Stocks fell sharply (Sept. 13) on the news that inflation hasn’t eased and in fact rose despite an aggressive increase on interest rates by the Federal Reserve. Broader than this news, can you give us a check on the temperature of the markets?
The Federal Reserve is very serious about stopping inflation. They’re going to raise interest rates. Today, [Sept. 13], the one-year Treasury jumped another four-tenths of a percent. What’s really happening is the bond market is responding as interest rates rise and other investments besides stocks become more attractive. When you get 3.8% for one year on a U.S. Treasury, we used to be getting nearly zero. So, that makes a lot more money wanting to go into those safer investments. The other part is stocks. At this time of year, it’s pretty common to have a weak market.
With talk of recession, does that impact the way you invest or the types of investments you make for clients?
When you’re in an inflation cycle, you’re not in a recession cycle. Believing that we’re going to come out of this inflation and go into a recession, I’m not a part of that camp. I actually think they’re having trouble slowing inflation down and they’re going to work really hard to do it. How much of a negative that creates, it won’t be long. What you’re doing right now is fighting inflation. Recession is when you have a whole lot more people wanting to go to work than you have jobs, and we are on the opposite of that scale and been on the opposite of that scale for quite a while. Really, April 2018 is when the demographic shifted and we had more jobs than we had people and then COVID and all this other stuff. We had more retirement. It’s a big baby boomer shift. The people that could work are less and the people that want to work are even less.
The stock market shifts are day to day, hour to hour. What are the key numbers or factors you watch to get a longer view of the market?
You really look at the ratios of the price of a company to their earnings and their cash flow and their book value. Really the ratios of cash, and free cash flow is probably the most important thing. You look at how much money companies are bringing in compared to what they’re priced. Really, the price of stocks have come down pretty substantially, so they are cheaper in the ratio world. You’ll hear about these PEs, that’s price to earnings. In this economy, it’s all about free cash flow. When people are afraid, the multiple is pushed down. When people are greedy, the multiple is pushed up. When people are confused, which is most common, they don’t know what to do. Right now, we’ve got all three of those going on. The worst of all is human behavior. People tend to do just the opposite of what they should do. In the short term, when you see these things on the news, you react. Those are all very small movements, even though we think they’re very large. A lot of times the stock market will move more with one day than it will the entire month.
What types of investments are people interested in now? Does uncertainly lead to interest in more liquid investments?
Because oil prices are up, people are more interested in energy stocks than normal. And then because people are afraid, they’re interested more in safety stocks with higher dividends. That would be people that are more investment kind of people. I don’t have a good answer for the speculative investor because I don’t really do that.
The U.S. slipped one spot this year to No. 18 out of 44 developed countries in the Natixis Investment Managers Global Retirement Index ranking retirement security. How has the price of all goods rising impacted retirement savings, and what are you seeing with your clients?
A lot of people are excited about the value of their house going up, but that really means the cost of housing for everybody is way up. That’s a big hindrance when you talk about retirement. That’s one big issue. Inflationary cost in this country have hurt ability for a person to be financially independent or financially secure. That’s why inflation has to get stopped. (The Fed) has to stop it. Inflation is actually the opposite of what most people think about. It’s actually the currency going down in value, not the cost going up. Everything gets more expensive because your money is not worth as much. Because things are traded in the U.S. dollar globally, it’s helping our economy and our inflation better than other countries. As far as retirement, our standard of living in the United States has continued to drop for the last 30 years and probably will keep dropping. When you compare it to the 6 billion people that don’t live in this country, they would love to have our standard of living.
Mercy Springfield Communities relocated a clinic; San Clemente, California-based law firm Gilson Daub Inc. expanded to the Springfield market; and a second video gaming center for Contender eSports Springfield LLC opened in the Queen City.