{"id":2336,"date":"2022-10-28T15:47:31","date_gmt":"2022-10-28T15:47:31","guid":{"rendered":"https:\/\/mgfs.net\/?p=2336"},"modified":"2022-10-28T15:53:18","modified_gmt":"2022-10-28T15:53:18","slug":"from-the-desk-of-mgfs-3rd-quarter-2022%ef%bf%bc","status":"publish","type":"post","link":"https:\/\/mgfs.net\/blog\/from-the-desk-of-mgfs-3rd-quarter-2022%ef%bf%bc\/","title":{"rendered":"From The Desk Of MGFS – 3rd Quarter 2022\ufffc"},"content":{"rendered":"\t\t
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Welcome to Fall!<\/h2>

For the third quarter report, we will focus on the following topics:<\/p>

  • What\u2019s on your mind?<\/li>
  • Inflation<\/li>
  • Economy<\/li>
  • Markets<\/li>
  • Our views<\/li>
  • Notable quote<\/li><\/ul>

    What\u2019s on your mind? <\/strong><\/h2>

    You want to know, how long will the market chaos last? What should you do? What conditions need to take place for the economy to improve? And we will do our best to address these issues in this report.<\/p>

    Inflation <\/strong><\/h2>

    As of this writing the annual inflation rate is 8.3% with food prices averaging over 11% more than the year before. In September, higher inflation impacted demand. Oil, like most commodity prices, declined. However, with OPEC cutting oil production by 2 million barrels a day, oil prices are rising again.<\/p>

    The Federal Reserve (Fed) has used several tools in their toolbox to fight inflation. These include raising the federal funds rate, designed to raise overall interest, and reducing the money supply (M2) by selling securities back to its member banks. These moves are intended to slow spending, which slows the economy, therefore lowers inflation. Concerns are looming the Fed is being too aggressive in their policy decisions and may throw the economy into a deeper recession.<\/p>

    Although the headlines reinforce these efforts to reduce inflation, other lesser understood forces are reinflating the economy. For example, banks actively lending money to the private marketplace add more money supply into the system. As well, while some may argue the government\u2019s fiscal spending policies are necessary for social welfare, others will suggest they are excessive and exacerbating inflationary pressures. The pattern is clear with a simple metaphor: imagine trying to patch a leaky boat while new holes are being drilled into it. These offsetting moves make it harder and more unpredictable to control inflation.<\/p>

    Economy <\/strong><\/h2>

    The Fed is trying to slow the economy down while minimizing impact on employment. The news is mixed. The good news is that the job market is holding its own, having increased in September by 288,000. Industrial production has been positive for the first eight months of the year. Supply chains are improving but are not back to normal. In fact, many companies like Nike (apparel) and Advanced Microdevices (semi-conductor and other chips) that experienced shortages for the last year, now can\u2019t move enough inventory, potentially causing prices to come down with possible layoffs.<\/p>

    Rising mortgage rates negatively impact the housing market. Rents are increasing at a more rapid pace and keeping up with inflation. Throughout 2022, in many, but not all areas, home sales and new construction are down, and home prices have decelerated. It appears that home prices increased at a higher pace than rents and are now being rebalanced under current economic conditions.<\/p>

    The economy contracted in the first two quarters and GDP growth in the third quarter is predicted to be flat to low.<\/p>

    Markets <\/strong><\/h2>

    2022 has been a volatile ride for both equity and bond markets. Rising interest rates have negatively impacted bonds for their worst year on record in over 40 years. Expectedly, as interest rates continue to rise, volatility will persist. Rising interest rates typically lower equity valuations by depressing future earnings and cause stock prices to decline.<\/p>

