From the Desk of Joe Rollins
I know I write endlessly about the importance of investing early and often, yet most people do not realize how important this is in creating generational wealth. I am positive that most people reading this posting never thought they could even consider creating generational wealth for their children and grandchildren. However, it is within the reach of most investors, but so many are just not taking advantage of that opportunity. I want to discuss this in detail in this posting and give you some numbers to support those calculations.
I also want to discuss the current state of the economy and the general employment numbers that we recently received. Additionally, I want to address the pessimistic view of so many investors and how they have been proven wrong since the stock market hit all-time highs just last week.
Moreover, I want to delve into why China is having so many financial problems and why it is unlikely that China will be the financial success it has been in previous generations. I will also share my prediction on interest rate cuts, which are clearly expected to occur this year. Furthermore, I must discuss the immense financial reach of big tech and why it is crucial that you be invested in tech.
Before discussing those intriguing topics, I must report on the month of February 2024, which turned out to be quite a successful month. Year-to-date, we are enjoying an excellent run and we are all thankful for it. I think back to 2022 when the so-called experts on Wall Street predicted that with a downturn in the S&P and the 11-interest rate increases by the Federal Reserve, the U.S. would likely suffer a decade of nominal returns. I remember so many of these experts on financial news explaining that investors should be out of the markets and in cash rather than suffer the declines that would clearly be coming over the next decade.
Even though the major averages on the stock market in 2022 went down 20%, as of the month of January 2024 we have fully recovered from that downturn and more. Therefore, in a period of only 14 months, we now have set all-time records in almost all the major indexes. If you ever need a more prominent reason to always be fully invested, it is the quick recovery of a major downturn. Only those individuals who elected not to be invested suffered significant loss while the market roared back from a downturn.
For the month of February, the Standard & Poor’s Index of 500 Stock was up 5.3% and is up 7.1% for the two-month period ended February 29, 2024. Once again, the 10-year average on this index is 12.7%. The Dow Jones Industrial Average was up 2.5% for the month of February and is up 3.8% for the year 2024. The 10-year average on this index is 11.6%. The NASDAQ composite was up a very healthy 6.2% in February and is up 7.3% for the year 2024. The 10-year average on this index is up 15.2% per year.
As a basis of comparison, the Bloomberg Barclays Aggregate Bond Index was down 1.5% in February and down 1.6% in 2024. The 10-year average on this index is 1.4%. Every day, I watch a lot of financial news, and one after another I see so-called experts praising the positive attributes of owning bonds in your portfolio. I am just one who thinks, why would you ever invest in an asset class that, over the last decade, cannot even produce returns greater than the inflation rate? From a more straightforward standpoint, if you have owned bonds over the last 10 years as compared to inflation, you have lost money.
When I talk about creating generational wealth, I do so with the understanding that everyone has their limitations, but virtually everyone reading this posting can create generational wealth. I do not know how many times I have written on the subject that you should set up and fund a Roth for your children. If a child makes a small salary during a summer job, you should fund a Roth investment for them. Think about the economics of investing in a Roth account in each of their teen years, and what wealth that will create by the time they need retirement 40 years from now. You are creating generational wealth for your children, and hopefully, your children will pass that along to their children.
The same goes for IRA’s for yourself and your children. I write endlessly about the importance of funding your IRA early in the year, yet so many investors do not invest early in the year and, in fact, do not even fund their IRA’s on a regular basis. It seems that so many investors can find so many useless needs for their money that they forget the importance of investing for their future while they are still young enough to create generational wealth for themselves.
If you think I am exaggerating the benefits of investing, you just have not read the current data. Try this fact pattern and see if I might be closer to convincing you. Based on data released by the Federal Reserve, investors in the United States created $5 trillion worth of wealth for their households during the fourth quarter of 2023 alone. Think about how much money $5 trillion is. Also, remember that if you were not investing or if you were holding your money in cash, you did not participate anywhere close to this level. Generational wealth has been accumulated in investors' accounts, but if you are not invested, you will not participate.
