From the Desk of Joe Rollins
As we roll into October, we are happy to have survived the downturn of August and September. Historically, those two months are the slowest of the year for investing and the fact that we only shed a few percentage points during that period was quite positive. We are now moving into the superlative time of the year for stocks, and the best time of year for your investments. As Warren Buffett says in the title of this posting, invest now.
There are many reasons why the months of August and September are slow for stock market investing. Many of them center around the fact that people are vacationing with their families and are not paying as much attention to what is happening on Wall Street. There is also the low volume that is present during this time of the year which makes the market easier to manipulate and move by the large hedge fund type investors. We saw greater volatility during August and September but fortunately, the large sell-off that so many were predicting did not come to fruition.
One of my favorite Warren Buffett phrases is when he talks about people who forecast the valuation of stocks. It goes something like, “The only value of stock forecasters is to make fortune-tellers look good.” Boy, this year has proven that statement to be so true. This quote illustrates one of the items I wanted to cover in this posting. How could the forecasters be so wrong and continue to be wrong even today? I also want to discuss why corporate profits are likely to be higher than anticipated, which is a huge support for the anticipated stock increases. I must also cover the current state of the economy, the misinformation about the housing market, and of course, touch on our dysfunctional government that continues to be a laughingstock to the rest of our world.
Before I cover all those terribly interesting topics, I need to report on the returns for the month of September. The Standard & Poor’s Index of 500 Stocks was down 4.8% during September but is up 13.1% for the year and up 21.6% for the one-year period ended in September. The NASDAQ composite was down 5.7% in September but was up 27.1% for the year 2023 and for the one-year period ended in September up 26.1%. The DOW Jones Industrial Average was down 3.4% in September but is up 2.7% for the year 2023 and up 19.2% for the one-year period that ended.
Just for a basis of comparison, the Bloomberg Barclays Aggregate Bond Index was down 2.5% for September and is down 1% for the year 2023. For the one-year period ended September, it is up 0.6% for that one year. As you can tell, investing in bonds has been a losing proposition all year long, and for those who believe that bond investing is safer than stock investment, you can see the difference between the double-digit returns of the market indexes and the virtually flat returns on bonds for the one-year period ended September 30, 2023.
One of the most amazing things about all this is how wrong the so-called forecasters have been about the economy going all the way back to the beginning of 2022. As you recall, the major market sell-off in 2022 was principally a reflection of every major forecaster indicating that the U.S. was quickly going into recession and there would be a severe downturn in the economy, thus the number of workers unemployed would be staggering and U.S. profits would plummet accordingly. As we now know, 20 months later, there was no recession and we still do not have a recession even today.
What is most amazing is that the GDP growth in the first quarter of 2023 was a very satisfactory 2% and in the second quarter of 2023 the GDP growth was 2.4%. It is now projected by the Atlanta Federal Reserve that the GDP would grow in the third quarter of 2023 to 4.9% based on their posting on October 5, 2023. I am now reading numerous postings indicating that the fourth quarter of 2023 will have GDP growth of roughly 4%. What is interesting is most recently the Federal Reserve actually revised its projections and increased its forecast for GDP growth in the U.S. to 2.1% for the year 2023. Their previous projection would have been 1% annual growth.
Although the evidence of robust GDP growth in 2023 is quite evident, the Federal Reserve does not agree with those assumptions. They believed we must surely be turning the corner for the U.S. economy to go into recession. I guess the labor report on Friday blew up that bad prediction on their part as well. On Friday, the job report stated a shocking increase in employment of new hires reached 336,000 of non-farm payrolls in September. What was amazing about this number was that it was roughly double the consensus of the economist’s estimates.
To add further shame to the projections, the month of August employment report was revised to include an additional 119,000 employees. It is amazing that this economy, as strong as it is, continues to put even more people to work. Although the unemployment report remains steady at 3.8% unemployed, the number of people actively seeking work increased and therefore the entire labor report on Friday was overwhelmingly positive.
