Friday, May 12, 2023

In spite of the Federal Reserve’s attempt to crush the U.S. economy, it continues to grow nicely

From the Desk of Joe Rollins

I am not sure I ever recall a time when there was so much confusion about the U.S. economy. I have clients call daily to express their concerns regarding the extraordinary events and request a different approach to their investment philosophy. The truth of the matter is that the economy is actually quite strong, and the recently announced unemployment rate of 3.4% is the best in the U.S. since 1969. Think about that for a second. We have the best unemployment rate in the last 54 years, and yet the financial media only discusses the upcoming recession, and the negative aspects of the Federal Reserve increasing interest rates.

Keep looking up, Cameron… That’s the secret of life!
There is not a lot of news so I thought I would discuss the issue regarding employment and the upcoming recession as predicted by the Federal Reserve. I also want to discuss the ongoing so-called banking crisis in the U.S. but as a change of pace I wanted to discuss the most recent points raised in The Economist that a client furnished me with titled “The Lessons of America’s Astonishing Economic Record.”


I have a great many things I want to discuss, but first I must report that the month of April was quite satisfactory in its performance and the year-to-date numbers on the S&P 500 were quite spectacular. For the month of April, the Standard and Poor’s Index of 500 Stocks was up 1.6% and year-to-date for 2023 that index is up 9.2% which is absolutely an excellent return.

Joe, Dakota, and Ava helping Josh celebrate his 28th birthday!!
Hope it was a good one, Josh!
I also want to point out that the 10-year average on this index, even including the terrible year we had in 2022, is still a double-digit return of 12.2%. The NASDAQ Composite for the month of April was barely up at 0.1% but has a year-to-date return of 17.2%. The 10-year average of the NASDAQ Composite is quite a satisfying 15.1% per year. The DOW Jones Industrial Average was nicely up in April at 2.6%. Unfortunately, the year-to-date numbers are less satisfactory, at 3.5%. Once again though, the 10-year average on this Index is double digits, up at 11.2%.

The Bond market had a good month during April due to interest rates on government securities falling. The Bloomberg Barclay’s Aggregate Bond Index was up in April by 0.6% and for the year it is up 3.7%. As with the others, the 10-year index return over a 10-year period is 1.3%. As you can see the return on bonds over the last decade has been minuscule compared to the returns on stocks.


The big news of the week is that the Labor Department announced on Friday that there had been 253,000 new jobs added to the U.S. economy for the month of April. This came as a stunning rebut to the government’s attempt to destroy jobs and lay people off. They indeed revised the previous two month’s labor numbers down so that the average is roughly 222,000 new jobs added per month. For example, last year, the economy was adding roughly 524,000 new jobs per month, but that was a reaction from the pandemic and employers were hiring back their employees. The evidence is still clear that the economy continues to be strong despite the efforts of the Federal Reserve to destroy the economy.

Caroline trying to convince Reid that this is in fact their new home!
Employment numbers are actually quite good (a 54-year record). Once again, this month’s job openings were 9.59 million and the total unemployed is 5.6 million and once again, this month there are roughly two jobs for every unemployed person in America. One of the things that could be said is it is clear now that the demand for labor is easing as employers hire fewer people every month. But what is even more clear to me is that the supply of labor is getting increasingly scarce. When you have an unemployment rate of 3.4% virtually everyone that wants employment can be employed with ease. As an increasing number of people go to work, employers are having a challenging time finding qualified employees. Once again, the participation rate this month was 60.4% which means more and more U.S. citizens are actively looking for a job.


At the beginning of 2022, all the so-called experts pointed out that due to the interest rate increases by the Federal Reserve, we would suffer a severe recession in 2022. I countered that until you saw unemployment starting to soar you were unlikely to see a recession. Here we are, 15 months after those incorrect calls for a severe recession and we have yet to see any signs of one yet. There is no question that the economy is slowing down, but that is actually a good thing since it takes the pressure off the Federal Reserve to continue to increase interest rates. Unless we see unemployment start to move dramatically higher, I doubt that we will see a recession in 2023 either.

