January Minutes

Happy New Year!!!

Welcome to my blog! I have many ideas and plans I want to pursue each week that will help organize my thoughts and hopefully spark some new ideas regarding your investments. 

So... let's jump into it and talk about what has happened recently.

What a crazy year we had. November closed out the annual inflation rate information for the U.S. at a whopping 7.1%. The next update on inflation will come out on January 12 at 0830, so save the date! It's essential to track how inflation is doing in this environment and the thoughts of the FED. 

The FED is looking to slow down the rate hikes, with many economists saying 2023 will begin the recession. It is important to remember that the economy lags behind the stock market, so the bottom will be in before the economy sees any relief.  

Demand destruction is inevitable; the economy will spiral into a downturn with both interest rates and inflation remaining at current values. With this knowledge, perilous investors would attempt to time the bottom. Unlike them, I would like to time a more favorable range where equities are less expensive! ISN'T THAT A MUCH BETTER IDEA? 😂

"There’s now a 70% chance that the United States will enter a recession next year, according to the results of a new survey of 38 economists conducted by Bloomberg. That’s up from 65% in November and 30% in June."      - Sarah Hansen

To do this, knowing that the stock market is predictive and will bottom before the economy turns around is paramount. Researching strong companies with protective moats will ensure the investor turns profits for the next 10 years. Right now is the time to do the work and where wealth can be created.

On top of tracking big company earnings, reports will help us understand what part of the economic phase we are entering or continuing in. For example, suppose we hear that DAL earnings were lower than analysts anticipated, with JPM missing and AXP not having as much revenue due to customer-reduced spending habits. In that case, it confirms the recession is continuing. If companies begin to pivot from this course, this is where the market can find out. Eventually, stock price and earnings will correlate. Still, as a believer in the inefficient market theory, I take advantage of emotional short-term trades to pick up shares of good businesses.

Understanding the FED and its goals are an essential factor too. Never fight the FED; the stock market will continue to go down until the FED pivots from their rate hikes due to the nature of high-interest rates and how they discourage new loans, meaning businesses aren't expanding, customers spending less, etc.

In Summary

The FED will probably pivot sooner rather than later while kicking the problem can down the road to the not-so-distant future. Inflation will stay elevated for longer than analysts anticipate, and the FED will most likely pivot before their 2% inflation goal.

Another thing I will be analyzing every so often is what so-called super-investors are buying in the previous quarters. This will help identify the economic phase and potential market opportunities. Since we are not billionaire investors already, it would be good to understand some of their insights and the potential for inefficiencies in the market. 

The key takeaways from this are that we are, in fact, in the mid-to-early recession phase, projecting the stock market may begin to recover around late 2023 or early 2024. The types of businesses we would be interested in picking up will change throughout this economic cycle, but this isn’t a hard rule. If we can pick up a great company at a fair or undervalued price, there's no reason to look a gift horse in the mouth and discard it due to arbitrary rule sets.