|
On September 14th, 1752, the British Empire adopted the Gregorian calendar, skipping 11 days from September 2 to September 14 to align with most of Europe.
The Gregorian calendar was introduced by Pope Gregory XIII in 1582 to reform the Julian calendar, which had been in use since 45 BCE. Established by Julius Caesar, it set the year at 365.25 days, with a leap year every four years. However, the actual solar year is approximately 365.2422 days, causing the calendar to drift by about 11 minutes per year. Over centuries, this slight difference accumulated, leading to a discrepancy of about ten days by the 16th century. That calendar drift was causing issues with calculating important dates, particularly Easter, which was based on the vernal equinox. The Council of Trent (1545–1563) recognized the need for calendar reform to bring Easter back in line with the original date set by the First Council of Nicaea in 325. Pope Gregory XIII, with the help of astronomers and mathematicians, including Aloysius Lilius and Christopher Clavius, introduced a more accurate leap year system. A year is a leap year if divisible by 4, but century years (e.g., 1700, 1800) are only leap years if divisible by 400. This adjustment reduced the error to 1 day in about 3,300 years. The Gregorian calendar was initially adopted by Catholic countries such as Spain, Portugal, and Italy in 1582. Protestant and Orthodox countries were slower to adopt the change due to religious and political reasons. Russia did not switch until after the Russian Revolution of 1918, and Greece only adopted it in 1923. Over time, the Gregorian calendar became the international standard for civil use. However, some religious communities still follow other calendars for liturgical purposes (e.g., the Hebrew, Islamic, and Orthodox Julian calendars). Today, the Gregorian calendar is widely used worldwide for secular purposes, and it remains the most accurate long-term calendar system in use. Last week, we had a significant adjustment to the annual employment data in the United States, and those who didn’t follow the data collection methodology closely decried the discrepancy. Using the Gregorian calendar as an example, here are several lessons for the Modern Investor regarding statistical sampling in government data: 1. Reports are a representation of reality, but they are not reality. Just as the Gregorian calendar was introduced to more accurately represent the true length of the solar year (365.2422 days), statistical sampling in government data aims to accurately reflect and predict the population or phenomenon being studied. Inaccurate data collection methods, similar to the inaccuracies of the Julian calendar, can lead to long-term drift or bias in results. It happens all the time. The details matter. Yet many economic statistics are published based on the presumption that one-third of the data is enough to predict all of it. For instance, Gross Domestic Product (GDP), the market value of goods and services produced within the country, is used to measure our overall all economic growth or contraction. Three estimates are provided each quarter for GDP; the advance estimate only contains data for the first month, while the other two are inferred using statistical means. Likewise, after two months, the third month is extrapolated, and the first estimate is struck from the record. Even after the quarter concludes, there are revisions years later due to data that is deduced at first and replaced later with real figures. So GDP, like the employment figures, is both closely watched and subject to significant revisions, which is not a great combination. 2. Statisticians attempt to balance simplicity with precision, never achieving either. The Gregorian calendar's leap year rule balances simplicity (a leap year every four years) and precision (skipping specific century years), making it more accurate and more usable but still slightly flawed. Government statisticians have limited resources, so their efforts will never be perfect either. Don’t give too much weight to initial impressions. 3. The delays can be dangerous. The Gregorian calendar took centuries to be adopted globally, leading to misalignments in international schedules. Similarly, when agencies inevitably delay updating their statistical data, it can lead to real-world discrepancies and confusion for investors. 4. Remember, the initial picture is only the initial picture, and you need to make sure the ensuing revisions are on your calendar. The biases build up over time. The Gregorian reform corrected a long-standing bias in the Julian calendar, which accumulated over centuries. Similarly, in government data, improper or outdated sampling methods can lead to biases in the data that may accumulate over time. Initial biases in recent employment reports seem to be initially on the upside, and then to moderate as data accrues. Understanding these biases can help you properly weigh the impact of imperfect data. 5. You must adjust for rare events. The Gregorian calendar introduced adjustments for leap years (and century years) to handle the complexity of the Earth's orbit. In statistical sampling, rare events or outliers may need special consideration, as these can skew results if not accounted for. Statisticians develop sampling methods that can appropriately account for rare but impactful occurrences in the data. But it can take some time. So, it is good practice for those evaluating data to know about things like colder-than-normal winter months, striking workers, or supply chain disruptions. Do you need help understanding how data impacts your investment and retirement plans? Put me on your (Gregorian) calendar!
