In a nod to the British WWII “Keep Calm and Carry On” slogan, this week my message to you is, “Keep Calm and Regroup.” I say this because there’s a lot of gloom in the news these days and rightly so: Right now, everything from personal finance to personal safety seems to be in jeopardy and the collective mood is quite down for the start of the summer season.
But I believe that when we act with patience, wisdom, humanity, and perseverance, we’ll get through this stronger ourselves – and we can also help contribute to a sunnier outlook for others.
Here’s why that’s more important now than ever and how we can achieve this.
May’s market slide continues as June blossoms around us. Many people have taken a serious financial hit (hopefully, though, you’ve followed at least some of my advice and aren’t too much worse for the wear).
For the foreseeable future, I believe the best play isn’t to convert your stocks to cash as so many people are doing now but, rather, to continue to research value investments. As I’ve said throughout this blog, follow in the footsteps of Warren Buffett and Charlie Munger: Look for great people leading good companies with solid assets and offerings (whether goods or services), strong brands, and pricing power (meaning that a company’s offerings have some pricing flexibility built in).
You can do your research and find the stocks that you believe are undervalued and hold promise – or you can take the easier-and-effective route of mirroring some of Buffett’s and Munger’s investments.
Whatever you do, please beware of the get-rich-quick schemes that have decimated many investors’ portfolios (Luna 2.0 crypto
is a good example of a very bad idea, in my opinion). As reported by The Washington Post
“When two cryptocurrencies crashed roughly three weeks ago, the effects were devastating. Their collapse sparked over $500 billion
in losses in the broader crypto market. Numerous investors saw their life savings evaporate. Others contemplated suicide. People called for criminal investigations into the company behind it all and government regulation for the larger market.
But now the team behind the failed coins is back at it. On Saturday, Terraform Labs, the start-up behind TerraUSD and its sister cryptocurrency Luna, which both dropped to nearly zero in value, started trading a new digital coin that is part of their revival strategy, referred to as Luna 2.0.”
As I see it, the only people who stand to gain are those who own TerraForm Labs, including founder Do Kwon. Sadly, though, it’s likely that I’ll refer back to this post someday after, once again, some investors have gotten another shellacking.
Federal Reserve Actions
On to the Federal Reserve.
Given the current market turmoil and mixed signals from consumers, I don’t think that the Fed will raise interest rates as aggressively as has been predicted. The data used for decision-making is latent and shows high consumer demand still for goods and services, and I think that latency is critical to the reality: Consumers today are feeling more inflationary pressure than they did 30-90 days ago as gas and food costs continue to rise and housing costs (which I’ll talk about more later in this post) continue to squeeze many people.
Given this, I don’t think that the economy will bounce back as rapidly or as strongly as I and many others had thought. JP Morgan Chase CEO Jamie Dimon summed it up well this week, saying that some form of disruption is down the road. As reported in The Wall Street Journal
“U.S. households boosted spending for a fourth straight month in April, but the rate at which they were setting aside savings fell to its lowest point in 14 years, according to data released last week. That raised concerns that consumers were tapping into savings to keep up with inflation and that the pandemic stimulus had run out.
Mr. Dimon said the data is heavily distorted by inflation impacts and shifting consumer-spending patterns in goods and services. Lower-income households aren’t quite as healthy
, he added.”
‘That hurricane is right out there down the road coming our way,’ Mr. Dimon said. ‘We just don’t know if it’s a minor one or Superstorm Sandy. You have to brace yourself.’”
As I’ve said in past posts, I do believe that a recession is on the horizon. Whether it functionally includes two-quarters of contraction with job losses, etc., or is simply a consumer pullback on spending remains to be seen.
I’ll remind you again that while we approach the economy as math or science, the way I see it, it always comes down to emotion and behaviors – and when people aren’t feeling so great, they tend to engage less in whatever normally drives their spending habits.
Residential real estate is problematic on a lot of fronts right now, to be honest.
There’s enormous demand for housing (both for owners and renters) but the problem is that there’s a lack of affordable housing. In that, I don’t mean simply housing that’s available for low-income folks (which is an ongoing and enormous problem in and of itself), but also that households with relatively healthy incomes are using a disproportionate amount of their income to keep roofs over their heads.
We’re seeing upticks in inventory in many markets, as well as an increase in the number of sellers who are lowering prices and the rapidity of those price reductions, but I’m still not sure that it’ll be enough to offset demand.
In addition, the run-up in prices
that we saw over the last decade but in the last two years, in particular, has been so extreme that housing currently isn’t the reliable inflation hedge that it has historically been for most buyers: The prices deflected the hedge and reduced the benefit. The normal 90-day response time between stock-market fluctuations and correlative behavior in housing isn’t holding, either, and negative pressure is building more than I had anticipated. And with rents up 30% or more in many areas, it’s simply gotten too expensive for many people simply to stay put.
“Housing prices in Nashville have more than doubled over the past 10 years, partly because of a population boom
that has brought nearly 400,000 new residents to the metropolitan area. That has pushed some locals farther away from the city center, adding hours to their weekly commutes. Meager public-transit options mean soaring fuel prices are hitting them especially hard.
To make matters worse, the price of utilities has exceeded the national average every year since 2009. And the surging population has pushed up the price of daycare, too.
Many Nashville residents said in interviews that they are cutting back their spending or taking on more work. Nearly all of them are re-evaluating their budgets to determine what is a necessity and what isn’t. Some have had enough and are leaving town.”
The Sunny Side: It’s a Great Time to Regroup and Get Ahead
Given all the challenges, I think there’s still a bright side. As I’ve said before, a mild recession is healthy for the economy, providing a much-needed reset and as long as you can hang onto a reliable source of income and manage your spending, you can come through alright.
And if you want to do even better than alright, then heed the advice I always give about value investing and make some wise decisions – yes, you need an emergency fund and some additional liquidity via savings, but sitting on cash now is a mistake when inflation is so corrosive.
Another great option? Build a profitable business. Empowering yourself through even a modestly successful business is one of the best ways to ensure your financial well-being. So, if you’ve got a great idea, now’s a good time to test the market – if it makes it through uncertain times, then it’s likely that it’ll do even better when the economy returns to a more optimistic outlook.
And while we’re on the topic of well-being, as you’re sorting out how to strengthen your position this week, I challenge you to think of three ways that you can benefit others. If you had the opportunity, barrier-free, what would you do? For me, I’d want to see more affordable, high-quality educational opportunities, health care, and legal services for all. Figure out what your three changes would be: Then, figure out something you can do in your community to make a positive impact, whether it’s for one person or the whole city.
It’s a way to regroup and refocus your energy on helping others as you gain, too.