If you think this is an isolated case, let us look at the rest of the data the Federal Reserve provided. Let’s go back to 2019, which takes out the COVID years, which were economically confusing and not representative of long-term trends. But from 2019 to the end of 2023, American households have added a staggering $39.3 trillion worth of wealth to their households. This amount of money will be passed on to your children and grandchildren for decades to come. This should serve as a clear example of how important it is to invest regularly and to remain invested even during difficult times.
Remember that this period from 2019 through 2023 included the down year of 2022. I often quote Peter Lynch, one of the most famous stock investors of all time. He famously stated that “Far more money has been lost by investors in preparing for corrections, or anticipating corrections, than has been lost in the corrections themselves.”
This period is an excellent example of that. Those who tried to avoid the market downturn in 2022 clearly lost out in the very satisfying year 2023. Also, remember that even today there is $5 trillion in cash that is not invested.
We received the unemployment report this week for the month of February, and once again, it was an excellent employment month. Employment went up 275,000 from the previous month, which far exceeded the so-called forecast of an increase of only 200,000. Also, within these numbers, they significantly adjusted the prior employment numbers to more reasonable levels during the month of January. What is essential in this employment report is that the unemployment rate went from 3.7% to 3.9%. Even though both of those numbers are great numbers, the trend to increase unemployment is very important to reduce the robust nature of the economy and to encourage the Federal Reserve to reduce rates to increase employment.
Historically, the 3.9% unemployment is still a many-decades record, but the trend to put more Americans out of work, while unfortunate for them, is actually good for the economy as a whole. As I have pointed out in prior postings, we need a slower growth economy in order to encourage more investment and lower interest rates. Also, do not forget that even though the unemployment numbers have gone up, there are still way more job openings than unemployed in America. There is a job for everyone who wants to work. The reality is that many people do not want to take on a job.
I am one of the few people who read the details of the employment report, but something earth-shattering, in my opinion, came out of this report. The report for February was quite excellent, but it was interesting that if you read the underlying data, it is surprising to see how much the employment makeup in the United States becomes. For the last 12 months in the United States, the number of “native-born” Americans with a job fell by 881,000 workers. The question is, where did those workers go? However, more importantly, in the labor force in the United States, the number of foreign-born workers with a job rose by 1.5 million to 31 million.
Can you see the trend that is developing here? The United States-based jobs are being replaced by non-United States people doing those jobs. Of course, these aren’t the only workers on the payroll that caused this number to rise. None of us actually know how many millions of workers that are here that are working illegally are being counted. I rather suspect that the percentage of foreign-born workers is much higher than the 31 million reported by the Department of Labor.
The issue with the southern border in the United States has gone from silly to severe. Now we are receiving reports that not only are Latin Americans crossing the border, but we are having a large percentage of Chinese citizens working their way into the United States. Do not get me wrong, both houses of Congress and both political parties are equally responsible. There was a very positive immigration bill approved by the House Democrats, but the House Republicans rose to have it defeated.
But there is no question that the flood of undocumented immigrants in the United States is going to have lasting and long-term negative financial issues. We are certainly welcome to have them as workers in the United States, but we cannot be an entirely lawless country. We must have laws to control people entering the country we do not want. I get so tired of hearing that we cannot control these borders. We currently have a standing United States Army of over 2 million soldiers. They are not doing anything right now. They clearly could control the border, but they are not. It is unfortunate that, politically, we cannot get this matter under control, but we clearly need to.
I am often amazed when someone gives me answers to why they do want to invest in a specific stock. Often times, this opinion is based on something that is not economic. Do not ever forget that earnings are what makes stocks go up and earnings control the valuation of the stock. Whether you like the company or the product the company sells is irrelevant to the value of the stock since earnings actually control that amount. Let me give you an example of the absurdity that you will often hear on television regarding the valuation of stocks.