0 Comments
 🗞️The week after Labor Day was, fittingly, mostly about jobs. Here’s a quick breakdown:
👷🏼 The ISM Manufacturing Index rose to 47.2 in August but still missed expectations. Manufacturing has now contracted for 21 of the last 22 months. In August, twelve of the eighteen major industries reported contraction, with only five growing and one staying flat. Even though the overall index showed an uptick, the core components—demand and output—actually worsened. 🐕🦺 On the services side, the ISM Non-Manufacturing Index inched up to 51.5, continuing its recent shaky performance. Growth was split, with ten service industries expanding and seven contracting. 👩🏽🌾 Nonfarm payrolls increased by 142,000 in August. While job growth continued, the news was mixed. Revisions for June and July left us with a net gain of just 56,000 jobs. 🗓️ Each August, the BLS releases preliminary payroll revisions, with final numbers in February. Initially, the estimate was that 2.9 million jobs had been added over the past year. However, new data, based on state unemployment tax records showed that the actual figure is closer to 2.1 million. This revision, a drop of 818,000 jobs, could be the largest downward adjustment since 2009. Cue the conspiracy theorists who claimed the government was covering the job situation in an election year. However, this is totally normal due to the limits of statistical sampling. (CLICK HERE for more on the issues with government statistics.) And it isn't even the end of the story. Since recent years have seen upward revisions in the final counts, this preliminary estimate might improve come early next year.  🗞️Hot off the press, last week's economic data included: 🏠New Single-Family Home Sales Increased by 10.6% in July. This was the largest monthly increase in nearly two years and exceeded consensus expectations. Although this surge pushed sales to their highest level since May 2023, it's still roughly in line with pre-COVID levels from 2019. 🏚️ Existing Home Sales Increased 1.3% in July.Meanwhile, existing home sales rose, breaking a five-month decline. However, they remain near the slowest pace seen since the aftermath of the 2008 Financial Crisis, as affordability continues to weigh on the housing market. 🤷🏽 On the employment front, the U.S. job market wasn't as robust as initially thought in 2023 and early 2024. A recent revision by the Bureau of Labor Statistics revealed that employers added 818,000 fewer jobs in the 12 months ending in March 2024 than previously reported. This revision brings the average monthly job growth down to 174,000, a significant drop from the originally reported 242,000. These adjustments highlight the inherent challenges in economic forecasting, as key statistics like employment and GDP are often subject to significant revisions long after their initial release. The details matter. Yet most economic statistics are published based on the presumption that some of the data is enough to predict all of it. Even after initial adjustments, there are revisions years later due to data that is deduced at first and replaced later with real figures. Yes, employment, along with GDP, is both closely watched and subject to significant revisions, which is not a great combination. 📉 The Powell Pivot Part Two. All of which is the preface to the real news last week coming out of Jackson Hole, Wyoming. There, Jerome Powell said, in effect: “Rate cuts? Heck, yes!” And with a weaker labor market and softer inflation, the time sure seems right. But that estimate may also be subject to revision later…much, much later. August 26, 1910: Mother Teresa, who became a Catholic nun and missionary known for her humanitarian work, particularly in India, was born in Skopje, Macedonia.Mother Teresa, born Anjezë Gonxhe Bojaxhiu, was the youngest of three children. At 18, she joined the Sisters of Loreto, an Irish community of nuns with missions in India, and took the name Teresa in honor of Saint Thérèse of Lisieux. She moved to Calcutta (now Kolkata) in 1929, where she would later experience a profound "call within a call" in 1946. This spiritual awakening led her to leave the convent and dedicate her life to serving the poorest of the poor. In 1950, Mother Teresa founded the Missionaries of Charity, a religious congregation that eventually grew to include thousands of members. They operated schools, hospices, and leper colonies worldwide, with a focus on caring for the destitute, the dying, and the sick, particularly those suffering from leprosy and AIDS. Her tireless work earned her global recognition, including the Nobel Peace Prize in 1979. Despite facing health issues in her later years, she continued her mission until her death on September 5, 1997. Mother Teresa was beatified by the Catholic Church in 2003 and canonized as Saint Teresa of Calcutta in 2016. Her life remains a powerful symbol of compassion, humility, and unwavering dedication to helping those in need. A quote from her opns my most recent book: “We know only too well that what we are doing is nothing more than a drop in the ocean.But if the drop were not there, the ocean would be missing something.”