Proud mom, Ramani Damera, with her lovely children Sohan and Sonali. Sohan will be graduating from UC Davis next month! Congratulations!
One of the sad attributes of the volatility of the last couple of years is that certain clients have pulled their money from investment accounts and put it into cash accounts. For the first time in an exceptionally long time, cash is now paying a decent rate of return where you can get money markets that pay 4.5% to 5% annual returns. However, if you compare that with the performance of the Standard and Poor’s Index of 500 Stocks, which is up 9.2% for the year through April, a 5% money market account hardly compares. Once again, when investors start to view their investments on a short-term basis, they lose the long-term performance that these indexes provide. As mentioned above, each of the major indexes over the last 10 years had double-digit returns even with the 18% that the S&P 500 Index lost in 2022. The value of long-term investing is that the short-term problems get wiped out by the long-term horizon. You should never focus on short-term volatility in a long-term investment philosophy.


There seems to be a great deal of negative reaction from investors regarding the volatility of what is going on in the Regional Bank selloffs. First, I should make it clear that there is no economic threat to the U.S. economy due to this volatility. A great deal of it is centered strictly on the traders on Wall Street attempting to sell off these stocks for their benefit. As you have noticed, some of the Regional Bank stocks were down 40% in a week, but last Friday, they jumped back up 10%. This has nothing to do with the economic effects of the bank, but more to do with the act of trading by the short-term traders attempting to bring the stocks down.

Ava not letting the fear of striking out keep her from playing the game!
Go Ava!
For those of you who have not kept up with the ongoing crisis, it started innocently enough when the Federal Reserve began increasing interest rates in March 2022. The Federal Reserve has now increased interest rates ten times over the last 14 months, which is an all-time unprecedentedly large increase in rates. The Federal Reserve intended to starve consumers of credit so they could not buy houses, cars, or other sizable items. The theory was that if the Federal Reserve could make interest rates high enough consumers could not afford large ticket items, therefore the economy would slow and correspondingly inflation would go down. However, the effect of the rate increases was surprising to most. A bank by charter is required to keep the bulk of its assets in Treasury Bonds or zero-risk interest rate certificates. Many banks invest in these on a long-term basis, so they keep all their customer deposits either loaned to other customers or invested in long-term government securities, never investing short and lending long.

Client Lloyd King enjoying a night out with his son, Michael,
as he cheers on the Sixers!
As the Federal Reserve began increasing interest rates, the value of the bond portfolios owned by banks decreased. As we all know, bonds move inversely into interest rates. Due to the rapid and unprecedented increase in these rates, the bond portfolios of the banks were materially impacted. But the real news came when other financial institutions were able to offer interest rates to customers in the 5% range. Banks were unable to provide interest rates that high due to their long-term loan commitments to customers. Suddenly, cash became king in regional banks, as customers moved money out of these banks and into other financial institutions that paid higher rates of return.

There became a flood of money out of these banks because they could not compete with the higher rates of interest offered elsewhere. This, coupled with the serious deterioration of the bond portfolio created the issue of possible bank failures due to liquidity issues.

Three banks have failed, but in each of those cases, the Federal Reserve stepped in and made sure that no depositors’ money was lost. They also did something else that was even more important. In the period after the first two bank failures, the Federal Reserve pushed money into these banks with a $300 billion cushion.

All smiles from the Musciano-Howard clan –
Mia, Barb, Marti, Ally, Brittany and Mitch
The Federal Reserve wanted to make sure that these banks were well-funded and could manage withdrawals by customers. Essentially, at that point, the crisis was over. Banks had ample liquidity to meet the redemptions and the benefactor of all that cash was the Federal Reserve. While the short sellers on Wall Street continue to push this point for regional banks, there is really no crisis. These banks were stabilized by the government and even though they continue to have mass withdrawals in an effort by consumers to receive higher interest rates, it is unlikely that these banks will fail because of that action. Therefore, when you read every single day about the so-called bank crisis, just feel a bit of peace to know that truly it is not a crisis at all “If it bleeds, it leads” with the financial media.


We have received many calls from clients concerned about the impasse regarding the Federal debt limit which comes due in July 2023. During my working career, I have witnessed many of these crises come and go. Back during the Clinton administration, the Republicans controlled both levels of the House and they pushed the government into default which created complete chaos in the economy. At the end of the day, what happened was that all the government employees were laid off, and the government shut down for some time. However, no employees lost any money since they were hired back and were paid their back wages from the time they spent laid off.

DeNay on her way to help celebrate a friend's marriage in style
While it is true that it may be a situation where the government cannot pay its bills, do not think for a second it is going to impact their ability to pay their debts. First off, one of the largest holders of government debt in the U.S. is the U.S. Social Security system. In addition, the government can print money whenever it likes, and if there is any attempt to reduce their credit, they are likely to manufacture the money necessary to keep their debts under control.

