From the Desk of Joe Rollins
Over the last several years, the profession of an economist has fallen to new lows. And quite frankly, they deserve the demotion they have received. Going back to 2022, the economists were adamant that the economy would shrink and recession was inevitable in the coming years. They could not have been more wrong. The most recent economic data has even further elevated the U.S. economy and projects a more robust economy for 2024.
I want to discuss the economy in greater detail in this posting since it is extremely important. I also want to reflect on earnings in the fourth quarter of 2023 and how they should impact stock prices going forward. Since 2024 is an election year, I have to report on the shenanigans going on in Washington to boost the economy and improve the chances that one politician or another might win the election. From an economic standpoint, these decisions are very damaging, but from an investor in the stock market, they are extremely helpful.
I also want to discuss the recent demise of the Chinese economy and many problems with China that have not reached the media yet. The stock markets in China and Hong Kong have been dismal, and until China changes, they will continue to be dismal.
The most famous fund manager of all time is Peter Lynch, who successfully managed the Fidelity Magellan Fund for many years. Peter Lynch had a famous saying that you did not need to read economic statistics; all you needed to do was go to the mall and check out the people flow to determine how good the economy really was. I took a trip on Saturday, and I want to give you my impressions of the economy as I saw it while I was on the road.
Before I discuss all these incredibly exciting topics, I need to update you on the January trading period. For the month of January 2024, The Standard and Poor’s Index 500 stocks were up 1.7% for the month. This index would have been up much more except for a significant sell-off of 1.6% on the last trading day of the month. Federal Reserve chairman Jerome Powell made a speech that day indicating that no interest rate decrease would be in the cards for March 2024. The stock and bond markets sold off dramatically based on these statements. Theis interesting to note that both of those markets recovered and even went higher as the week progressed. But in any case, even a 1.7% increase in January is immensely satisfying. Remember that if each month this year has a similar return, the index would have an annual gain of over 20%.
With the S&P up 1.7% for the month, that gives it a one-year return of 20.8% for the one year period. The NASDAQ Composite was up 1.1% for January and 32% for the one year period ended. The Dow Jones Industrial Average was up 1.3% for the month of January and is up 14.4% for the one-year period then ended.
As a comparison, Barclay’s Aggregate Bond Index was down .1% for the month of January, and for the one-year period, it is up 2.2%. I always try to give you a bond equivalent so that you can understand the difference in returns between stocks and bonds. The long-term performance of stocks versus bonds is dramatic. The S&P over the last 10 years is up 12.6%, the NASDAQ Composite over 10 years is up 15.1%, and the Dow Jones Industrial Average is up 11.8% annually over the 10 years. Compare that with the Bond Index, which has averaged 1.6% for the last 10 years. I speak about this often in these postings, but if you had been invested in bonds over the last decade, your investments would not have generated even enough return to exceed the rate of inflation. I do not see bonds contributing significantly going forward, even though they may have a small gain in 2024.
On Friday, they announced the job market for January 2024. The so-called experts were predicting a gain in employment for that month of 187,000 workers. To shock everyone, the payroll numbers increased by 353,000 for the month. It is vital that you understand that for employment, January is one of the worst months of the year. You have the double negative effect that many construction workers are unable to work due to weather in the north, and the retailers are laying off excess employment for the month during Christmas. The reported number that is so dramatically higher than what is expected is extraordinary.
Not only was that number good, but they also increased the number of employments in December. Therefore, for two straight months, you have increased employment of more than 300,000 new employees, which is very strong. Unbelievably, the unemployment report was once again reported at 3.7%, which is a low level of unemployment, and it leads back to a sub-4% jobless rate, which goes back to December of 2021. Take into consideration that for all the months of 2021 and 2022 and the first month of January 2024, unemployment has been less than 4%.
Obviously, this is an extraordinarily strong labor market. I have quoted many times in this newsletter that recession is highly unlikely if employment continues to be full. When I went to college, they taught us in economics class that full employment was 5%. Here we have the last two years where unemployment has been less than 4%. That almost surely means that employment is full.