With all due respect to Mother Teresa, the amount that is given charitably in the United States each year (around $485 billion from all sources) is larger than the Gross Domestic Product (GDP) of ENTIRE COUNTRIES like Tonga and the Marshall Islands. Though those countries are literal drops in the ocean size-wise, where I come from, that is still a lot of money. I’ll let you in on a secret: Americans are wealthy and generous. But what good is our generosity doing? Are the charities to which we give fulfilling our personal mission? Are they reflecting our personal values? Are they making any difference in the real world or are they merely drops in the ocean? The truth is that most of us have absolutely no idea. A more strategic approach to philanthropy may sound daunting or only for “rich people.” In reality, it is the practice of philanthropy where donors use thoughtful approaches to maximize the impact of their giving. Not so hard, right? It is just a planned and purposeful approach to generosity that seeks to achieve measurable results. And you don’t need to be Mother Teresa to have an impact in this world. Of course, there are no guarantees on the next world, even for Saints. If you would like a complimentary copy of my new book, The Gifts That Keep on Giving, CLICK HERE or email me requesting a copy. August 19, 1848 - The New York Herald reported the discovery of gold in California, igniting the Gold Rush and a massive migration to the western United States.
The California Gold Rush began in January 1848 when James W. Marshall discovered gold at Sutter's Mill in Coloma, California. News of the discovery quickly spread, leading to a mass migration of people from across the United States and around the world, all hoping to strike it rich. This influx of prospectors, known as "forty-niners" (after the peak year of 1849), dramatically increased California's population, transforming it from a sparsely populated region into a bustling area with booming towns and cities. The Gold Rush had significant economic, social, and political impacts. It contributed to California's rapid economic development, as the influx of people and the need for infrastructure spurred growth in various industries, including mining, transportation, and commerce. San Francisco, in particular, grew from a small settlement into a major port and commercial hub. Politically, the Gold Rush expedited California's admission to the Union as the 31st state in 1850, just two years after the discovery of gold. This rapid statehood highlighted the significant demographic and economic changes occurring in the region. However, the Gold Rush was short-lived. By the mid-1850s, the easily accessible gold had been largely exhausted, and mining became more industrialized and dominated by larger companies. Many individual miners, unable to compete, left or found other work. Despite this, the legacy of the California Gold Rush persisted, leaving an indelible mark on the history of California and the United States. Here are five Lessons for Modern Investors from the California Gold Rush: 1. The Power of Timing: Early Entry is Often Key. In 1848, James W. Marshall's discovery of gold at Sutter's Mill set off a frenzy. Those who arrived early, known as the "forty-niners," had the best chances of striking it rich. The lesson here is clear: being early to recognize and act on opportunities can make a significant difference. Whether it's a new technology, an emerging market, or a stock poised for growth, early entry can yield substantial rewards. However, it's also important to remain cautious and avoid rushing into investments without proper research. 2. Diversification is Essential: Don't Put All Your Gold Nuggets in One Basket. Many who flocked to California hoped to strike it big by panning for gold. But only a few actually found fortune in the gold itself. Interestingly, some of the biggest winners of the Gold Rush were those who diversified their efforts—selling supplies, tools, and services to miners. Levi Strauss, for example, capitalized on the need for durable clothing, laying the foundation for a global brand. For modern investors, this underscores the importance of diversification. Rather than betting everything on one high-risk investment, spread your resources across various assets to mitigate risk and increase your chances of success. 3. Beware of Hype: Not All That Glitters is Gold. The Gold Rush was fueled by stories of easy riches, drawing people from around the world. However, the reality was far less glamorous. Many prospectors left empty-handed or worse off than when they arrived. The modern equivalent can be seen in market bubbles, where hype drives prices to unsustainable levels. Think of the dot-com bubble or the cryptocurrency frenzy—investors who bought into the hype without understanding the fundamentals often faced steep losses. Always do your due diligence and avoid making decisions based solely on market noise. Price action is only one data point. 4. Adaptability Wins: Be Ready to Pivot. The Gold Rush was an unpredictable venture. Some miners, after failing to find gold, pivoted to other endeavors like farming, real estate, or starting businesses to serve the growing population. Those who could adapt to changing circumstances often found success in unexpected ways. For investors, this highlights the importance of flexibility. Markets are dynamic, and economic conditions can shift rapidly. Pivoting your strategy in response to new information or changing market conditions is crucial for long-term success. 