Several weeks ago, the Super Bowl was watched by an average audience of 125 million people in America. The next day in the media it was explained how extraordinary the advertisers were able to get 125 million people eyeing their commercials during a three-hour period. It is reported that these advertisers spent an average of $14 million per minute for the time on the Super Bowl. Obviously, the $14 million did not cover the actual cost of the production of the commercial and therefore the cost is likely much greater than the $14 million. Certainly, that is a resounding success but quite frankly, that is peanuts compared to other media outlets.
It is currently reported that in the entire world there are approximately 8.1 billion people living on this planet. At the current time, it is believed that only 63.5% have internet access, which is roughly five billion people. The five billion people are located around the entire world and in some cases in very isolated areas. Take into consideration that Facebook has a daily average usage in its website of 2.6 billion people. Therefore, one half of the world basically logs on to Facebook daily. When you consider the advertising potential of that usage as compared to the 125 million people that watched the Super Bowl, you can see that the Super Bowl was totally a rounding error. You may not like Facebook or you may not like its owners, but you have to respect its earnings, which are extraordinary. If anyone thinks the major tech stocks are going to have a downturn, all they have to do is consider the potential reach of something as simple as Facebook.
I often write about China because I do not think people really understand its economy. I wish I could tell you how many times I have read that by 2030, the Chinese economy will overtake the United States economy. Those that write those articles have clearly not done much research on the subject. In recent years, the Chinese communist party has decided that they will not be friendly to private enterprise. This failure to work with private enterprise has run many companies out of China, and they are relocating on a regular basis to southeast Asia, such as Vietnam, and more recently to India. This lack of foreign investment in China will have a material long-term effect. Just as an example, foreign investment in China has increased every quarter since 1998. However, in the third quarter of 2023, foreign investment in China actually fell as companies moved their operation elsewhere.
The biggest misnomer about China is that people believe its economy is so robust, that itself generates its own revenue. Nothing could be further from the truth. China currently has debts that are greater than 300% of its gross domestic product. Even though the United States is embarrassingly deep in debt, their debt is only a fraction of the debt owed by the Chinese. As we all know with higher interest rates and a slowing economy, it will be harder and harder for the Chinese to fund this massive debt loan in the future.
One of the major concerns in China is that its population is aging. In 2023, the population of China fell for the first time in generations. Everyone recalls the one-baby rule the Chinese government imposed and the lack of new babies is creating problems with the population. At the current time in China, the number of citizens over the age of 65 in the year 2000 was 6.9%. In the year 2023, the percentage of the population over age 65 is 14.2%. The population is getting much older, and this is happening very quickly.
There are major concerns when the population starts to age at this accelerated rate. First and most importantly, since the government is responsible for healthcare and we all know older generations require more healthcare, it is a drain on the central budget. In addition, the care of the elderly is quite important. Oftentimes, family members must take time off from work to care for the elderly, creating a void in manufacturing and production. This aging population is extremely hard to turn around. If you think about it for a second, due to the 40 years of the one-child rule, there were more males created than females and, therefore, a lack of couples to create more babies. With the economy slowing in China and the government’s inability to fund future growth, I fully anticipate seeing China slow down for years to come.
One of the ways China has kept peace among its employees is by keeping them working. The Chinese government borrowed heavily to finance and build entire cities with no one to live in them. Do not forget that still over 50% of the population in China lives in poverty. We all see pictures and newsreels of the prosperity of the cities, but the rural areas continue to suffer financially. With the anti-capitalist mentality of the government, now we are seeing businesses leave China and move to other countries, taking their jobs with them.. China would like to continue manufacturing and exporting to other countries, but the United States is fighting back. If the United States refuses to accept imports from China, China’s economy will grind to a halt.
I continue to read about the one worry that many investors have about China overtaking Taiwan in the near future. It is clear that the United States supports Taiwan and that under no circumstances would the United States stand idly by if China invaded. Think about the financial implications of China overtaking Taiwan. If the United States put a total halt on the imports of Chinese goods, the Chinese economy would grind to an almost immediate halt. Why would any government in China take the risk of destroying its economy to take over a relatively small country?