As mentioned so many times before, there are currently 9,610,000 job postings and the current unemployed are 6,360,000. As is evident, there is more than enough work for anyone who wants a job. Recall the forecasters indicated going into 2022 we would have a massive number of people unemployed during 2022 and 2023 which would lead to substantially lower profits by major corporations since people could no longer afford nonessential consumer goods. As the last 20 months have illustrated, those forecasts could not have been more wrong. You read in my previous postings that I just did not see how a recession could be possible with less than 4% unemployed, which fortunately ended up being an accurate call.
As we go into the last Federal Reserve meeting of 2023, this strong employment report will most likely lead to the Federal Reserve increasing interest rates one last time at a quarter point. I am not sure exactly why the traders on Wall Street fear this increase so dramatically. The Federal Reserve has increased interest rates aggressively over the last two years, and to this point there has been little or no effect on the economy. More importantly, there has been little or no effect on employment. The projections of mass unemployment, even with higher interest rates, have not had much effect whatsoever on the consumers’ ability to spend.
So, as we go forward into the end of 2023 and the beginning of 2024, what can we expect? If it is true that the third and fourth quarter GDP is 4% as illustrated above, there is a high likelihood that the economy will slow in 2024 as 4% GDP growth is not sustainable over the long term. It would be much better for all of us if the economy would cool down to the 2.5% range, which would allow inflation to continue to drift down, which would have a positive effect going forward.
So even though I believe the Federal Reserve will increase interest rates one more time on November 1, 2023, I believe that will be the last time. Since it has been proven that the Federal Reserve’s one and only perceived function these days is to put people out of work, I cannot help but think that the only conclusion they will draw at the next meeting is, “How can we run more jobs out of the U.S. so we can meet the artificial goal we have established of inflation being 2%”?
We are currently at an inflation rate of roughly 3.5%, but there is much evidence that it is falling quickly. Even the most recent labor report indicated wages have only increased slightly when compared to prior reports. We are also moving into a time when we will see a dramatic decline in the price of oil going into winter. The effect from the reduced cost of oil affects virtually everything we use in our everyday lives, anything that must be transported from manufacturers to consumers, which in turn should decrease the cost of goods if precedent is to be trusted.
It looks likely that by the first quarter of 2024, the Federal Reserve will have reached its target of roughly 2% month-over-month inflation and can call an end to their continuous desire for more unemployment in America. Do you realize that what has happened with inflation has allowed corporations to be more profitable?
Think about it for a second, last summer everyone dramatically increased the prices of virtually everything. The price of food went up dramatically overnight when we were at a 9% inflation cycle. You heard the public complaining about the price of everything going up, and the price of groceries increasing dramatically over a short time. Have you noticed that even though those prices went up and the commodity prices are going down, there has been no change in pricing?
Suddenly corporate America is enjoying the benefits of higher prices but lower commodity costs to pass the products along to the public. I think once again the forecasters will be surprised when the third quarter corporate profits come out and people realize that corporate margins have improved over the last six months not because of higher prices but because of lower commodity prices.
You have seen moves that truly defy reasonable economic understanding. We have a large-scale strike going on in the union-based automobile industry. Twenty years ago, virtually every car in America was built by a unionized company. Today it is estimated that only one in five cars built and sold in the U.S. is built by unionized companies as all imported cars have no union representation. So, though the union automobile companies are on strike, and even when the President of the United States is walking the picket lines, they are losing their market share to those who are not on strike.
One of the major manufacturers in the United States of cars is Tesla. Usually, everyone thinks of Tesla as a smaller operator compared to the likes of GM or Ford, which of course would be correct. However, last quarter Tesla was more profitable than both GM and Ford combined. The manufacturing workers are now campaigning for substantially higher wages and a shorter work week. This will only damage the companies they work for and at the end of the day will lose a substantial amount of wages while the strike goes forward. All in all, their actions actually help inflation since with reduced wages they are not likely to consume as much, and at the end of the strike whatever is decided will take them years to catch up with what they lost while on strike.
I remember back when the so-called forecasters were predicting that these dramatic increases in interest rates would create absolute chaos in the real estate markets. One I recall most dramatically was that the price of housing would fall 25% almost overnight due to the actions of the Federal Reserve. Here we are 20 months later, and what do we know?