5. Long-Term Vision: Wealth Isn't Built Overnight. While the Gold Rush is often associated with quick riches, the true wealth was built by those who had a long-term vision. Many of the most successful individuals were not the ones who struck it rich quickly, but those who invested in the infrastructure, communities, and businesses that arose to support the growing population. This lesson is vital for modern investors: wealth is rarely accumulated overnight. Long-term investments in solid companies, real estate, or other assets that grow steadily over time often yield more reliable and sustainable returns. Remember, investing is not just about chasing the next big opportunity; it's about building sustainable wealth through informed and strategic decisions.  THE WEEK IN REVIEW: Aug. 11-17, 2024
Not enough just yet The Producer Price Index (PPI) and Consumer Price Index (CPI) readings for July were reported last week. Both showed that inflation is declining but is inching downward in an almost painfully slow manner. The decline from 3.0% to 2.9% in CPI year-over-year is an important psychological threshold, just like the unemployment number rising above 4% was important and signaled we had crossed a line that should cause concern. An inflation print below 3% is significant. The problem is it was only down 0.1%, which is not materially different from 3.0% or 3.1% and will not prompt the Fed to cut more aggressively than the 25 basis points (0.25%) markets have priced in for the September meeting. We still believe that a deteriorating jobs market is the thing that will cause the Fed to accelerate its rate-cutting schedule. The major issue is that if we continue to see jobs unravel at the pace we’ve been seeing over the past five months, we will likely be sliding into recession, and inflation will take care of itself via a decline in spending as a result of people being unemployed. We have been saying for months that the Fed risks driving us into a recession if it remains focused on driving inflation to 2%. The challenge is that the Fed has a problem juggling just one ball (inflation or price stability), let alone two balls (inflation and jobs). Trying to thread the needle of mitigating job losses and lowering inflation seems like a Sisyphean task; if you fix one thing, you immediately need to start paying attention to the other. It would probably be more beneficial for the Fed to work on stabilizing prices (which it can control to some extent through its open market activities) and allow the rest of the economy to create or eliminate jobs. For now, inflation is below 3%, July sales are still fairly healthy and unemployment isn’t out of control. It all adds up to a Fed that isn’t willing to move boldly on interest rates and risks being sidelined as events move faster than they can react. Market stages a quick comeback There was a lot of handwringing and worry a couple of weeks ago, with people screaming for an emergency 50-basis-point (0.50%) rate cut between Fed meetings. But after a very quiet first half and a pretty strong summer, the market, like a sleeping dog caught unaware, decided collectively to let off some steam. This sort of market action isn’t unusual, but it seems the violence and the speed of the sell-off on the back of a sleepy and undramatic first half was what threw people off. All of a sudden, we had volatility where we had none before, and there was uncertainty and fear. Fast-forward just one week: We not only made back most of our losses but are once more closing in on record highs, and volatility is back to levels prior to all the mayhem. In fact, we had the best week of the year so far. What happened? After the soft weekly unemployment claims sparked a rally the week prior, the data last week confirmed inflation was continuing to decline, consumer spending was still healthy and nothing new by way of an escalating conflict in the Middle East had occurred. Volatility dropped and all seems right again. But is it? Sure, it made a Fed cut in September more certain. But the numbers also ensured we would see a miniscule cut and that higher rates (albeit 0.25% lower) would still be with us. The same factors that drove markets the past two weeks are present. The economy is weaker, and many people already “feel” we are in recession or it’s just a question of time before we slip into one. There doesn’t seem to be any progress in the Middle East, and anything that happens will probably be bad rather than good. Plus, we’re headed into what could be the strangest election in U.S. history (at a minimum in our lifetimes). Our advice? Stay the course. Trust your plan, do not engage in market timing and avoid making decisions when you are emotional or stressed out. The volatility we just saw may return soon, and if it does, our resolve will be tested. However, we’re still in a solid place as we head into the last four months of the year. Coming this week
On June 27, 1967, "Our World," the first live, international satellite television broadcast, airs.
