Unfortunately, our March Investment Commentary isn’t any more optimistic than our previous 4 Investment Commentaries. Our economy is in the middle of a significant economic slowdown and the beginnings of significant inflation, a deadly combination that plagued our economy for most of the 1970’s.
One year ago, a bushel of wheat was trading for about $5 per bushel. Ten years ago, wheat was trading for about $4 per bushel. Twenty years ago – about $2.50 per bushel. Thirty years ago –about $2.75 per bushel. What happened in February? On February 7th, wheat traded for $10.63…..on the 11th, wheat traded for $11….and on the 26th, wheat traded for $12 per bushel!!! It has more than doubled in just one year.
The average price of a gallon of gasoline is now $3.14 as oil is consistently trading in excess of $100 per barrel. Anyone who thinks inflation is not a problem is not putting gasoline in his/her automobile to go purchase a loaf of bread.
The Federal Reserve Open Market Committee meets on Tuesday, March 18th. The bond market is indicating there is a high probability the Fed will reduce the Federal discount rate (this is the interest rate that banks charge each other for borrowing) by ¾%. Just like previous cuts in the discount rate, we think this will have a negligible effect on consumer demand but a significant effect on inflation. Lower interest rates have a negative effect on the dollar (vs. other currencies), causing foreign goods to be more expensive to the American consumer.
Like it or not, the U.S. economy is going to feel ill for a while. There is no magic antibiotic to make it get well quickly. According to Bloomberg News, home foreclosures are at the highest levels since 1985. The Wall Street Journal reported that there are $1.75 trillion in mortgages that are “upside-down”. In other words, the market value of the home is lower than what the homeowner owes on the mortgage. Homeowners have a financial incentive to walk away from (default on) the mortgage. This overhanging dark cloud will continue to weaken an already depressed real estate market.
A slowing economy combined with inflation (which should eventually result in higher interest rates) will make for a very challenging investment environment. Boyer & Corporon Wealth Management continues to have a relatively large allocation to cash and short term fixed income investments.
This information is provided for general information purposes only and should not be construed as investment, tax, or legal advice. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.
This information is provided for general information purposes only and should not be construed as investment, tax, or legal advice. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.