The good news continues to roll in with this employment report. It was announced that the average hourly earnings over the last year had risen 4.5%. An exceptionally large increase in earnings by employees. This increase will obviously flow into consumer dollars, as I will reflect later in this posting. As you recall, the so-called economists forecasted a recession in 2022, but here we are in 2024, and certainly, the recession is nowhere in sight.
A year ago, economists saw a recession as highly likely and projected annual economic growth of only .2% for all of 2023. How surprised they must have been recently when it was reported that the GDP for all of 2023 grew at a 3.1% rate. It is hard to imagine that the so-called trained economists could have mis-forecasted the economy in such a dramatic fashion. Fortunately, in these postings, my projections were significantly better.
What was interesting is that for the last two quarters of 2023, the GDP went up 4.9% in the third quarter and 3.3% in the fourth quarter. That would indicate that the economy is, in fact, slowing, which is a good thing. In order to slow down the Federal Reserve from increasing interest rates, the economy should moderate and settle in at a GDP growth of roughly 2.5% per quarter. If we were to get to that level with inflation down to 2% annually, I think you would see interest rates fall fairly dramatically by the Federal Reserve.
Everyone must have been in shock when the Atlanta Federal Reserve put out its most recent posting of the projected GDP for the first quarter of 2024. Their current projection for the GDP is at 4.2%. Can you even imagine the shock of economists seeing that print of 4.2% when you have been calling for a recession for over the last 25 months? People really do not understand what goes on when the chairman of the Federal Reserve comes out every six weeks and makes a projection of the economy. If you have ever watched the speech, you would see the stock market futures and the market itself move 200-300 points in a matter of minutes.
What is going on here is that the bond market, which is many times larger than the stock market, is trying to influence the Chairman and embarrass him on national television. There is no mistake about what the desire of the bond market is. To them, a good recession is extraordinarily profitable to them. If we have a recession, then clearly, interest rates would come down, and they would profit. I know it is a twisted philosophy that this segment of the invested public would really prefer mass unemployment so they would benefit. They must be terribly disappointed that the economy continues to do very well.
For years, I have been saying in these postings that you must ignore the noise in the news and look to earnings. A couple of years ago, I had several clients who insisted that I sell the stock Facebook because of whatever philosophical difference they had with the company, they did not want to own it. I argued that at that time, regardless of how you felt about the company, you needed to look at earnings to evaluate it. What drives stock prices are earnings, and the misconception by the public on this subject is quite distressing.
I thought maybe you might be interested in a look at earnings for the fourth quarter of 2023 and see what we could learn from those earnings. Let us compare some old-line companies that have been blue chips for our entire lifetime as compared to the new tech companies that have risen to prominence in recent years. For the fourth quarter of 2024, Exxon made a $9 billion profit and Chevron made a profit of $6.5 billion. If you compare the two, General Motors made a profit of $2.2 billion and General Electric had a profit of a measly $348,000 for the quarter. All these are old line blue chip companies that have been around for generations.
If you compare the earnings in the fourth quarter of the tech companies, you can see why tech is profitable and a good investment and those companies are less profitable. For the fourth quarter of 2023, Apple made a cool profit of $34 billion, and for the year, had a profit in excess of $100 billion. The company Google, now called Alphabet, had a profit of $20 billion for the fourth quarter and an annual profit of $73 billion. Microsoft turned in a profit in the fourth quarter of $22 billion and has an annual profit of $82 billion. Even Amazon had a profit in the fourth quarter of 2023 with an income of $10 billion and an annual profit of $30 billion. The so-called Facebook, now called Meta, added a profit of $14 billion in the fourth quarter and an annual profit of $39 billion.
You really do not need to be a rocket scientist to understand the magnitude of these numbers. The earnings by these tech companies are extraordinary by any definition and, as an investor, cannot be ignored. It is interesting that after the massive sell-off in 2022, the so-called Wall Street experts project that it would be 2025 or 2026 until we got back to all-time highs. Interestingly, the Standard and Poor’s Index 500 Stocks and the Dow Jones Industrials both reached all-time highs in January 2024. Therefore, it only took less than 13 months for the market to recover all its losses and go to all-time highs. Much of this gain has been led by these tech companies, and rightly, their gain is based upon their extraordinary earnings. There is nothing in the evidence that indicates these earnings will do nothing but increase as the economy strengthens into 2024.
