Love, Money + Real Estate #18
Inflation, the Fed, and when to make your next stock market investment
Greetings, Friends. Happy Labor Day.
It’s been a busy month for us at Think Glink and Best Money Moves. For all of my new subscribers, welcome. I’m glad you’ve decided to join us. Let’s bring on the Fall!
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Are we in a recession? Depends on your pocketbook
Looking back, GDP contracted over the first two quarters of the year. That’s typically the definition of a recession - or part of the definition. As inflation was rising and gas prices became almost unaffordable, a lot of people starting feel worried about which way the economic winds were blowing.
At the end of June, 52% of Americans said they were worse off than a year earlier. By mid-July, 93% of Americans were worried about inflation and most thought the economy would get worse.
That was up from 41 percent in April, and was by far the highest share in the survey’s five years. Only 14 percent of Americans said they were better off than a year ago, the worst in the survey’s history. (Survey conducted by Momentive for the New York Times.)
The University of Michigan’s Survey of Consumers hit its lowest level in its 70-year history. And, the Conference Board’s consumer survey registered three months of a declines in a row.
Who wouldn’t feel bad spending $100 to fill up the tank of a Honda Minivan?
Add to that, Covid was on the upswing. Again. (I finally caught Covid at the end of June, and was sick for the next three weeks.) Which didn’t help.
Feeling better about the economy? You’re not alone.
Starting in August, things began to turn around. The University of Michigan’s Survey of Consumer registered a decent uptick.
The final August reading continued the early month improvement in consumer sentiment, rising 13.0% above July but remaining 17% below a year ago. Most of this increase was concentrated in expectations, with a 59% surge in the year-ahead outlook for the economy following two months at its lowest reading since the Great Recession
The Conference Board’s consumer sentiment index also rose, from 95.3 to 103.2.
And then gas prices have dropped significantly since I took that picture of the pump in June. Today, it’s possible to find gas for under $4/gallon, a relief to everyone who has to drive for their job. And, the stock market has come a long way back from the lows earlier this year, which made people a little less freaked out about their retirement, bank and brokerage accounts. The job market is extremely strong, with 11.2 million jobs, about twice as many as people who are looking for a new gig.
Food prices are still high, as is inflation, but at least it isn’t getting any higher. And may even be dropping.
Not perfect, for sure. But better? Yes. And, all of this is adding up to a measurable improvement in the national mood.
Wait for it: interest rates are heading up
Although inflation may have paused its upward rise, it isn’t where the Fed wants it.
Recently, Federal Reserve Bank chair, Jerome Powell, made it clear that he’s going to “forcefully” fight inflation with every tool he has. That means, interest rates are going in one direction - up - until inflation comes down substantially. And that, my friends, could take awhile. In the meantime, there will be “pain,” for everyone as rising interest rates impact almost everyone’s pocketbook:
Mortgages will cost more (the housing market has slowed considerably this year, with new and existing home sales dropping off precipitously);
Unpaid balances on credit cards will cost more to service, as will any other debt with a variable interest rate;
Businesses will pay more for their loans, too. And, that could filter down to those who buy their products and services.
If you were lucky enough to get a mortgage under 3%, hold on to it if you can. It’ll be awhile before we see 30-year fixed rate loans that low. The question on every economist’s mind is can we manage a soft landing versus crashing into a recession?
Odds currently favor a recession in 2023. What do you think?
And about the stock market
Plenty of smart people are calling today’s stock market prices a “bear market bounce,” meaning that equities have come up quite a bit but it’s temporary. They’re likely to fall further.
Noted investor Jeremy Grantham says we’re in a “superbubble” and the stock market has a lot further to fall. His latest paper is a good read (and quite understandable).
If he’s right (and he does have a good track record), you might want to make sure your investing powder is dry (so to speak).
What are you doing?
Great reads from ThinkGlink, LawProblems, and Best Money Moves
Missed some of our recent work? I’ve included some of the recent content we’ve added to our websites. And, BTW, I’ve never answered a question about bats before…
How to Plan a Move Before Retirement
Get Rid of Bats and Other Uninvited Guests
Settling an Estate
Calculating Capital Gains
Do renters make good neighbors?
Do You Have a Bird Nest in Your Dryer Vent?
U.S. rents on the rise: How to fight housing insecurity for all employees
4 Benefits to Support LGBTQ+ Employees in the Workplace
Rainy day fund: Helping employees weather financial uncertainty
When to Change Your Living Trust
Tax Implications for Selling Foreign Property
Got a real estate question? Email me at Questions@thinkglink.com.
“This Week in Wealth” from WGN Radio
If you haven’t checked out my weekly show, I spend 30 minutes every Sunday chatting with Tom Fortino, an investment advisor based in the Chicago Metro Area. We talk about the economy, how you should think about funding your retirement, and what to do about inflation and how it affects your spending.
Last week we talked about what makes up a recession (and how you should plan for it).
It’s a lively half hour starting at 6:30am CT Sundays at 720 WGN or wgnradio.com. If you missed an episode, or if you just like to have ONE DAY to sleep in, no worries. All episodes are podcasted here: https://wgnradio.com/this-week-in-wealth/.
On a personal note…
I love working virtually, but I really miss seeing our employees on a daily basis. So, it was especially fun for a few of us to get together for dinner last month. If you’re working virtually, I hope you’ll get to do something in person with your colleagues soon.
Speaking of which, I’m very much looking forward to my trip to Las Vegas (for HR Tech 2022) and Denver. Seeing friends and colleagues and all the new innovation the last few years has borne is incredibly invigorating.
I hope your Labor Day is relaxing. Happy September!
Thanks for reading Love, Money + Real Estate! Subscribe for free to receive new posts and support my work. And, please recommend my newsletter to your friends and family members.
Thanks for the posts. I look forward to these readings.
Ilyce, you know I love you, but the labor picture defies all the logic about "what a recession is," at least by traditional definition. Yes, Jerome Powell is trying everything to push us into a recession, but you know where's he going to push us first(?) - into Democratic control of Congress, at least one house or or the other. Republican control of both would've been depressing, although we'll see what happens. I'm feeling better about the economy and I'm on pretty much a fixed income now in my old age. I would not have said that in June or July. Love your newsletter and insights. Always.