a harbinger of a recession when you see that kind of number usually within a couple years you're going to see your recession with that with that kind of an indicator. So that's not a that's not a healthy situation.

[00:15:48] Speaking of which I had a thought that I I had something that I heard the other day that kind of stuck with me and it does pertain to how you should be approaching things with your money and cutting your life and the comment was saying was the next war is always coming.

[00:16:08] And that can be looked at in a couple different ways one is a very literal way which is.

[00:16:16] The powers that benefit from having wars are always trying to somehow push us in that direction at the very least they have a conflict of interests in that in that regard the other way you talk at is maybe as more analogy and that is that.

[00:16:37] What you don't see is something that you need to try and plan for sometimes referred to as a black swan event black swan event is something by definition that we don't see coming but that doesn't mean that you can't plan for the unseen.

[00:16:56] So it's the point there I guess is that you can plan not for the specific event but you can. Be cautious and not always think that the best is always going to be there because. As I as that saying was the next war is always coming.

[00:17:14] In the news one of the things that I thought was interesting the news recently was that there are some studies that came out recently I believe they were in England and some companies had been experimenting with a four day work week and apparently was surprisingly successful.

[00:17:32] The companies actually liked it and many said that they were about 30% I believe it was said they were going to continue definitely to do the four day work week rather than a more traditional five day work week that they saw little drop off in productivity overall.

[00:17:50] Very little drop off in productivity and happier employees so and that can also lead to lower turnover or training costs so your actual cost of your personnel may be reduced by having this four day work week.

[00:18:05] Now do I think that's going to take hold here in the United States. I have my doubts about that because of the way kind of the culture is here in the United States the work we have kind of a work centric culture here in the United States and.

[00:18:21] I don't know that I think that's going to take hold in most industries I can see it perhaps happening in some industries where employees have more leverage and the higher their expertise levels the more irreplaceable they are.

[00:18:37] Relatively speaking more irreplaceable they are there are power more power they're going to have to be able to. Trying to affect things like having a four day work week and I think many employees many people would certainly benefit from it I know personally. With a two day weekend.

[00:18:55] I only feel like I kind of get one day to relax and then the day before my work week starts I'm kind of preparing up for that work week so I don't know about you but.

[00:19:07] I certainly know that if I had a four day work week would certainly benefit me in some ways and perhaps I would be more.

[00:19:15] I don't know that it's something that I think is going to be happening here in the United States real soon but certainly there are countries.

[00:19:30] I think that's a lot of things that I think are going to be more open towards a more abbreviated work week than here in the United States.

[00:19:39] Workplace it appears that you may have been hearing about the layoffs in certain industries particularly in the tech industries and it appears that. bosses are up to the old tricks in many ways so one of the ways that bosses are artificially.

[00:19:58] getting rid of people trying to trim their payrolls is not through actually announcing layoffs but instead I was reading an article in the Wall Street Journal they are using methods such as.

[00:20:12] negative reviews to encourage employees to move elsewhere because it is a low unemployment rate environment and so employees are more willing to do that than they might have in the past.

[00:20:27] and the other thing they're often doing is they are announcing that they are reorganizing the business and then employees will have to re-locate to another state. and oftentimes the employer knows that employees are not going to be willing to do this.

[00:20:45] they know that those employees are going to leave and so therefore they're able to offload those employees that may be they over hired for previously without actually getting into the news by announcing that they announced a layoff.

[00:21:01] so I think that's about it for today. I know that was kind of brief and quick but I hope you got something from us again.

[00:21:12] understand the macro environment so you have an idea what you want to be doing with your investments that's kind of the reason for having the discussion.

[00:21:21] it doesn't mean that we can tell exactly what's going to be happening going forward only that we have a little bit of a better idea of maybe what our odds are in various ways always start from the basic understanding of what are your goals.

[00:21:36] and then you work back from there to understand how much risk you need to take in order to reach your goals.

[00:21:43] you do not need to take any extra risk to reach those goals, any risk above what is needed to get you to your goals is just excess risk if you need it to help of a financial advisor to kind of understand that that might be worthwhile.

[00:21:58] some of you may be able to just kind of do this on your own. but again understand what your long term goals are.

[00:22:05] then what you do is you work back from there and you say based on historical numbers how much risk do I need to take in order to achieve the returns I need in my investments and my savings in order to get to my objectives.

[00:22:22] and then only take the minimum amount of risk that you need to take to achieve those goals. don't take any excess risk above that because that's just going to reduce the probability of your achieving your goals.

[00:22:35] all right guys that's it for today some of your questions go to richesrevealed.com you can comment as we questions there thank you. See you next time.