Historically, the presidential election year is almost always good for the stock market. There just seems to always be a way that an incumbent president can flood the economy with money and, therefore, increasing the possibility of re-election. That is precisely what is happening now in Washington. Last week, the House passed an income tax reduction bill that would increase the deduction for each dependent a taxpayer has. Interestingly, this reduction would go into effect retroactively on January 1, 2024. Notwithstanding, many people have already filed their tax returns, they want to give larger refunds to taxpayers with the intention of buying more votes in the presidential election.
You must understand now that the Federal deficit budget in 2023 is already forecasted to be more than $2 trillion. That is 7.5% of GDP, which is roughly double what the average has been in the economy from 2016 to 2019. What this means is that the deficit has run at roughly 3% of GDP in the years prior to COVID-19. Since COVID-19, the Federal deficit has not been lower than $2 trillion annually and continues to grow. I give you this information so that you can see that there could not be a worse time to propose a decrease in income tax rates. With Federal deficits running at extraordinarily high rates, why would you contribute to those deficits by cutting income taxes, unless you wanted to pour money into the hands of consumers? Buy votes?
It has been projected by the San Fransisco Federal Reserve that consumers continue to hold $430 billion in excess savings that came to them by the virtue of the pandemic. It is only a matter of time before these amounts start to go down as consumers start to spend more money. However, that is not good enough for the bureaucrats in Washington. Currently, they are flooding the economy with trillions of dollars from the INFLATION REDUCTION ACT, CHIPS, and the INFRASTRUCTURE BILL. The Administration, almost daily, announces funding from these various acts to companies that will benefit from this outflow of money.
Even though Congress has previously funded these programs, it is pretty obvious what is going on with the money flowing out of Washington directly into the hands of companies that will spend it, which will then improve the economy. You would not be terribly concerned by all of this since this is standard politics if the deficit were not so high.
At some point we need to start making progress on reducing the deficit. I know that I have written in my previous postings that deficits are not really a problem. As long as you can print your own money, you can overcome the problems with deficit. However, in so doing, you create inflation, which is a negative for all consumers.
I often quote the reality that, “How could Germany during World War II, launch war against the entire world?” Germany had a relatively small economy and certainly did not have the financial recourses to launch a war on the rest of the world. However, by virtue of them printing money in order to fund their military desires, they created hyperinflation. At the end of the war, it was said that Germany had devalued their currency so far that they had to pay their soldiers on a daily basis since inflation was so bad.
I do not intend to make a direct reference to compare the German economy to the American economy, but only to point out that continuing deficits will eventually create inflation. At some point we need to get serious about balancing the budget with the revenue, but it now seems that at this point, Washington is only focused on spending more and more money regardless of the financial outcome.
Not many people are focused on China these days, but they should be. China is, of course, the second largest economic power in the world and controls an enormous amount of financial influence in the worldwide economy. A few years ago, they decided that they would attack private industries within China and bring them back under the control of the Communist Party. The result of that has been that many American companies are pulling out and moving their operations to other Southeastern Asian countries.
Clearly, Vietnam, Indonesia, and Malaysia have benefited from these moves. More importantly now, we have seen a significant shift in manufacturing capacity from China into India. India has a similar number of citizens as does China. However, the population in China is dropping compared to India, where it continues to grow.
For many decades, the Chinese government promoted the one-child per couple limit. The idea was that the limit would slow down the growth of the population by limiting the number of babies being born. The data shows that there is a significant imbalance in the ratio of men to women. Last year, employment in China fell, and the population is increasingly getting too old. As the population continues to age, the cost of healthcare and maintaining a reasonable lifestyle for the elderly will grow and that will create a major deficit to the national economy. At the current time, along with Japan, China has one of the oldest average of its citizens in the world. This, along with their anti-private enterprise and huge debts that are owed to China, has forced many industries out of the country and caused them to move to other parts of the world to create commerce.
