Demystifying the economic noise
What goes up must come down…eventually. One thing is for certain, two things are for sure—you can’t time the market. I’ve had a front row seat to this in my career.
Many moons ago, I started my career working on wall street during a time of high volatility and economic windfalls due to the 9/11 terrorist attacks and the dot-com crash. Following that, I completed business school and prepared to start my career in private wealth management just as the market was falling out of bed during the 2008 financial crisis. Fast forward to 2022 and the writing is on the wall.
If we slide into an economic recession, which feels imminent, then it will make the third that I’ve experienced in my lifetime (as an adult). This time I sit in the community economic development space and work for a mission based non-profit focused heavily on main street small businesses whose success (or failure) ripples through to their staff, families and communities.
While my industry may have changed, my foundation is still in finance - I look at the world through an economic lens and have retained my ability to make a sound market assessment.
There is a flurry of economic, technical and anecdotal data that show kinks in the armor and a weakened economy. We are left with simple questions that have complex answers:
Will we have a soft landing?
What will the fallout be?
What impact will the economically vulnerable deal with? (individuals/families with less disposable income, and small businesses without strong cash buffers in place.)
When we look at macroeconomic forces at play, we are dealing with everything but the kitchen sink! But let’s cut to the chase - what does this mean for you, your family, or business?
If this is of interest, read more here.
Corporate earnings are contracting, layoffs are on the rise and the market is whipsawing from stocks to cryptocurrency. We are coming off what I believe has been a long period of irrational exuberance (a term popularized by former Fed chair Alan Greenspan in the 90s during the internet and stock market bubble) post the 2008 recession and that was boosted by the federal, state and local efforts of our government to taper the economic impacts of Covid. Monday morning quarterbacking is real…this is not an assault against those actions, but rearview assessment shows some unintended consequences.
Irrational exuberance: the creation of inflated asset prices associated with bubbles, which ultimately pop and can lead to market panic. (Investopedia)
Volatility is impacting public market mergers and acquisition (M&A) activity and overall debt and capital markets. Similarly, capital raising in alternative investments such venture and private equity are also undergoing pressure, as investors play a game of wait and see.
Higher interest rates are impacting mortgages and adjacent industries such as real estate builders and developers to your local contractor or family looking to purchase or sell a new home.
CPI definition: The Consumer Price Index (CPI) is a measure of the average change overtime in the prices paid by urban consumers for a market basket of consumer goods and services. – US Bureau of Labor and Statistics
Overall recession fears are heightened and inflation is high.
This week’s release of the Consumer Price Index (CPI) number at 9.1%, which is the most widely used measure of inflation, didn’t do us any favors.
The effects of our national inflation are only complicated by the global economy. Our world is interconnected on so many levels.
The war between Ukraine and Russia has created unnecessary bloodshed and loss of life and rattled the U.S. economy. Other nations from Europe, Middle East Asia (EMEA) to LATAM (Latin Americas) depend on certain commodities such as wheat and grain, of which Russia is the world's largest wheat exporter. However, the most pronounced impacts are being felt in energy prices as a result of global sanctions on Russian oil. These products and their byproducts permeate through economic supply chains impacting travel, transportation, and cost of basic goods such as milk and eggs…
Why? Because the cost of the fuel to move those goods (cargo, air, ground) are increasing and the companies are passing them down to the “consumer.”
—Meanwhile wages have remained flat and inflation-adjusted incomes, based on average hourly earnings, fell 1% for the month and were down 3.6% from a year ago. That my friend means YOU have less disposable income, but sharply higher expenses. Cash flow basics – you need to have more coming in than going out. But, for many in our country, the reality is that they can’t make the math work. …and in the South we say “that dog won’t hunt!”
What can you do now to plan for the inevitable recession? This isn’t all doom and gloom, I promise. My intent is to remind you of the opposite. Take this time to as my good friend in leadership says to “keep the main thing the main thing.” Stay focused.
In the greater scheme of things, I have learned in life (still working on this) to focus on what’s within my circle of influence and not to get overly consumed by noise that is beyond my control.
More succinctly, I compartmentalize and try to solve for what I can and focus less on what I can’t…make sense?
For the regular Joe, Juan, or Jill that means starting with your household. Determine where you need to shore up your financial planning. Reduce expenses where you can. Begin to stash more cash in your rainy day or emergency fund. Re-evaluate your financial goals to adjust for these market changes.
If you need a little guidance to form a clear picture of your financial wellness, I’ve got a fantastic resource that you can download right here.
At the end of the day though, what goes down does come up again. It’s a wild ride in the market these days, but just as we have banded together as a nation in the past, we will do so again.