The current state of the U.S. economy continues to be quite good. Over the last several years, I made a lot of fun of the Wall Street forecasters predicting the dire financial circumstances that actually never occurred. One of the most famous in that group is Jamie Dimon, who is by many considered to be the most respected executive in all of America. Jamie Dimon is the CEO of JPMorgan Chase banking empire. In mid-2022, Jamie Dimon warned that a “hurricane” was coming to the United States economy, and “you better brace yourself.” Of course, as we now know, no hurricane did come to the economy in 2022, even though the stock market went down in reflection of that potential risk.
In early 2023, the “experts” on Wall Street predicted that there would be a 61% chance of recession in 2023. We now know that in 2023, the economy actually grew at 3.1%, which is a long way from a recession predicted by the so-called experts.
You would think that these experts would eventually give in and admit they were wrong in predicting the recession when no recession occurred. However, like the proverbial broken clock that is right twice a day, they are doubling up on those predictions. At the current time, economists now predict that the recession within 2024 is down to 39%, which, of course, is down from 61% a year ago. They were wrong then, and they are wrong now; it is just a matter of when they might get around to predicting it.
If you look at the Atlanta Federal Reserve’s prediction of economic growth for the first quarter of 2024, it is predicting a gain of 2.5% as of today. As we look forward into the remainder of 2024, it is hard to imagine that recession would be anywhere in the future. One of the most important aspects of valuing stock is looking at earnings. At the current time Wall Street analysists are forecasting an 11% increase in earnings for the S&P 500 companies in 2024. That is a major increase from the amount of 2023 when the gain was 2%. But what is even more important is that these analysts are projecting that the growth in earnings in 2025 will be a robust 13%. If you analyze the numbers, it is projecting net income to be up 11% in 2024 and 13% in 2025. How anyone with any objective analysis of these numbers could predict recession is a little bit of a mystery to me.
Going into 2022, the Federal Reserve moved to increase interest rates, and since March of 2022 they have increased them 11 times. Now, these interest rates stand at a 23-year high. The economists projected that these 11 increases would destroy the housing market and would create mass unemployment and bankruptcies in business. There is no question that mortgage interest rates are dramatically higher than before, but still not anywhere close to historic highs. Those who think the housing market is not robust have just not tried to buy or sell a house. Housing numbers are down because so many homeowners have such low interest rates and are reluctant to sell their houses and take on higher interest rates. The house building industry just cannot keep up supplying the number of houses needed in the economy. Contrary to what you hear on the financial news, the housing market is quite strong and there is no downturn forecast in that industry.
There has been so much talk in the financial news that the financial markets will improve as interest rates begin to drop. Quite frankly, the economy is quite good, and inflation has dropped dramatically, so there is not a lot of urgency for the Federal Reserve to cut interest rates. Also, 2024 being a political election year, being deemed as being political by cutting interest rates to affect the ultimate election would be the last thing the Federal Reserve would want. Going into this year, the so-called experts on Wall Street predicted six interest rate cuts during 2024. I said then and say today, that is ridiculous. Most importantly, I think that the Federal Reserve will not cut interest rates around the election just to prove it is outside politics. So, the actual question will be when will rates actually go down?
I project that the Federal Reserve will cut interest rates one-quarter point in the June meeting and will also cut interest rates at one-quarter point in November and December of 2024, which both dates will be after the election. Everyone is predicting that these decreases in interest rates will power the economy higher, but that is not the case. Just as the higher interest rates have not really hurt the economy, I think lower interest rates will do little. The economy has survived during these high interest rate cycles because corporate America was so flush with cash that it did not need to borrow money and therefore did not affect earnings. Only the small companies actually use bank financing now, and the larger companies self-finance their own operations. It is fairly clear that the economy is in an exceptionally good pattern and with a slowing economy and inflation coming down, it is fully anticipated that the rest of 2024 and 2025 would be economically strong. If you want to create generational wealth for your children and grandchildren, now is the time to be invested.