What is interesting is that this major shift in philosophy has dramatically reduced the desirability of investing in that country. It is hard to believe that the stock market in China was down in 2023 and that it was the third straight year of decline in that market. Even more importantly, Hong Kong’s Hang Seng Index dropped for the fourth consecutive year. As you can see, your money is not treated well in China, which is a direct reflection of how they treat private enterprises in their country. As has been proven so often in the history of the world, when a communist government starts to privatize businesses, everything goes down. It happened in Cuba, it happened in Russia, it happened in Venezuela, and it is currently happening in China.
It is unlikely that China will turn the corner back to prosperity until they adopt a more pro-business mentality than what they are currently exhibiting. It is currently the policy in China that they would like to increase their population. They are encouraging couples to have more babies and even giving them financial incentives. The way China has maintained control over the population is that they have kept them busy by building and working in manufacturing plants. It is believed that in many cases that China has built entire cities with no one in them, just to keep workers busy. But the end result is that China is extraordinarily indebted. With the debt they owe, the only way that they can maintain the lifestyle of the population is by increasing their own GDP. They know as does the rest of the world, that if a major unemployment period strikes China, in all likelihood, the communist government will fail. I fully expect to see China change their philosophy regarding private industry before it is too late, and they suffer political negative ramifications.
As I mentioned earlier, Peter Lynch says that all you have to do is go to the mall and see what the flow is like. I had to run an errand on Saturday to a city outside of Atlanta, which was a 45-minute drive from my house. I was absolutely blown when I saw what was going on. Along the way I passed not less than 10 major buildings under construction. I passed a Golden Corral, and not only was the parking lot full but there was a line wrapped around the building of people waiting to get in. At 10 o’clock on Saturday morning, you would not expect such a show of consumer support. There is no question that the cost of eating out in restaurants has gone up dramatically, but that is for good reason due to the high cost of food and service in the industry. Even though the cost of eating out is high, restaurants are enjoying record participation.
You can only draw the conclusion that people would not be eating out in restaurants that are on the more expensive side if they did not have the discretionary income to spend. Coupled with the huge traffic jams on my way to this city and observing the huge turnout in the restaurants, you have to assume that the consumers are in really good shape. Maybe you have read that Christmas sales this year were up from the preceding years even though the projections proposed that they would decrease close to 10%. Virtually everything the consumer does these days is higher than anyone could possibly project.
I recognize that this is a very limited anecdote evidence of the economy, but it should illustrate a point. Consumer spending is currently very strong, and 60% of the GDP is consumer spending. If you assume that the consumer is strong and fully employed, and inflation is down and interest rates will fall, you cannot project anything other than an increase in equity prices in 2024.
I get up every morning and watch the news, both financially and otherwise. I read about the Ukrainian War in more detail than most people do. I am also very aware of the conflict in Israel and the issues with Iran, Iraq and our soldiers. I recognize that the world is a tinder box that can blow up almost anytime. It might be possible that Russia will win the war in Ukraine, but what on earth would they have won? They get to take over a bankrupt country that would have no place for the population to live. No industry, no utilities and certainly no desire to be Russian. I would hardly call that a victory under any circumstances.
The issue with Israel and Palestine will shortly be over one way or the other. Either they will reach a compromise, or Israel will kill enough people to make the conflict go away. This will be short-term. The issue with Iran and Iraq, in my way of thinking, is relatively simple. If we withdrew all of the forces from Iraq, it is likely that this whole issue would also go away.
Yes, all of these areas are of concern and if any one of those were to blow up, it would massively affect the stock market. However, hopefully, by now, you have learned that you cannot invest due to geopolitical events. If one of these events occurred, you would react to that, but you cannot invest in anticipating one of these events will occur.
The other day, I had a client say that he would not invest until after the Presidential Election. I thought to myself, “You had an outstanding 2023 and are likely to have an outstanding 2024, and you are going to wait for an event that quite frankly has no economic effect on the markets whatsoever.” If you start to invest emotionally without analyzing the financial and economic effects of the market, you are more likely than not to fail in your investment future. The best philosophy is to be always invested, regardless of geopolitical and economic circumstances.
In summary, I believe the markets will be as good in 2024 as they were in 2023. I do not anticipate a gain as high as 2023, but I do anticipate a gain that will be satisfying. The economic news starting in 2024 has been good, and I fully expect it to get better as Washington floods the economy with money. I mentioned in my last posting about people who are resisting doing IRAs in 2024. I continue to note that the resistance is a mistake.