There may be a brief time when the government cannot pay its bills for a couple of months, but once again no debts will be left unpaid. I believe that this particular Congress is so polarized by their political differences that there are going to be difficulties regarding the debt limit whenever it comes up. But I have high confidence that they will compromise before the debt limit expires in July. Even if they cannot agree, no substantial damage to the U.S. economy will be done.


It seems now in 2023 that the number of U.S. citizens has become increasingly concerned about the economy. In a recent poll, 4/5 of those polled believe that their children will be worse off than they were when they grow up. That 80% rate of people that are gloomy about the economy, is substantially higher than 1990 when only 2/5 of the American citizens felt that way. Roughly double the number of U.S. citizens are now questioning whether their children will be better off in the future than they are today.

Alexis shaking off tax season at Taylor Swift's Eras Tour in Atlanta
As mentioned above, a client sent me the article from The Economist titled “The Lessons of America’s Astonishing Economic Record.” This article basically points out that regardless of the pessimism from current U.S. citizens, the economic facts are clear that America remains the world’s richest, most productive, and most innovative economy. As the article points out, no one really comes close. The interesting facts in this article explain how strong the U.S. economy is compared to the rest of the world. As pointed out in the article from 1990, America accounted for one-quarter of the world's output of goods and services. Thirty years later, that share is almost unchanged even as China has gained economic clout.

With the huge run-up in China’s economic base, the percentage that the U.S. produces remains the same over the last 33 years. What is even more astounding is that the U.S. accounts for 58% of the G7’s GDP. If you think that the U.S. economy is deteriorating, that same percentage in 1990 was 40% of the level of the G7’s GDP. This fact alone indicates that the level of the U.S.’s GDP as compared to the richest countries in the world has grown substantially since 1990 and has not deteriorated as many would believe. Truly astonishing facts.


The article points out that one of the major reasons that the U.S. has held up its economic place in the world is that over the last 30 years, the number of workers in America has increased by 30%, while workers have only increased by 10% throughout the rest of the world. I also want to point out that due to the innovations of the American economy, if you would have invested $100 into the S&P 500 in 1990 that initial investment would be worth more than $2,000 today. They indicated in the article that the return would be four times higher than if you had invested in any other major country in the world.

Cecilia and Nathan smiling a-roar-ably while at the
Fernbank Museum of Natural History
One of the main reasons why the economy continues to be so strong compared to the rest of the world is the heavy influx of migrants into the United States. At the current time, immigrant workers make up 17% of the workforce, compared to only 3% of immigrants working in the Japanese workforce. Many countries are dealing with aging populations. Much has been written about the effects on the Japanese workforce and even the Chinese workforce which is getting older. It is astonishing to believe but even though the fertility rate in the U.S. has dropped, the average age in the U.S. is lower today than it was 10 years ago. This is due to the influx of migrants. While the rest of the world continues to age, the U.S. on average is getting younger. In China and Japan, an aging population is their biggest fear.

Caroline ready for the D2 Summit Finals in Orlando -
the D must stand for darling!
Everyone ignores the fact that the average income for Americans continues to be one of the highest in the world and it continues to grow. You see prosperity everywhere you look, and you just cannot ignore it. I drove from my office in Buckhead into Midtown to meet a client and I was astonished at the number of buildings under construction along Peachtree Road. The Midtown area in Atlanta exploded into high rises and large corporate tenants. Even though the construction of apartments continues to grow daily, it is still inadequate to keep up with the number of people that move into Atlanta.

If you want proof of this wealth being built in America, the Economist article points out that the income per person in America was 24% higher than in Western Europe in 1990. If you took that same measurement today, income per person in America is 30% higher than it is in Western Europe today. As pointed out in the Economist, the most important attribute of a country building wealth is the large workforce and productivity of that workforce. Basically, the larger the workforce and the more productive they are, the more the economy grows overall.

Mia with Josh- he still looks to her for advice after all these years
(but he now has to look down when doing so)
What is interesting in America is that the population of critical working-age 25 through 64 has risen from 128 million in 1990 to 175 million in 2022. That is an increase in the available workforce of 38%. However, compare that to Western Europe where the working age population rose 9% during the same period from 94 million to 102 million. As you can see the increase in the workforce population is dramatically higher in the U.S. than in the rest of the wealthy countries in the world.