We would love the opportunity to sit down with you and discuss your portfolios or any other matters that you find of interest from a financial standpoint. We can help you with Estate planning, gifting programs, and how to invest money for your children and grandchildren. We would love to have the opportunity to get you invested, even with small amounts, for future generations. In order to build financial wealth, money needs to be invested long-term. You cannot start building that financial wealth until you get invested. I hope that the readers of this posting will take my advice and do what is best for their families beginning today.
As always, the foregoing includes my opinions, assumptions, and forecasts. It is perfectly possible that I am wrong.
Best Regards,
Joe Rollins
I know I write endlessly about the importance of investing early and often, yet most people do not realize how important this is in creating generational wealth. I am positive that most people reading this posting never thought they could even consider creating generational wealth for their children and grandchildren. However, it is within the reach of most investors, but so many are just not taking advantage of that opportunity. I want to discuss this in detail in this posting and give you some numbers to support those calculations.
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| Frank Thomas feeling the well-deserved love while surrounded by his son Don, daughter-in-law Sana, and grandsons Walker and Evan |
Moreover, I want to delve into why China is having so many financial problems and why it is unlikely that China will be the financial success it has been in previous generations. I will also share my prediction on interest rate cuts, which are clearly expected to occur this year. Furthermore, I must discuss the immense financial reach of big tech and why it is crucial that you be invested in tech.
Before discussing those intriguing topics, I must report on the month of February 2024, which turned out to be quite a successful month. Year-to-date, we are enjoying an excellent run and we are all thankful for it. I think back to 2022 when the so-called experts on Wall Street predicted that with a downturn in the S&P and the 11-interest rate increases by the Federal Reserve, the U.S. would likely suffer a decade of nominal returns. I remember so many of these experts on financial news explaining that investors should be out of the markets and in cash rather than suffer the declines that would clearly be coming over the next decade.
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| Speaking of feeling the love – everyone wanted to wish the wonderful Fran Gordenker a very happy 90th birthday! |
For the month of February, the Standard & Poor’s Index of 500 Stock was up 5.3% and is up 7.1% for the two-month period ended February 29, 2024. Once again, the 10-year average on this index is 12.7%. The Dow Jones Industrial Average was up 2.5% for the month of February and is up 3.8% for the year 2024. The 10-year average on this index is 11.6%. The NASDAQ composite was up a very healthy 6.2% in February and is up 7.3% for the year 2024. The 10-year average on this index is up 15.2% per year.
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| Eddie and Jennifer enjoying the family ski trip with daughters Harper + Lucy! |
When I talk about creating generational wealth, I do so with the understanding that everyone has their limitations, but virtually everyone reading this posting can create generational wealth. I do not know how many times I have written on the subject that you should set up and fund a Roth for your children. If a child makes a small salary during a summer job, you should fund a Roth investment for them. Think about the economics of investing in a Roth account in each of their teen years, and what wealth that will create by the time they need retirement 40 years from now. You are creating generational wealth for your children, and hopefully, your children will pass that along to their children.
 |
| Eddie trying not to be “extra” while enjoying time on the slopes with his girls! |
If you think I am exaggerating the benefits of investing, you just have not read the current data. Try this fact pattern and see if I might be closer to convincing you. Based on data released by the Federal Reserve, investors in the United States created $5 trillion worth of wealth for their households during the fourth quarter of 2023 alone. Think about how much money $5 trillion is. Also, remember that if you were not investing or if you were holding your money in cash, you did not participate anywhere close to this level. Generational wealth has been accumulated in investors' accounts, but if you are not invested, you will not participate.
If you think this is an isolated case, let us look at the rest of the data the Federal Reserve provided. Let’s go back to 2019, which takes out the COVID years, which were economically confusing and not representative of long-term trends. But from 2019 to the end of 2023, American households have added a staggering $39.3 trillion worth of wealth to their households. This amount of money will be passed on to your children and grandchildren for decades to come. This should serve as a clear example of how important it is to invest regularly and to remain invested even during difficult times.
 |
| Miller + Penny = 2 pretty cute couch potatoes |
This period is an excellent example of that. Those who tried to avoid the market downturn in 2022 clearly lost out in the very satisfying year 2023. Also, remember that even today there is $5 trillion in cash that is not invested.