If you invest early in the year, you earn tax-free returns that will benefit you for a lifetime. There is absolutely no better investment than earning tax-free returns.
If you would like to discuss any of these matters in further detail, please let me know.
As always, the foregoing includes my opinions, assumptions, and forecasts. It is perfectly possible that I am wrong.
Best Regards,
Joe Rollins
Over the last several years, the profession of an economist has fallen to new lows. And quite frankly, they deserve the demotion they have received. Going back to 2022, the economists were adamant that the economy would shrink and recession was inevitable in the coming years. They could not have been more wrong. The most recent economic data has even further elevated the U.S. economy and projects a more robust economy for 2024.
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| Breathtaking! Client Caroline Matton enjoying the view after hiking up Mount Batur in Bali. |
I also want to discuss the recent demise of the Chinese economy and many problems with China that have not reached the media yet. The stock markets in China and Hong Kong have been dismal, and until China changes, they will continue to be dismal.
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| Client Cindy Craft enjoying time with her handsome boys and their beautiful families in Charleston, SC. |
Before I discuss all these incredibly exciting topics, I need to update you on the January trading period. For the month of January 2024, The Standard and Poor’s Index 500 stocks were up 1.7% for the month. This index would have been up much more except for a significant sell-off of 1.6% on the last trading day of the month. Federal Reserve chairman Jerome Powell made a speech that day indicating that no interest rate decrease would be in the cards for March 2024. The stock and bond markets sold off dramatically based on these statements. Theis interesting to note that both of those markets recovered and even went higher as the week progressed. But in any case, even a 1.7% increase in January is immensely satisfying. Remember that if each month this year has a similar return, the index would have an annual gain of over 20%.
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| Clients Wyatt and Beverly Foster doing a little sightseeing in Singapore (try saying that 10 times) |
As a comparison, Barclay’s Aggregate Bond Index was down .1% for the month of January, and for the one-year period, it is up 2.2%. I always try to give you a bond equivalent so that you can understand the difference in returns between stocks and bonds. The long-term performance of stocks versus bonds is dramatic. The S&P over the last 10 years is up 12.6%, the NASDAQ Composite over 10 years is up 15.1%, and the Dow Jones Industrial Average is up 11.8% annually over the 10 years. Compare that with the Bond Index, which has averaged 1.6% for the last 10 years. I speak about this often in these postings, but if you had been invested in bonds over the last decade, your investments would not have generated even enough return to exceed the rate of inflation. I do not see bonds contributing significantly going forward, even though they may have a small gain in 2024.
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| Ava and her friend off to the Fox to see Hamilton. |
Not only was that number good, but they also increased the number of employments in December. Therefore, for two straight months, you have increased employment of more than 300,000 new employees, which is very strong. Unbelievably, the unemployment report was once again reported at 3.7%, which is a low level of unemployment, and it leads back to a sub-4% jobless rate, which goes back to December of 2021. Take into consideration that for all the months of 2021 and 2022 and the first month of January 2024, unemployment has been less than 4%.
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| DeNay enjoying the snow and sandstone at Red Rocks over the holiday. |
The good news continues to roll in with this employment report. It was announced that the average hourly earnings over the last year had risen 4.5%. An exceptionally large increase in earnings by employees. This increase will obviously flow into consumer dollars, as I will reflect later in this posting. As you recall, the so-called economists forecasted a recession in 2022, but here we are in 2024, and certainly, the recession is nowhere in sight.
