This week we begin an additional feature to Believe and Obey. Every Wednesday we will focus on stewardship and the prudent use of the resources God has placed in our care. Given my background this seems a reasonable response to God’s gifts to me. Each week will focus on an aspect of financial stewardship and try to explain these important concepts in plain English, from a faith perspective. The first Wednesday of each month will typically focus on a recap of the month just ended. Peace.
The month just ended was by and large saw gains in most sectors of the market. Just about every sector of the stock markets saw gains. This includes large and small companies as well as domestic and foreign companies. All of these sectors are now in a medium-term upswing, but remain in a long-term downtrend. These medium and long-term trends are true for the bond sectors as well. Meanwhile, the real estate and commodities markets, both domestic and foreign remain in medium and long-term downtrends.
What this means for the average investor is that your retirement/investment accounts should have seen some gains in this past month. They may still be showing a loss, or be notably off their peaks but probably do not look as bad as they did earlier this year.
If you are a long-term investor with a long-time horizon until retirement or some other use of the funds, then you should not be particularly concerned about the short-term ups and downs of the market. It can be noisy, but that is all it really is-noise. As people of God, we know better than to try to “get rich quick”. Slow and steady usually wins the race. That does not mean that there are not dangers ahead (more below) but we as followers of Jesus should take the long view.
If you are closer to retirement and needing to pull back on risk, and perhaps look at some shorter-term alternatives then you may want to engage an advisor who specializes in retirement income planning. We will have more resources regarding retirement income planning in the near future.
Remember the 4 Pillars of Investing
- Simple Strategy
- Rule Based
- Emotionally Attainable
More detail can be found here. A great book on the topic, Winning the Loser’s Game is well worth the time.
The near-term economic outlook is in our opinion not great. There is a high degree of probability that the US economy will tip into a recession in the next 12-18 months. This is based on the Believe and Obey Recession Indicator Which stands at a full 100%. This was virtually guaranteed when the Federal Reserve started raising rates. It only takes a slowing of the growth in the money supply to trigger a downturn, and the money supply growth has been negative the last three months. There is still an overhang of previously created money due to the pandemic spending, and money creation that went along with it, that has not worked its way through the system. This will likely keep the price level elevated. This elevation means also that the Federal Reserve has actually been rather timid about raising rates, as the Fed rate is still below the level of price rises, so real interest rates are still negative. This does not bode well for the depth and length of the coming downturn. All this may certainly impact you and your family if unemployment rises significantly.
If a recession does come it will be highly likely that the market will drop significantly. The Believe and Obey Bubble Barometer is showing a mild bubble with a reading of 134.32 (over 100 is a bubble). This number has been much higher 530.48 in March of 2021 but also much lower, 21.59 in March of 2011. The point is a downturn will drop the market so even if you are a long-term investor you should be emotionally prepared. The methodology for both indicators can be found here.
I stand by the view that I outlined earlier this year. Given the continued high level of federal spending and the increasingly large structural deficits that necessitate large amounts of borrowing one of two things will likely occur. If the Federal Reserve keeps raising interest rates or even if they maintain them at the current level then longer-term rates will go up because the US government will crowd out other borrowers in competing for people to buy their debt.
If the Federal Reserve panics in the face of a recession and pivots toward lower interest rates then the market may rise for a bit, but inflationary expectations will sink more deeply into the economy. This will cause long-term interest rates (rates the Fed can control the least) to rise to build in an “inflation premium”. This will cause a downturn in the economy, possibly creating a “stagflation” situation. Either way it is not likely to look pretty.
There are also signs that the US dollar may be losing its “reserve currency” status which could portend momentous long-term changes in the global economic structure as well as in US standards of living. We will delve more deeply into this in the near future. For now be prepared to weather a potential storm. In the meanwhile do the prudent things that we as faithful people know how to do. As John Wesley put it “make all you can, save all you can, and give all you can”. There are no guarantees except God’s limitless love, but that does not mean He expects us to be suckers for a corrupt system built on the values of this world.
Praise Be to God