First, the truth of the matter is that there is a huge shortage of housing in the U.S. The combination of higher interest rates, inflation, and greater scrutiny by banks has led to fewer houses being built and a much more difficult situation for young people trying to buy houses. In my opinion, the main reason there is a shortage of housing is that people are just not willing to sell their houses and incur higher interest rates. If you are sitting on a mortgage with a 3% interest rate, why would you be willing to sell and incur a mortgage of 7% to buy a new house? This leads to fewer homes being sold thus creating a shortage of houses that are within the new buyers' price range.
If it were true that the housing market was in severe decline, why are virtually all homes in Atlanta sold at or above listing price? Something extraordinarily unusual is happening. For the first time in my professional career, not only is there a shortage of homes for sale, but the homes that do sell are sold at much higher prices than listed. Of course, this leads to properties becoming overpriced which will continue for the foreseeable future as those buyers eventually sell the properties that they paid entirely too much for. This keeps us in an endless cycle of selling the home for too much, buying an overpriced home and the value of property continues to go up. Those forecasters that indicated housing prices were going to fall by 25% were correct, they were just facing the wrong direction.
Last week the biggest headline was when the Speaker of the House was voted out by our Congress. The news commentators were almost foaming at the mouth in their explanation of their reasons. Out of curiosity, I watched some of the reporting on this subject, and I realized that no one really cares what is going on in Washington at the current time. Washington is so dysfunctional that it is almost the laughingstock throughout the rest of the world. Throughout all the silliness due to removing the House’s Speaker, they are not legislating, which is their one and most important job.
Now we are going to have two candidates for the presidency that are each close to age 80. There are no new ideas coming out of Washington, there is no innovation. Obviously, you cannot make progress when every decision is made based on your political affiliations, regardless of the integrity of the action. Everyone is deeply divided including the Republican party, which is split between the conservatives and the ultra-conservatives. I guess this can be compared to the famous acts of Nero, who played the lyre as Rome burned.
Congress does not seem to get the point that we have $32 trillion in debt and the cost of borrowing that debt is double what it was only a year ago. The increase in interest expense to service a national debt is going to be a staggering amount going forward. It looks like the current deficits are going to be close to $2 trillion for as long as the eye can see and yet our government is so dysfunctional that all they want to do is spend more money rather than less.
I do not want to pretend that this is a current issue, because it is not. Any time you can print money, cash flow issues can be solved immediately. However, there will be a day when this issue will become paramount. The amount of interest to service the Federal debt will soon be a major driving force in the budget and if some politicians do not begin to take this into consideration, we will have issues much more serious than they are today.
Congress should also be embarrassed by how they are handling the southern border debacle going on now. The illegal immigration issue has become paramount, and Congress cannot even have a civil conversation on the subject. We cannot fiscally continue to allow thousands of illegal immigrants into the country daily and support them while they are here in limbo awaiting immigration proceedings. Any other legislative body would get together, recognize the issue at hand, and come together for a solution to this issue. I personally think the current administration believes the immigrants will come in and eventually vote to support their causes. As we all know illegal immigrants do not have the right to vote at the current time. If Congress were truly concerned about doing something to help America, they would spend less time worrying about who will become Speaker of the House, and more time worrying about how to deal with the immigration issue on the southern border.
We could not be more excited about the upcoming six or seven months of investing. The economy is in excellent shape and corporate profits are continuing to rise. You are seeing an opportunity now to put new money to work, notwithstanding the negative projections of the forecasters who have been so very wrong. After 20 months, many of the so-called experts are no longer calling for the recession they predicted, but rather just a slowdown. What is most amazing is that during this entire time from the beginning of 2022 to now, the economy has not slowed, but accelerated. As you recall the first two quarters of 2022 were marginally negative and the GDP has gone up every quarter since that time.