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| Lauren and Jeff treating Henry to a day out at Fetch! |
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| Ava posing next to her artwork – maybe the next Frida Kahlo?! |
What is going on here is that the bond market, which is many times larger than the stock market, is trying to influence the Chairman and embarrass him on national television. There is no mistake about what the desire of the bond market is. To them, a good recession is extraordinarily profitable to them. If we have a recession, then clearly, interest rates would come down, and they would profit. I know it is a twisted philosophy that this segment of the invested public would really prefer mass unemployment so they would benefit. They must be terribly disappointed that the economy continues to do very well.
 |
| Client Sheryl Matton with daughter Caroline all dressed up for a night out at Sunset Point in Bali. |
I thought maybe you might be interested in a look at earnings for the fourth quarter of 2023 and see what we could learn from those earnings. Let us compare some old-line companies that have been blue chips for our entire lifetime as compared to the new tech companies that have risen to prominence in recent years. For the fourth quarter of 2024, Exxon made a $9 billion profit and Chevron made a profit of $6.5 billion. If you compare the two, General Motors made a profit of $2.2 billion and General Electric had a profit of a measly $348,000 for the quarter. All these are old line blue chip companies that have been around for generations.
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| Holy Moly! Sheryl taking a dive with her new friend at the site of the USS Liberty in Amed, Bali. |
You really do not need to be a rocket scientist to understand the magnitude of these numbers. The earnings by these tech companies are extraordinary by any definition and, as an investor, cannot be ignored. It is interesting that after the massive sell-off in 2022, the so-called Wall Street experts project that it would be 2025 or 2026 until we got back to all-time highs. Interestingly, the Standard and Poor’s Index 500 Stocks and the Dow Jones Industrials both reached all-time highs in January 2024. Therefore, it only took less than 13 months for the market to recover all its losses and go to all-time highs. Much of this gain has been led by these tech companies, and rightly, their gain is based upon their extraordinary earnings. There is nothing in the evidence that indicates these earnings will do nothing but increase as the economy strengthens into 2024.
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| DeNay relaxing, recharging, and reflecting at the Red Rocks. |
You must understand now that the Federal deficit budget in 2023 is already forecasted to be more than $2 trillion. That is 7.5% of GDP, which is roughly double what the average has been in the economy from 2016 to 2019. What this means is that the deficit has run at roughly 3% of GDP in the years prior to COVID-19. Since COVID-19, the Federal deficit has not been lower than $2 trillion annually and continues to grow. I give you this information so that you can see that there could not be a worse time to propose a decrease in income tax rates. With Federal deficits running at extraordinarily high rates, why would you contribute to those deficits by cutting income taxes, unless you wanted to pour money into the hands of consumers? Buy votes?
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| Ava catching a few waves down in Florida. |
Even though Congress has previously funded these programs, it is pretty obvious what is going on with the money flowing out of Washington directly into the hands of companies that will spend it, which will then improve the economy. You would not be terribly concerned by all of this since this is standard politics if the deficit were not so high.
At some point we need to start making progress on reducing the deficit. I know that I have written in my previous postings that deficits are not really a problem. As long as you can print your own money, you can overcome the problems with deficit. However, in so doing, you create inflation, which is a negative for all consumers.
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| “Live life with no excuses. Travel with no regret.” |
I do not intend to make a direct reference to compare the German economy to the American economy, but only to point out that continuing deficits will eventually create inflation. At some point we need to get serious about balancing the budget with the revenue, but it now seems that at this point, Washington is only focused on spending more and more money regardless of the financial outcome.
Not many people are focused on China these days, but they should be. China is, of course, the second largest economic power in the world and controls an enormous amount of financial influence in the worldwide economy. A few years ago, they decided that they would attack private industries within China and bring them back under the control of the Communist Party. The result of that has been that many American companies are pulling out and moving their operations to other Southeastern Asian countries.
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| “Traveling – it leaves you speechless, then turns you into a storyteller.” – Ibn Battuta |
For many decades, the Chinese government promoted the one-child per couple limit. The idea was that the limit would slow down the growth of the population by limiting the number of babies being born. The data shows that there is a significant imbalance in the ratio of men to women. Last year, employment in China fell, and the population is increasingly getting too old. As the population continues to age, the cost of healthcare and maintaining a reasonable lifestyle for the elderly will grow and that will create a major deficit to the national economy. At the current time, along with Japan, China has one of the oldest average of its citizens in the world. This, along with their anti-private enterprise and huge debts that are owed to China, has forced many industries out of the country and caused them to move to other parts of the world to create commerce.