From the analysis made by the Economist, the income median in the U.S. is increasing leading to salaries increasing. As more and more employees earn higher middle-class wages, they spend that money on consumer goods and services which increases our economy. As pointed out by the Economist, even though 80% of the population believes that their children will not be financially better than they are, the facts are quite different. If you read the analysis as pointed out in the Economist, the economy and its citizens are getting stronger, not weaker. With this ability to buy consumer goods and basically retire with adequate income, the outlook for the future of today’s children looks brighter than people expect.


One of the most astonishing facts is that the U.S. in the early 2000s imported roughly 10 million barrels of oil per day in net terms. As you know it became a matter of national security that we could not provide the amount of oil needed to run our country. In the case of war, if we were unable to provide adequate oil resources, this would result in a major detriment to the military front. However, due to learning about hydraulic fracturing and horizontal drilling, the U.S. oil industry turned around quickly to supply this need. The U.S. became a net exporter of oil in the year 2020. Even though we could completely fund our oil needs in 2020, the new administration decided to attack fossil fuels, and the U.S. has not been able to keep up with its energy needs since 2021.

The Florida sun proving every day can end beautifully!

I must agree that the news on the U.S. economy has been unpleasant for the last 14 months. However, as I pointed out back in 2022, I did not think the recession was imminent and I still do not believe it will be. If we have a recession, it will be short and relatively modest. The Federal Reserve announced that the GDP was up 1.1% in the first quarter of 2023. You must understand that the first quarter when reading GDP is historically the weaker of the quarters. GDP is held up by severe weather in the U.S., particularly in the northern states, and GDP tends to increase substantially as you get into the more productive summer months.

I am not sure that the Federal Reserve will allow the economy to continue to grow. It seems to be their motto now that to make our economy better, they must destroy it. Hopefully, they will stop long enough to allow the economy to realign itself with the higher interest rates and begin to grow again.

Joe looking forward to discussing how we can help you
reach your goals and needs.
This year has seen extraordinary gains through only four months of the year so far. If the economy continues to accelerate as we go through the summer, then these numbers will be even higher at the end of the year. I projected a gain of 20% this year based on my read of the economy and so far, the indexes have kept up with the prediction. Now is a suitable time to come in and visit us and discuss your goals as well as your retirement plan. I just feel sorry for those investors that left the market and have missed this large run-up that has occurred so far this year. Remember, I warned you here first (numerous times).

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.

Wednesday, April 12, 2023

Are we finally going to talk ourselves into a recession?

From the Desk of Joe Rollins

Since the beginning of 2022, all the talk you hear in the financial press is about the upcoming recession. Many forecasts predicted we would have a recession in 2022, but alas that did not happen. As we rolled around to 2023, those same people said that we missed the recession in 2022 but clearly it was only a matter of time. As we finished March 2023, there is still no evidence that recession is forthcoming. But that all could change with a media blitz to convince us hard times are coming. As the saying in the media goes, “If it bleeds it leads.”
Penelope Lu Flores commending herself on arriving early and
getting her mom, Elizabeth, out of the end of tax season
Due to the normal pressures of tax season, I decided to cut this blog short and only cover the more compelling stories for this early spring season. I must reflect that the first quarter of 2023 was quite excellent. Even though the loud screams of the financial media told us that the world was coming to an end and breadlines would soon be forming on the streets, the S&P 500 Index had an excellent quarter up 7.5% for the quarter.

I wonder how few of those on Wall Street actually projected such a nice increase for the first quarter of 2023. While I can’t get into all the important issues, I want to discuss the current economy and the enormous pressure that the financial media is forcing on America with this call for recession. I also must cover the situation with the banks that went out of business during the month of March.
A day at the zoo is a day well spent! (Ava and Josh)
I want to cover those interesting subjects, but first I must cover what has become quite an excellent quarter. The Standard and Poor’s 500 Index stocks were up 3.7% in the month of March, and up 7.5% year-to-date for 2023. The NASDAQ Composite was up an excellent 6.8% in March and is up 17% for the year 2023. The DOW Jones Industrial Average was up 2.1% in March and is fractionally up 0.9% for the year 2023. All these Indexes performed very well during the first quarter of 2023.

Even the Bloomberg Barclays Aggregate Bond Index was up 2.5% for the month of March and was up 3.1% for the year-to-date. For the first time in over three years, it looks like the bond funds are now starting to become competitive with stock funds. While the Federal Reserve was increasing interest rates was not a good time to be invested in bonds, the time has come to review them and determine whether they should be a part of a portfolio.
Lauren Lukowicz out for Easter brunch with her mom
Almost every day I watch the financial news and virtually every other sentence uttered by the anchors revolves around the upcoming recession. What is interesting is that they have been discussing this since January 2022. So far, the recession has not occurred. However, there is a high likelihood now that public sentiment will in fact create the recession that the media has been calling for over a year now.