We received the unemployment report this week for the month of February, and once again, it was an excellent employment month. Employment went up 275,000 from the previous month, which far exceeded the so-called forecast of an increase of only 200,000. Also, within these numbers, they significantly adjusted the prior employment numbers to more reasonable levels during the month of January. What is essential in this employment report is that the unemployment rate went from 3.7% to 3.9%. Even though both of those numbers are great numbers, the trend to increase unemployment is very important to reduce the robust nature of the economy and to encourage the Federal Reserve to reduce rates to increase employment.
Historically, the 3.9% unemployment is still a many-decades record, but the trend to put more Americans out of work, while unfortunate for them, is actually good for the economy as a whole. As I have pointed out in prior postings, we need a slower growth economy in order to encourage more investment and lower interest rates. Also, do not forget that even though the unemployment numbers have gone up, there are still way more job openings than unemployed in America. There is a job for everyone who wants to work. The reality is that many people do not want to take on a job.
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| Mia giving her handsome nephew a squeeze before he heads off to Tim Tebow’s Night to Shine! Keep shining, Michael! |
Can you see the trend that is developing here? The United States-based jobs are being replaced by non-United States people doing those jobs. Of course, these aren’t the only workers on the payroll that caused this number to rise. None of us actually know how many millions of workers that are here that are working illegally are being counted. I rather suspect that the percentage of foreign-born workers is much higher than the 31 million reported by the Department of Labor.
The issue with the southern border in the United States has gone from silly to severe. Now we are receiving reports that not only are Latin Americans crossing the border, but we are having a large percentage of Chinese citizens working their way into the United States. Do not get me wrong, both houses of Congress and both political parties are equally responsible. There was a very positive immigration bill approved by the House Democrats, but the House Republicans rose to have it defeated.
But there is no question that the flood of undocumented immigrants in the United States is going to have lasting and long-term negative financial issues. We are certainly welcome to have them as workers in the United States, but we cannot be an entirely lawless country. We must have laws to control people entering the country we do not want. I get so tired of hearing that we cannot control these borders. We currently have a standing United States Army of over 2 million soldiers. They are not doing anything right now. They clearly could control the border, but they are not. It is unfortunate that, politically, we cannot get this matter under control, but we clearly need to.
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| Sparkle and Shine, it’s 1st Birthday Party Time! |
Several weeks ago, the Super Bowl was watched by an average audience of 125 million people in America. The next day in the media it was explained how extraordinary the advertisers were able to get 125 million people eyeing their commercials during a three-hour period. It is reported that these advertisers spent an average of $14 million per minute for the time on the Super Bowl. Obviously, the $14 million did not cover the actual cost of the production of the commercial and therefore the cost is likely much greater than the $14 million. Certainly, that is a resounding success but quite frankly, that is peanuts compared to other media outlets.
It is currently reported that in the entire world there are approximately 8.1 billion people living on this planet. At the current time, it is believed that only 63.5% have internet access, which is roughly five billion people. The five billion people are located around the entire world and in some cases in very isolated areas. Take into consideration that Facebook has a daily average usage in its website of 2.6 billion people. Therefore, one half of the world basically logs on to Facebook daily. When you consider the advertising potential of that usage as compared to the 125 million people that watched the Super Bowl, you can see that the Super Bowl was totally a rounding error. You may not like Facebook or you may not like its owners, but you have to respect its earnings, which are extraordinary. If anyone thinks the major tech stocks are going to have a downturn, all they have to do is consider the potential reach of something as simple as Facebook.
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| Middle School class trips have come a long way – Ava and her friend living it up in Jamaica! |
The biggest misnomer about China is that people believe its economy is so robust, that itself generates its own revenue. Nothing could be further from the truth. China currently has debts that are greater than 300% of its gross domestic product. Even though the United States is embarrassingly deep in debt, their debt is only a fraction of the debt owed by the Chinese. As we all know with higher interest rates and a slowing economy, it will be harder and harder for the Chinese to fund this massive debt loan in the future.