The historic event was a two-hour program that linked five continents and featured segments from 14 countries. The goal was to showcase global unity and technological progress through satellite communication. 'Our World' was created to demonstrate the capabilities of satellite broadcasting by showing live footage from around the world. The British Broadcasting Corporation (BBC) produced the program in collaboration with broadcasters from various countries. The broadcast included contributions from countries such as Canada, Japan, Mexico, Italy, and Australia, among others. Each participating country presented segments that illustrated their culture, accomplishments, and daily life. One of the most memorable segments included a live performance of 'All You Need Is Love' by the Beatles from a studio in London. The song was specially commissioned for the broadcast to emphasize the message of love and unity. The performance, which included an orchestra and notable guests like Mick Jagger, Keith Richards, and Marianne Faithfull, contributed to the song's iconic status. The Beatles' performance of 'All You Need Is Love' became a defining moment of the 1960s, encapsulating the era's ethos of peace and love. The program reached over 400 million people and demonstrated the potential of live satellite transmission for global communication and bringing together large groups of people through the use of technology. Ah, the optimism of the 1960s. Well, so much for that. In today’s hyper-connected world, technology SHOULD have the potential to bring people closer than ever before. And yet we remain as divided, and technology as divisive, as ever. Here are a few reasons why: Miscommunication in the Digital Age. The lack of Non-Verbal Cues in Digital interactions means we often miss the nuances of body language and tone, crucial for understanding context. Text-based messages can easily be misread, leading to misunderstandings. Privacy and Security Concerns. Data Privacy is a dream unrealized at this point. Sharing personal information online raises significant privacy concerns.The risk of cyber threats like hacking and identity theft erodes trust in digital platforms that could otherwise be of some potential value. Digital Overload and Burnout. Information Overload is a real, daily experience. The sheer volume of online information can be overwhelming. Prolonged screen time can lead to fatigue, reducing the quality of interactions. Authenticity and Trust Issues. Curated Identities mena almost no one is who they seem. People often present idealized versions of themselves online, creating unrealistic expectations. Dependency and Isolation. Over-Reliance on Technology is as bad as any other excess. Excessive reliance on digital communication can lead to feelings of isolation. Reduced Interpersonal Skills. Heavy use of digital tools can erode important interpersonal skills. You may have noticed last time you attempted a conversation with a stranger younger than you are. Generational Gaps. Varying communication styles across generations can create barriers. And older generations might resist new technologies, leading to disconnects. Echo Chambers and Polarization. Algorithm Bias means you see more of what you like or agree with. Social media algorithms often create echo chambers, limiting exposure to diverse viewpoints. Online communities can intensify polarization, reducing tolerance for differing perspectives. Modern investors should pay special attention to the last. Talking to the same people about the same things day after day may be entertaining. However, it is not the way to grow and evolve as an investor. As John, Paul, Ringo, and George likely realized decades ago, you actually need a bit more than love. Getting out of your comfort zone, turning off the echo chamber of mass media and keeping an open mind are keys to recognizing and evaluating new opportunities.  All hail Nvidia!