Take, as an example, a corporate executive who would be negligent in his duties if he did not begin to lay off people due to an upcoming recession. You hear famous entrepreneurs such as Jeff Bezos telling the public that they need to be careful and should not purchase a new car, new home or go on expensive vacations. Might it be possible that we talked ourselves into a recession when no recession actually exists?

It does not require much to turn the economy from positive to negative if suddenly consumers quit spending. What if, due to these misplaced fears, people decide not to purchase a new car, home, or go on expensive vacations? We might just in fact turn this strong economy into a weaker one and end up with the result that the media has been forecasting.
A “Penny” for your thoughts…
Once again, the news on the economy was quite good for the month of March. During the month of March, the U.S. economy added 236,000 new jobs which was pretty much as anticipated. More importantly the unemployment rate dropped during March to 3.5%. This is an extraordinarily low rate and is only one tick above the lowest ever recorded (not in wartime) at 3.4%. Even though the national unemployment is at 3.5%, the unemployment rate in some states is even quite lower at 2%. There is no question that the job market is extraordinarily strong and has not faulted due to the ever-increasing interest rates by the Federal Reserve.

What is more important is that even though the number of job openings has fallen, there are still 1.67 jobs for every unemployed person in the U.S. For the month of March, new job openings measured 9,931,000. The total number of unemployed in America is 5,839,000. As you can see, there are ample jobs for every unemployed person in America that wants to work. Every time I discuss the subject, it always goes back to the point of why there are not enough workers in America to fill the necessary job openings.
Carter and Josh showing Ava and Dakota why it’s called the Windy City.
There is a general belief that due to the enormous amount of government funding that we had in the Covid years there are a lot of potential workers that are not taking jobs because they still have money left over from the government. One of the ways that we know this to be true is that currently there are $5.6 trillion in money market and savings accounts in the U.S. alone. In recent months, those accounts have now been paying market rates that are attracting new investors to these money market accounts. However, this huge sum of cash is also fuel for the next run-up in the stock market. If interest rates start to fall and these money market rates can no longer compete, much of this money will flow out from the money market accounts into ordinary equities and bonds. This is a lot of fuel for a potential runup in the financial markets.

There was also great news in this more recent employment report. For the first time in years, the participation rate has increased and there were actually people looking for a job during March. If this is the case, more people are coming out and filling the gaps in the job marketplace. That is very much a benefit to the economy, because these people become consumers that were before only living off their savings. Maybe there will be a day soon that the public will all go back in unison, jobs will be filled, and every able American will become a tax-paying consumer that will increase GDP for us all.
Cecilia taking one for the team – Happy Birthday!
So, what is the actual state of the economy today? Even though they have been forecasting recession now for a year and a quarter, the Atlanta Federal Reserve forecasts the GDP will be up 2.2% (as of April 10, 2023) for the first quarter of 2023. While not a great increase in GDP, it is still a very long way from negative. Also, we should be reminded that the first quarter is typically a weak quarter for GDP, mainly due to weather and constraints in the northern states.

So, as we sit here today there are still no overwhelming signs of an upcoming recession. But as mentioned above, maybe this negative attitude of the media will force the country into recession due to consumers pulling back on products or services they normally would have purchased.

I have always been a firm believer that sentiment in the U.S. is extremely important for keeping GDP higher. If an employee is worried about their job, they are not likely to purchase a new car, a new house or go on an expensive vacation. It might just be that consumers will shut down the economy due to the fear of the unknown recession in the future.
Nathan and Cecilia Cmeyla cheesing it up outside of Truist Park!
The other answer may be that it is just political. The financial media, which clearly supports the current administration, will continue to talk down the economy until we get closer to the election cycle. At that time, they may pivot and comment about how great the economy is doing, and that greatness will be directly attributed to the current administration even though the economy was even stronger in 2019 before Covid. We went through a huge contraction in the economy due to Covid, and now we are getting back to where we were. This has been an enormous transformation in the economy, but it continues to be strong and, likely, will get stronger and not weaker as the months progress.

