Are Stocks and Real Estate Poised for a Bust
January 25, 2022
By Mitchell Anthony
The equity market has been going through an extreme period of volatility over the last few months as investors fret about whether a soft landing or a recession is on the horizon. This volatility has everyone nervous because of substantial amounts of wealth that Americans have in our financial markets. If there is a meaningful recession then markets undoubtedly will correct 20% or more from past highs. Conversely if there is a soft landing for the problems that we are having with inflation and growth than the markets will get back on a path to higher prices as soon as this becomes visible. The market is clearly worried about inflation and much higher interest rates and as a result equity prices have already fallen 10 to 15% on equities and demand for homes has softened. This equity correction seems overdone and it would seem that prices will stabilize very soon as we await more data on inflation. We have never had a lasting substantial correction of more than 10% in equity markets that wasn’t driven by a substantial economic event. We have not yet had an economic event and do not believe one is upon us now, however we do recognize we are close to the amount we are willing to lose from a previous high before making sales to protect our assets. We also recognize that the equity Market has had a substantial move over the last two years (over 50% appreciation see figure 1 &2) that must be considered when identifying a stop loss point for the equity market. We believe that it is not time to panic and sell equities aggressively and move to cash but will do so soon if selling persists.
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Will Inflation Wreck this Economic Recovery?
By Mitchell Anthony
January 7, 2022
2021 was a great year of economic recovery from one of the worst events that ever took hold of the global economy. The pandemic! Unfortunately there was some collateral damage and an inflationary cycle began that is difficult to understand. More importantly expectations for inflation have risen dramatically. Inflationary expectations have been anchored for over a decade at very low levels of 2-3%. However the CPI is currently measuring 6% inflation and the PCE (personal consumption expenditure index) is at 4.7%. These high levels of inflation have not been seen in decades and many believe they will not be sustainable because they have been achieved through strong demand that followed a long period of deprivation. These high levels of inflation has caused corporate leaders, business owners, and consumers to fear and worry that there is nothing ahead but significantly higher prices for the next few years. As a result business leaders are acting in a defensive manner to prepare for this inflation by putting plans in place to raise prices for their products. Likewise workers are demanding more wages to offset the inflation they believe lies on the horizon. This sort of thinking has caused inflationary expectations to become unanchored. As this occurs it becomes challenging to re-anchor expectations for inflation back at low levels that are consistent with healthy economic growth without a recession and/or a sharp correction in asset prices. Read more