What is interesting is that this major shift in philosophy has dramatically reduced the desirability of investing in that country. It is hard to believe that the stock market in China was down in 2023 and that it was the third straight year of decline in that market. Even more importantly, Hong Kong’s Hang Seng Index dropped for the fourth consecutive year. As you can see, your money is not treated well in China, which is a direct reflection of how they treat private enterprises in their country. As has been proven so often in the history of the world, when a communist government starts to privatize businesses, everything goes down. It happened in Cuba, it happened in Russia, it happened in Venezuela, and it is currently happening in China.
It is unlikely that China will turn the corner back to prosperity until they adopt a more pro-business mentality than what they are currently exhibiting. It is currently the policy in China that they would like to increase their population. They are encouraging couples to have more babies and even giving them financial incentives. The way China has maintained control over the population is that they have kept them busy by building and working in manufacturing plants. It is believed that in many cases that China has built entire cities with no one in them, just to keep workers busy. But the end result is that China is extraordinarily indebted. With the debt they owe, the only way that they can maintain the lifestyle of the population is by increasing their own GDP. They know as does the rest of the world, that if a major unemployment period strikes China, in all likelihood, the communist government will fail. I fully expect to see China change their philosophy regarding private industry before it is too late, and they suffer political negative ramifications.
As I mentioned earlier, Peter Lynch says that all you have to do is go to the mall and see what the flow is like. I had to run an errand on Saturday to a city outside of Atlanta, which was a 45-minute drive from my house. I was absolutely blown when I saw what was going on. Along the way I passed not less than 10 major buildings under construction. I passed a Golden Corral, and not only was the parking lot full but there was a line wrapped around the building of people waiting to get in. At 10 o’clock on Saturday morning, you would not expect such a show of consumer support. There is no question that the cost of eating out in restaurants has gone up dramatically, but that is for good reason due to the high cost of food and service in the industry. Even though the cost of eating out is high, restaurants are enjoying record participation.
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| I mean, who doesn’t love seeing a picture of a giraffe? |
I recognize that this is a very limited anecdote evidence of the economy, but it should illustrate a point. Consumer spending is currently very strong, and 60% of the GDP is consumer spending. If you assume that the consumer is strong and fully employed, and inflation is down and interest rates will fall, you cannot project anything other than an increase in equity prices in 2024.
I get up every morning and watch the news, both financially and otherwise. I read about the Ukrainian War in more detail than most people do. I am also very aware of the conflict in Israel and the issues with Iran, Iraq and our soldiers. I recognize that the world is a tinder box that can blow up almost anytime. It might be possible that Russia will win the war in Ukraine, but what on earth would they have won? They get to take over a bankrupt country that would have no place for the population to live. No industry, no utilities and certainly no desire to be Russian. I would hardly call that a victory under any circumstances.
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| Happy Birthday, Sweet Caroline – double digits and loving it!! |
Yes, all of these areas are of concern and if any one of those were to blow up, it would massively affect the stock market. However, hopefully, by now, you have learned that you cannot invest due to geopolitical events. If one of these events occurred, you would react to that, but you cannot invest in anticipating one of these events will occur.
The other day, I had a client say that he would not invest until after the Presidential Election. I thought to myself, “You had an outstanding 2023 and are likely to have an outstanding 2024, and you are going to wait for an event that quite frankly has no economic effect on the markets whatsoever.” If you start to invest emotionally without analyzing the financial and economic effects of the market, you are more likely than not to fail in your investment future. The best philosophy is to be always invested, regardless of geopolitical and economic circumstances.
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| Little Penny laughing it up as usual! |
If you invest early in the year, you earn tax-free returns that will benefit you for a lifetime. There is absolutely no better investment than earning tax-free returns.
If you would like to discuss any of these matters in further detail, please let me know.
As always, the foregoing includes my opinions, assumptions, and forecasts. It is perfectly possible that I am wrong.
Best Regards,
Joe Rollins
All investments carry a risk of loss, including the possible loss of principal. There is no assurance that any investment will be profitable.
This commentary contains forward-looking statements, which are provided to allow clients and potential clients the opportunity to understand our beliefs and opinions in respect of the future. These statements are not guarantees, and undue reliance should not be placed on them. Forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual results in future periods to differ materially from our expectations. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.