Just when it couldn’t get any bigger — it did! Last week, Nvidia boasted a market cap larger than the combined stock market values of the UK, Germany and France. It also passed Microsoft and Apple as the highest-valued company in the world and has almost singlehandedly pushed the S&P 500 to 5,500 points. What’s next? Will Nvidia announce its independence and become a new country? Last year, we had the Magnificent 7 and were complaining about the market not having enough breadth plus the rest of the market not contributing. Now we have one company practically driving all the excitement, and most of the market is flat — so the question that needs to be asked is, how long will this last? Will Nvidia turn out to be the Bitcoin of 2021/2022 with all the associated hoopla and hysteria? Has Nvidia planted a flag for the rest of the market to aspire to, and will everyone else sprint to catch up once we get an easing in interest rates? Right now, much of the S&P 500 is trading significantly below prior highs. If the tech giants just hold their ground and the rest of the market catches up, we can legitimately say we are witnessing batting practice before the ballgame for this current rally. But if the tech giants flow and flounder, then we might as well be headed to the parking lot after the seventh-inning stretch because this game is over and there’s no point watching until the bitter end. The interesting thing is that there’s no clear direction pointing to either scenario, yet here we are, setting new highs and being rewarded for our discipline. The temptation is out there, but it’s hard to argue with a 15% return on the S&P 500 in the first half of this year, even if how we got here seems irregular. We will say it again: Now is not the time to get cute or fancy and try to outsmart the markets. Stay focused, don’t give in to fads and assess your risk tolerance. This is the time to make adjustments if you need them. Rates rally — finally? We’ve said before that yields will likely decline in the second half of 2024. Our take has been that the Federal Reserve would continue to dither, waiting on data and holding as long as it possibly could before making a move because it continues trying to push inflation to 2%. The market has decided to take the lead and do some of the heavy lifting for the Fed, and lower market rates will make the Fed’s job a little easier. The concern here is if the Fed is in the process of making a policy mistake by keeping rates higher for longer, will lower rates accelerate the mistake or cushion it? Right now, the market is betting that we will not have a recession and that inflation will continue to approach 2%. With that backdrop, rates have been dropping since last month, and the total return on bonds has been solid. At the same time, equity markets have been streaking upward (which we just discussed above). But are we really on an approach toward a soft landing, or are we about to hit the economic skids? Bond markets are betting on the former, and second-quarter gross domestic product (GDP) could go a long way toward settling that argument. For now, it feels good to have options, which isn’t something we could say a few years ago when the stock market was the only place we could turn to for any meaningful returns. Coming this week
On June 23rd, 1810, German immigrant John Jacob Astor forms the Pacific American Fur Company in New York City.
John Jacob Astor, born in Waldorf, Germany, in 1763, immigrated to the United States in 1784, where he began his career selling musical instruments. He soon shifted to the fur trade, leveraging his connections and business acumen to dominate the industry. Astor's American Fur Company became the leading player in furs, establishing trading posts across North America. As the market waned, he wisely diversified into real estate, acquiring vast tracts of land in what would become prime areas of New York City. Astor's investments in real estate paid off handsomely as the city grew, making him the first multimillionaire in the United States. He left a lasting legacy through his philanthropic efforts, including the establishment of the Astor Library, which contributed to the foundation of the New York Public Library. Astor's life journey from a poor immigrant to a wealthy and influential businessman is a quintessential tale of American success. Astor’s journey from humble beginnings to becoming one of the richest men of his time offers enduring investment lessons. Here are some key takeaways from his life: 1. Have a clear goal but stay adaptable. Markets change, and the ability to pivot is crucial for long-term success.Astor's initial success came from the fur trade, a booming industry in the late 18th and early 19th centuries. He recognized the potential early on and adapted his strategies as the market evolved. His willingness to pivot—from pianos and flutes to furs and later to real estate—demonstrates the importance of having a clear vision but remaining flexible to adapt to new opportunities. 2. Diversify your investments to manage risk. Astor didn’t rely on a single industry for his wealth. After establishing himself in the fur trade, he diversified into real estate, buying vast amounts of land in New York City. This diversification helped him mitigate risks and capitalize on the burgeoning city’s growth. 3. Think long-term. Patience and strategic planning are vital. Astor’s real estate investments were made with the long term in mind. He purchased land in what was then the outskirts of New York City, anticipating the city’s expansion. This foresight allowed him to reap enormous profits as the city grew. 4. Identify and leverage your competitive advantages. In the fur trade, Astor leveraged his relationships and knowledge to secure exclusive deals with Native American tribes and European markets. His ability to navigate complex trade networks gave him a competitive edge. Your competitive advantage as a small investor is that you don’t have to report quarterly to a board overseeing your every move. This should make you less short-term focused. 