What If I Told You…..?
It’s a brand-new year with a clean slate. In a rare calm moment, everyone has their investment plan well structured. It will be logical, disciplined and intelligent.
However, as you put the finishing touches on your plan, you are told interest rates will increase multiple times in the new year.
Inflation will remain stubbornly high and the budget of the average person will be challenged just to break even.
Experts of every variety will predict a global recession. Eight-five percent of expert economists surveyed by The Financial Times forecast a recession within the next year.
The third largest bank in the US will fail while three midsized banks collapse. Experts predict a domino effect with widespread collapse in the US banking system.
War in Ukraine continues while a new war in Israel and Gaza shocks the world. Russia, China and Iran alertly monitor our reactions.
Labor strikes will weaken the entertainment and auto industries. Workers at a Wells Fargo branch vote to unionize in a first ever move.
US household debt will reach an all-time high while housing affordability continues to worsen.
An already tense and divisive political landscape continues to degrade.
And the COVID virus, RSV and flu continue their attack on our immune systems.
That is the backdrop by which you have to make logical and sane financial decisions. Knowing this, who is ready to plunk their money into the stock market? Who is digging a hole in the backyard to bury their cash? Who is rocking in the fetal position expecting the end-of-times?
Obviously, these are not theoretical outcomes. This is a brief summary of 2023. And yet, capitalism survived, businesses earned money and shareholders were rewarded with returns of more than 20%. The US economy remained the envy of the world with growth well in excess of inflation.
That was last year. What should you expect from the new year?
Many bad things may happen. Use caution in drawing false conclusions. It is extremely difficult to measure the movement of macro-economic data relative to the value of businesses.
The news media will feed off hype and spin to try and sell advertising. No matter how authoritative, doom and gloom prognostications will get lots of airtime. None of them will be audited to see how good their fortune-telling skills are.
There will be a presidential election. We will vote for the lesser of the evils. Regardless of who wins the election, capitalism will march forward. I have never seen our elected leaders running HEB, Discount Tire or Buc-ee’s. Politicians impact our economy, but they don’t control it. Capitalism wins in spite of our elected leaders.
Many people will spout expert opinions about the decline of the dollar. The US Dollar will remain the reserve currency. More than 60% of world GDP will be conducted in US Dollars. The Dollar will remain the preferred way to pay monthly bills. However, the Dollar will remain an inferior asset once adjusted for inflation and devaluation. Only hold cash for short-term needs.
We may have a recession. They happen about once every seven years. However, we are undefeated in coming out of recessions and climbing to new heights of economic productivity.
There will be opinions calling for a stock market “crash”. In just the average year, the stock market will decline 14% from its annual peak. Despite this volatility and unpredictability, the stock market posts positive returns 75% of the years.
The Federal debt will be a focal point of discussion. Although it is large and growing, don’t pay attention to the debt as measured in dollars. Rather, measure it relative to the direction of interest rates and growth in GDP. If GDP continues to grow more than our debt, we can continue to grow our way out of the challenge. As interest rates decline, servicing the interest component on the national debt is easier.
The US will continue to be the desired destination for people in search of a better life.
Many scary things will be thrown at us in the new year. Stay focused and disciplined. Capitalism continues to provide better opportunities for our nation. It will not be a smooth ride, but over long time frames, it is consistently good. Own great businesses over decade long time frames.