Friday, February 18, 2022
The economy is grinding to a halt and on the cusp of a recession. As inflation ravages the economy, the Fed is well behind the interest rate curve now. Consumers are already pulling back demand via price-conscious shopping. Smaller cap stocks without tangible profits are being vaporized. Oh yeah, oil is taking a breather at around $100 on its way to $150 (or higher!) Can anyone say "Recession?"
Financial farmers need to be aware of what is happening in the global economy because macro events have salient and pertinent effects on their local sustainability. A confluence of events has put a once booming economy in the toilet. And if oil spikes further, the Fed raises aggressively, and/or consumer sentiment falls more, the economic gains of a decade will be flushed.
Considerable thought should be given in the coming days and weeks to the upcoming Fed meeting in mid-March where the Federal Reserve is now thinking of raising rates by 0.50%. Another eye should be on oil. High oil prices are yet another stealth tax on productivity (it costs significant energy to fed cattle, ship cattle, etc.) Almost every facet of the economy is greased by oil. Finally consumer sentiment might just be paramount, and it is falling like a rock. What should investors do?
Well anyone who has been in small cap stocks for the past 90 days has felt considerable pain. Like losses of 60%, 70%, 80% or more. This ties well into my previous post using Cathie Wood's ARKK ETF as a litmus test for innovation and risk appetite in small cap stocks. Let's just say the market is nauseous in regards to its appetite for this sector right now. "Bulletproof" tech hasn't done much better. Mid and Large tech have both been bushwhacked. The "survivors" so far have been pure commodity plays, ie banks, gold, and oil. People sitting on a pile of cash have also looked really, really smart.
If there is a gameplan to combat inflation, increase oil supply, or improve consumer sentiment nobody has seen it yet. Result? The pain will continue, and most likely get worse. We are the on the cusp of a recession; the economic gears are grinding to a halt. It will be extremely difficult to change poor economic policy, disastrous regulations, and incompetent leadership quickly. Financial farmers need to preserve capital here.