By: Jeff Anderson
|Close||Weekly return||YTD return|
|US Treasury 10yr Yield||3.69%|
Source: Wall St. Journal
Market Recap – The First Week of Fall”ing”:
Major US equity indices sold off hard this week, with the Dow Jones Industrial Average putting in a new low for the year. It hasn’t been just the US. Global growth fears that have roiled markets across the globe. Unfortunately, the only two things not falling are mortgage rates and inflation (well, not falling fast enough). Mortgage rates are nearing 7%. That ain’t a misprint. Blame it on inflation. Blame it on Powell. Blame it on Rio. Whatever the reason, stuff’s getting expensive.
Fed Governor Powell has a simple message for the consumer. Stop buying stuff! The sooner we bring down inflation the sooner we can get out of this mess. Every time the market rallies, I can just picture Mr. Powell in front of his Bloomberg terminal thinking, “Oh yeah?! You think I’m bluffin’?!.” He’s told us we’re going to feel pain. He’s told us inflation is enemy number one. He’s told us he’ll accept a recession. He’s told us he’d accept higher unemployment! And yet, we are bewildered! About what? How much clearer can he be? INFLATION HAS TO COME DOWN. AND, UNTIL THEN HE’S GOING TO ADMINSTER THE MEDICINE WE ALL KNOW WE NEED BUT DON’T LIKE UNTIL WE’VE RID OURSELVES OF THE INFLATION DISEASE. Like any Doctor, he doesn’t know when it’ll take effect, but he knows it will eventually cure the disease.
Given current mortgage rates, homes are expensive. Prices don’t yet reflect 6.5% to 7% rates. Yet, stocks and bonds, relative to where they were priced a year ago, are cheaper. However, we all see the two differently. If homes were priced daily on an index like stocks and bonds, they would seem riskier. Conversely, if stocks and bonds were priced like homes, they’d look less risky. Do you see the ambiguity here? Buying a home may be an emotional experience, but it isn’t much different than buying stocks and bonds. The only real difference is that there is a daily TV channel dedicated to reporting the ebbs and flows of stocks and bonds and experts opining on the next calamity around the corner. We all know that renting a home and putting all your savings under your mattress is not a financial plan. Owning a home that you can afford, spending less than you earn, and investing in stocks and bonds over a long-time horizon, and not buying high and selling low will get you to financial independence, yet we seem to face some existential crisis that challenges this fundamental understanding at precisely the worst time.
Source: The New Yorker: Artist: David Sipress
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