5. Take calculated risks but manage them wisely. Understand the potential downsides and have strategies in place to mitigate them. Astor did. For instance, his venture into the fur trade involved significant risks due to its dependence on volatile factors like fashion trends and political relations. However, he mitigated these risks by establishing a vast network and he remained nimble. 6. Reinvest profits to compound growth. Reinvesting earnings can accelerate wealth accumulation and create a self-sustaining cycle of growth. Astor continually reinvested his profits back into his ventures. The profits from the fur trade were funneled into real estate, which then provided even greater returns. 7. Plan for the future beyond your lifetime. Effective estate planning can preserve and grow your wealth for future generations and contribute to lasting legacies. Astor was mindful of his legacy, establishing the Astor Library, which later became part of the New York Public Library. His careful estate planning ensured that his wealth continued to benefit future generations. John Jacob Astor’s life is a testament to the power of vision, adaptability, diversification, and long-term planning in building and sustaining wealth. His strategies and principles are timeless and the modern investor can learn a little something from the nation’s first millionaire.  One and done
Last week, we got word from the Federal Reserve that we might only get one rate cut before the end of 2024 and it will probably be in November or December. Consumer Price Index (CPI) and Producer Price Index (PPI) numbers were softer, adding to the narrative that the economy is slowing and prices are still rising, just not as quickly. The May jobs numbers were the only fly in the ointment as far as the recent data is concerned, especially if we are looking for the Fed to potentially put rate cuts on the table sooner than November. We have often discussed how expectations for rate cuts have declined from six or seven at the beginning of the year, to two or three and now to one. The market has been extremely optimistic every time we’ve had discouraging news on the rate cuts front (more on markets below). At some point, markets will have to realize that until we see an actual rate cut, talking about rate cuts is just that: talk. We were certain the Fed would be unable to keep rates higher for longer and would cave — whether from pressure in an election year or, more likely, due to economic decline — and initiate rate cuts. The fact is after considerable progress against inflation from mid-2022 to mid-2023, we have been stuck above 3% since then. The problem now for the Fed is how to get that final 1% of inflation down without wrecking an already anemic economy. The Fed waited too long to move as money flooded into the economy during and after the pandemic as the government spent money on things we did not need and called inflation “transitory” or blamed it on supply chains. The truth is all that money could have been used to shore up programs like Social Security and Medicare. Because the Fed waited too long and failed to account for all that extra money, it now has to play catch-up for longer. The longer rates stay where they are, the more likely the economy will stumble. Companies have gotten used to charging more because people were willing to pay more, and that’s why earnings have been decent. This can only continue for so long. Inflation has not budged for almost a year and looks a little better recently because fuel prices have declined in the past few months. Falling prices for gasoline accounted for nearly 60% of the decline in the cost of last month. That can just as quickly reverse due to energy policies and events in the Middle East. In the meantime, the consumer is being challenged by higher interest rates, housing costs continue to climb while mortgage rates still hover around 7% for a 30-year loan and the economy barely has a pulse. The Fed was widely split at last week’s meeting with some calling for cuts, staying put or raising rates in the months going forward. It finally settled on one cut as we approach year-end. However, the Fed may be forced to cut sooner because the economy, at its current pace, will begin to sputter and the Fed is way more afraid of driving us into a recession than it is of 3% inflation. No cuts? No problem. The S&P 500 and Nasdaq notched new records last week, buoyed by continued optimism around AI (led by the recent run-up of Nvidia and the excitement of its stock split), good earnings and wishful thinking that we’ll see more cuts than what the Fed is stating. The Dow, which pierced 40,000 back on May 17, has been slipping, thanks mostly to Boeing, Intel and McDonald’s. Please remember that the Dow 30 consists of, well, 30 stocks and is not a broad-based index, but it makes great news when it’s up or down 1,000 points because people like big, dramatic numbers. The S&P 500 is a far better measure of the markets; the market has indeed been very narrow this year and the inclusion of high flyers like Nvidia and all the surrounding hype have provided a lot of the lift and have made up for the rest of the names that are having a pretty bland year. In a way, it’s a strong argument for the power of diversification. The Nasdaq is more specialized and benefits from being skewed toward technology, and right now, technology is in favor (as it has been in recent years). So, three cheers for the S&P 500 and the Nasdaq on new records — and here’s to the rest of the stocks catching up to the Nvidias of the world! Coming this week
|
Patrick HueyPatrick Huey is a small business owner and the author of two books on history and finance as well as the highly-rated recently-released fictional work Hell: A Novel. As owner of Victory Independent Planning, LLC, Patrick works with families and non-profit organizations. He is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Advisor in Philanthropy® and an Accredited Tax Preparer. He earned a Bachelor’s degree in History from the University of Pittsburgh, and a Master of Business Administration from Arizona State University. Archives
August 2024
Categories |
RSS Feed