If you have not made your IRA or maximum 401(k) contributions, you should do so immediately. The time for investing is beginning November 1st through May 1st and if you are not invested you may lose the opportunity for a nice acceleration. Consider meeting with us, giving us the opportunity to spend time with you and discuss anything about investing or your portfolio. We would be happy to meet with you at any point and discuss your goals and opportunities going forward. What we know with some precision is that you have been misled by the media over the last 20 months, and we are hopefully headed into a period of positive financial results that will once again prove the critics were never giving you accurate information.
As always, the foregoing includes my opinions, assumptions, and forecasts. It is perfectly possible that I am wrong.
Best Regards,
Joe Rollins
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| Josh and Carter saying their goodbyes to Wrigley Field |
There are many reasons why the months of August and September are slow for stock market investing. Many of them center around the fact that people are vacationing with their families and are not paying as much attention to what is happening on Wall Street. There is also the low volume that is present during this time of the year which makes the market easier to manipulate and move by the large hedge fund type investors. We saw greater volatility during August and September but fortunately, the large sell-off that so many were predicting did not come to fruition.
 |
| Is this a dream? Penelope celebrating 6 months |
Before I cover all those terribly interesting topics, I need to report on the returns for the month of September. The Standard & Poor’s Index of 500 Stocks was down 4.8% during September but is up 13.1% for the year and up 21.6% for the one-year period ended in September. The NASDAQ composite was down 5.7% in September but was up 27.1% for the year 2023 and for the one-year period ended in September up 26.1%. The DOW Jones Industrial Average was down 3.4% in September but is up 2.7% for the year 2023 and up 19.2% for the one-year period that ended.
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| Family Bonding - Tom Fowler, Sherie and Steve Foster, Betty Florence and Paula Fowler on their way to Normandy |
One of the most amazing things about all this is how wrong the so-called forecasters have been about the economy going all the way back to the beginning of 2022. As you recall, the major market sell-off in 2022 was principally a reflection of every major forecaster indicating that the U.S. was quickly going into recession and there would be a severe downturn in the economy, thus the number of workers unemployed would be staggering and U.S. profits would plummet accordingly. As we now know, 20 months later, there was no recession and we still do not have a recession even today.
 |
| Nadine (above) and Steve Hooks (below) celebrating “His and Hers” holes-in-one, while Steve reminds her this isn’t his first! |
Although the evidence of robust GDP growth in 2023 is quite evident, the Federal Reserve does not agree with those assumptions. They believed we must surely be turning the corner for the U.S. economy to go into recession. I guess the labor report on Friday blew up that bad prediction on their part as well. On Friday, the job report stated a shocking increase in employment of new hires reached 336,000 of non-farm payrolls in September. What was amazing about this number was that it was roughly double the consensus of the economist’s estimates.
To add further shame to the projections, the month of August employment report was revised to include an additional 119,000 employees. It is amazing that this economy, as strong as it is, continues to put even more people to work. Although the unemployment report remains steady at 3.8% unemployed, the number of people actively seeking work increased and therefore the entire labor report on Friday was overwhelmingly positive.
 |
| Rosemary Church and Patrick O’Byrne enjoying the sunset in beautiful Tuscany! |
As we go into the last Federal Reserve meeting of 2023, this strong employment report will most likely lead to the Federal Reserve increasing interest rates one last time at a quarter point. I am not sure exactly why the traders on Wall Street fear this increase so dramatically. The Federal Reserve has increased interest rates aggressively over the last two years, and to this point there has been little or no effect on the economy. More importantly, there has been little or no effect on employment. The projections of mass unemployment, even with higher interest rates, have not had much effect whatsoever on the consumers’ ability to spend.
 |
| Lloyd King and son Michael in town for the playoffs. At least someone is happy (womp womp)… |
So even though I believe the Federal Reserve will increase interest rates one more time on November 1, 2023, I believe that will be the last time. Since it has been proven that the Federal Reserve’s one and only perceived function these days is to put people out of work, I cannot help but think that the only conclusion they will draw at the next meeting is, “How can we run more jobs out of the U.S. so we can meet the artificial goal we have established of inflation being 2%”?
 |
| We see you - Alexis and friend made it on the Jumbotron! |
It looks likely that by the first quarter of 2024, the Federal Reserve will have reached its target of roughly 2% month-over-month inflation and can call an end to their continuous desire for more unemployment in America. Do you realize that what has happened with inflation has allowed corporations to be more profitable?