    Our Views<\/strong><\/h2>
    • The Fed\u2019s target inflation rate is in the 3% range. It will take time to get there.<\/li>
    • The Fed should not raise rates too much. While Fed Chairman Volker, in the \u201870s and \u201880s, hiked rates to great heights to curb inflation, the era did not have anywhere close to the amount of government debt as we do today. Today, debt is financed at exceptionally low interest rates. As debt rolls into new bonds at higher rates, the cost to carry this debt may become too great, representing closer to 50% of government spending. This tax would be too great on our economy and is something to be watched beyond presumed November and December Fed rate hikes and those into next year. We are hopeful this remains top of mind for the Fed.<\/li>
    • Future market movements will be dependent on macroeconomic and inflation data. This will drive future Fed policy decisions. We want to emphasize that while fiscal policies could indirectly impact inflation, the main driver of inflation is the amount of money circulating in the economy. The markets, as always, will react to what the Fed says and does.<\/li>
    • Bad economic news is good for the markets and good economic news is bad. Huh? Signs of significant economic slowing will limit the Fed\u2019s decision to push interest rates upward and the stock market downward. Stronger economic data, including September\u2019s decent job report will increase inflationary pressures and the Fed\u2019s potential to raise interest rates. If this sounds counterintuitive, you are right. Unfortunately, this is where we currently stand.<\/li>
    • We believe that inflation needs to come down significantly and stabilize before we return to an overall longer-term bull market. In addition, we believe that government spending and regulations need to come under greater control and balance for a pro-growth private sector environment.<\/li>
    • We believe in clean, renewable energy, but today\u2019s policies are premature until a sustainable infrastructure is built. Unless something changes, these policies will present headwinds to economic growth. Think about the California mandate to produce only electric cars by 2035: only days later, CA then warned of a brown out and asked its residents to curtail consumption of electricity!<\/li>
    • Official or not, it feels we are currently in a recession and expect elevated volatility through 2023. Each of your experiences in the recession will be unique, and we encourage you to discuss your concerns with us, if any, to ensure we have the best plan in place for you.<\/li>
    • Remember that bear markets do not last forever. Bull markets are longer lasting both in size and length of time. There are also cyclical market rallies during economic downturns and some can be significant. They can contribute to a large percentage of a portfolio\u2019s overall positive performance. Research shows missing the top 10 performing days over most timeframes results in missing an average 50% of one\u2019s performance potential.<\/li>
    • Many of our clients with long-term income requirements have incorporated our bucket strategies for the short, mid, and long-term. The best course of action may be to maintain these normal allocations.<\/li>
    • For some of you with excess cash, this is a good time to either enter the market or dollar cost average into it for the long-term. There will always be companies that thrive and will be profitable, even in a recession. There are always opportunities.<\/li>
    • As interest rates continue to increase, coupon rates become more attractive as old bonds mature and new bonds are issued. The bond market will stabilize as interest rates start to peak.<\/li>
    • We bring up Roth conversions quite frequently these days. Why do we do this? It is better to convert when asset prices are depressed and prior to a potentially larger market recovery. Paying taxes on lower valued traditional IRA assets, reduces overall taxes and provides the potential to purchase more low-priced shares to grow over time in the Roth IRA account. When held properly, the Roth can grow tax-deferred and allow for tax-free distributions. Call us and we will let you know if this makes sense for you, too.<\/li>
    • With markets down, some of you can take advantage of rebalancing your non-IRA accounts now because the tax implications have diminished. This aligns portfolio risk with your risk tolerance, and tax harvesting can be an excellent strategy.<\/li>
    • This will be a year where taxable accounts holding many mutual funds will not only experience losses but high realized taxable gains. We may be able to implement a strategy to minimize your taxes before December 10.<\/li>
    • Fixed annuity rates are finally becoming attractive if you are seeking safety for a portion of your portfolio.<\/li>
    • Buffered annuities offer unique exposure to how insurance companies manage their own balance sheets to participate significantly in positive market performance and to protect from full participation in market downturns. These solutions can be accompanied by income benefits that help with portfolio longevity beyond non-insurance products, as well.<\/li>
    • Stay calm during all this chaos. Filter out the noise, some of which is fearmongering. Make rational, rather than emotional, financial decisions.<\/li><\/ul>

      Notable Quote <\/strong><\/h2>

      We thought this would be an appropriate quote. It comes from John Templeton and is good to keep in mind during these crazy times! \u201cThere will always be bull markets followed by bear markets followed by bull markets.\u201d In other words, and as history has proven over and over again, the markets are both cyclical and resilient.<\/p>

      Thank you once again for the opportunity to serve your financial needs! We are conducting year-end reviews and are always here when you need us.<\/p>

      Your Partners with MGFS<\/strong><\/em><\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"

      Welcome to Fall! For the third quarter report, we will focus on the following topics: What\u2019s on your mind? Inflation Economy Markets Our views Notable quote What\u2019s on your mind? You want to know, how long will the market chaos last? What should you do? What conditions need to take place for the economy to […]<\/p>\n","protected":false},"author":2,"featured_media":2344,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/mgfs.net\/wp-json\/wp\/v2\/posts\/2336"}],"collection":[{"href":"https:\/\/mgfs.net\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mgfs.net\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mgfs.net\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/mgfs.net\/wp-json\/wp\/v2\/comments?post=2336"}],"version-history":[{"count":16,"href":"https:\/\/mgfs.net\/wp-json\/wp\/v2\/posts\/2336\/revisions"}],"predecessor-version":[{"id":2354,"href":"https:\/\/mgfs.net\/wp-json\/wp\/v2\/posts\/2336\/revisions\/2354"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/mgfs.net\/wp-json\/wp\/v2\/media\/2344"}],"wp:attachment":[{"href":"https:\/\/mgfs.net\/wp-json\/wp\/v2\/media?parent=2336"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mgfs.net\/wp-json\/wp\/v2\/categories?post=2336"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mgfs.net\/wp-json\/wp\/v2\/tags?post=2336"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}