There is no question that the Federal Reserve has put tremendous pressure on interest rates. What is somewhat amusing is that with these increases in interest rates, the first bank to fall was one of their own. During March, we had the failure of Silicon Valley Bank in California and Signature Bank in New York. There were runs on these banks to remove cash just like it happened in “It’s a Wonderful Life.” If you are familiar with the classic Christmas movie, the people withdrew more money from the bank than its liquidity, and then the bank failed. Basically, that is what happened to these two banks.
Lauren and Jeff discovering “anything is possible
with sunshine and a little pink!”
Think about it in this fashion: a banker loans money to a local business on a 6-year loan at 6%. At that time when the bank made that loan, they were paying virtually nothing for customer deposits at their bank. So basically, the bank could take the customer deposits that they were getting for basically free and loan that money to the local business owner at 6% and make a nice profit.

Beginning in March of 2022, the Federal Reserve started a massive and too rapid increase in interest rates over a relatively short period of time. Suddenly, banks were required to offer higher interest rates on their deposits, in order to satisfy the public. However, the banks were constrained by the fact that they already had long-term money out at rates that would not allow them to pay higher interest rates on their deposits. At that time, the public saw what was happening, and made a major movement to remove their money from the banks.
Henry letting Lauren know he’s had enough fun at the Beltline
The evolution of technology has created the most powerful force in money today. With your iPhone you can move literally billions of dollars in minutes from one bank to another. You can be at the beach or somewhere other than home, but if you have access to an internet connection you can move money from one bank to another that is paying a higher rate of return. This is exactly what happened to Silicon Valley Bank. When interest rates began paying up to 4%, the bank was unable to meet the demand for money, leaving the bank to go to these higher rates.

It was quoted by the Federal Reserve that in one day, that bank lost over $100 billion in assets with money being transferred to larger and more stable banks. On Wednesday of that week, Silicon Valley Bank was forced to sell their bond portfolio of $20 billion to satisfy customer withdrawals. Due to the extremely fast increase in interest rates by the Federal Reserve, this bond portfolio had deteriorated in value and the bank suffered a loss after tax of $1.8 billion. When that news broke on Thursday, customers lined up to withdraw their cash from the bank thinking it would surely fail at this point. If the Federal Reserve had not closed the bank on Friday, it was forecasted that the entire liquidity of the bank would have been gone before the close of business on Friday.
Josh Portschy’s dog “Hank”ering for a Braves win!
The good news is that the failure of these two banks did not create losses to consumers. It is true that the shareholders lost all their money, and the bondholders probably lost theirs as well, but no depositor lost their money due to the insurance held by the banks. However, there was a general run-on banks after this event of people moving money out of smaller banks into larger ones or to money market accounts that paid higher interest rates. Once again, the Federal Reserve stepped in to protect the smaller banks and last week they loaned out over $380 billion to member banks, allowing them to keep their liquidity higher. It appears to me that the Federal Reserve, due to its swift movement, has stopped the outflow of funds from local banks and therefore the crisis that we had in March has probably passed us at this point.

The strength of the labor market for the month of March reported above will probably lead the Federal Reserve to increase interest rates one last time during its meeting in May. It is interesting that the futures in the bond market are actually forecasting that the Federal Reserve will cut interest rates later in 2023. It is very confusing to the public and certainly to me that the Federal Reserve would go ahead with an interest rate increase in May, if only a few months later they would be forced to cut it in the Fall of 2023. That is the proof to me that the Federal Reserve has gone too far and if they are forced to cut rates over such a short period of time, why would they just pass on an increase in interest rates at this time? I guess when they write the book a few years from now we will get a better insight into what the Federal Reserve is thinking.
Evan and Alexis making the most of a Monday – Go Braves!
All we know is that in the financial markets it is going to be a bumpy ride. This year, even though the first quarter was excellent, there is no guarantee that the coming quarters will be just as good. However, what is clear to me is that corporate earnings will never be as negatively impacted as financial media outlets forecast. Many of the companies have downsized their employment base and cut their expenses so profits will stay higher even if economic activity is lower. That is exactly what businesses should do. They should right size their expenses based on their projected revenue. During Covid, so many businesses overstaffed to meet the pandemic requirements. Now those days have passed, and it is time to right size their businesses for future profits.

I continue to believe that this year will be a positive one with profits around 20%. We are off to a great start with profits up 7.5% for the first quarter of 2023. Also, it is clear that the international markets are improving, and those markets are undervalued as compared to their U.S. counterparts. My recommendation is for everyone to remain invested and to increase investments where you can. We are at the time where you can make IRA contributions for 2022 and 2023. Everyone reading this post should contribute to their IRA’s annually without fail.

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.