Think about it for a second, last summer everyone dramatically increased the prices of virtually everything. The price of food went up dramatically overnight when we were at a 9% inflation cycle. You heard the public complaining about the price of everything going up, and the price of groceries increasing dramatically over a short time. Have you noticed that even though those prices went up and the commodity prices are going down, there has been no change in pricing?
 |
| Lauren and her beau arriving at a wedding in style! |
You have seen moves that truly defy reasonable economic understanding. We have a large-scale strike going on in the union-based automobile industry. Twenty years ago, virtually every car in America was built by a unionized company. Today it is estimated that only one in five cars built and sold in the U.S. is built by unionized companies as all imported cars have no union representation. So, though the union automobile companies are on strike, and even when the President of the United States is walking the picket lines, they are losing their market share to those who are not on strike.
 |
| Being a mom is exhausting! |
I remember back when the so-called forecasters were predicting that these dramatic increases in interest rates would create absolute chaos in the real estate markets. One I recall most dramatically was that the price of housing would fall 25% almost overnight due to the actions of the Federal Reserve. Here we are 20 months later, and what do we know?
First, the truth of the matter is that there is a huge shortage of housing in the U.S. The combination of higher interest rates, inflation, and greater scrutiny by banks has led to fewer houses being built and a much more difficult situation for young people trying to buy houses. In my opinion, the main reason there is a shortage of housing is that people are just not willing to sell their houses and incur higher interest rates. If you are sitting on a mortgage with a 3% interest rate, why would you be willing to sell and incur a mortgage of 7% to buy a new house? This leads to fewer homes being sold thus creating a shortage of houses that are within the new buyers' price range.
 |
| DeNay channeling her inner Lorax - I speak for the trees! |
Last week the biggest headline was when the Speaker of the House was voted out by our Congress. The news commentators were almost foaming at the mouth in their explanation of their reasons. Out of curiosity, I watched some of the reporting on this subject, and I realized that no one really cares what is going on in Washington at the current time. Washington is so dysfunctional that it is almost the laughingstock throughout the rest of the world. Throughout all the silliness due to removing the House’s Speaker, they are not legislating, which is their one and most important job.
 |
| Ava unsure about this” trust game” with her back turned to the wildlife in the heart of Africa! |
Congress does not seem to get the point that we have $32 trillion in debt and the cost of borrowing that debt is double what it was only a year ago. The increase in interest expense to service a national debt is going to be a staggering amount going forward. It looks like the current deficits are going to be close to $2 trillion for as long as the eye can see and yet our government is so dysfunctional that all they want to do is spend more money rather than less.
 |
| "Happy Fall, y'all" |
Congress should also be embarrassed by how they are handling the southern border debacle going on now. The illegal immigration issue has become paramount, and Congress cannot even have a civil conversation on the subject. We cannot fiscally continue to allow thousands of illegal immigrants into the country daily and support them while they are here in limbo awaiting immigration proceedings. Any other legislative body would get together, recognize the issue at hand, and come together for a solution to this issue. I personally think the current administration believes the immigrants will come in and eventually vote to support their causes. As we all know illegal immigrants do not have the right to vote at the current time. If Congress were truly concerned about doing something to help America, they would spend less time worrying about who will become Speaker of the House, and more time worrying about how to deal with the immigration issue on the southern border.
We could not be more excited about the upcoming six or seven months of investing. The economy is in excellent shape and corporate profits are continuing to rise. You are seeing an opportunity now to put new money to work, notwithstanding the negative projections of the forecasters who have been so very wrong. After 20 months, many of the so-called experts are no longer calling for the recession they predicted, but rather just a slowdown. What is most amazing is that during this entire time from the beginning of 2022 to now, the economy has not slowed, but accelerated. As you recall the first two quarters of 2022 were marginally negative and the GDP has gone up every quarter since that time.
 |
| "Pose for the tourists, they said. We’ll throw in a wildebeest, they said." |
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.