One of the major concerns in China is that its population is aging. In 2023, the population of China fell for the first time in generations. Everyone recalls the one-baby rule the Chinese government imposed and the lack of new babies is creating problems with the population. At the current time in China, the number of citizens over the age of 65 in the year 2000 was 6.9%. In the year 2023, the percentage of the population over age 65 is 14.2%. The population is getting much older, and this is happening very quickly.
There are major concerns when the population starts to age at this accelerated rate. First and most importantly, since the government is responsible for healthcare and we all know older generations require more healthcare, it is a drain on the central budget. In addition, the care of the elderly is quite important. Oftentimes, family members must take time off from work to care for the elderly, creating a void in manufacturing and production. This aging population is extremely hard to turn around. If you think about it for a second, due to the 40 years of the one-child rule, there were more males created than females and, therefore, a lack of couples to create more babies. With the economy slowing in China and the government’s inability to fund future growth, I fully anticipate seeing China slow down for years to come.
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| Megan hitching a ride with My Neighbor Totoro’s Catbus |
I continue to read about the one worry that many investors have about China overtaking Taiwan in the near future. It is clear that the United States supports Taiwan and that under no circumstances would the United States stand idly by if China invaded. Think about the financial implications of China overtaking Taiwan. If the United States put a total halt on the imports of Chinese goods, the Chinese economy would grind to an almost immediate halt. Why would any government in China take the risk of destroying its economy to take over a relatively small country?
The current state of the U.S. economy continues to be quite good. Over the last several years, I made a lot of fun of the Wall Street forecasters predicting the dire financial circumstances that actually never occurred. One of the most famous in that group is Jamie Dimon, who is by many considered to be the most respected executive in all of America. Jamie Dimon is the CEO of JPMorgan Chase banking empire. In mid-2022, Jamie Dimon warned that a “hurricane” was coming to the United States economy, and “you better brace yourself.” Of course, as we now know, no hurricane did come to the economy in 2022, even though the stock market went down in reflection of that potential risk.
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| Penny and Miller looking to escape and soak up some rays! |
You would think that these experts would eventually give in and admit they were wrong in predicting the recession when no recession occurred. However, like the proverbial broken clock that is right twice a day, they are doubling up on those predictions. At the current time, economists now predict that the recession within 2024 is down to 39%, which, of course, is down from 61% a year ago. They were wrong then, and they are wrong now; it is just a matter of when they might get around to predicting it.
If you look at the Atlanta Federal Reserve’s prediction of economic growth for the first quarter of 2024, it is predicting a gain of 2.5% as of today. As we look forward into the remainder of 2024, it is hard to imagine that recession would be anywhere in the future. One of the most important aspects of valuing stock is looking at earnings. At the current time Wall Street analysists are forecasting an 11% increase in earnings for the S&P 500 companies in 2024. That is a major increase from the amount of 2023 when the gain was 2%. But what is even more important is that these analysts are projecting that the growth in earnings in 2025 will be a robust 13%. If you analyze the numbers, it is projecting net income to be up 11% in 2024 and 13% in 2025. How anyone with any objective analysis of these numbers could predict recession is a little bit of a mystery to me.
Going into 2022, the Federal Reserve moved to increase interest rates, and since March of 2022 they have increased them 11 times. Now, these interest rates stand at a 23-year high. The economists projected that these 11 increases would destroy the housing market and would create mass unemployment and bankruptcies in business. There is no question that mortgage interest rates are dramatically higher than before, but still not anywhere close to historic highs. Those who think the housing market is not robust have just not tried to buy or sell a house. Housing numbers are down because so many homeowners have such low interest rates and are reluctant to sell their houses and take on higher interest rates. The house building industry just cannot keep up supplying the number of houses needed in the economy. Contrary to what you hear on the financial news, the housing market is quite strong and there is no downturn forecast in that industry.
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| Megan’s spectacular view of the Garden of the Gods |
I project that the Federal Reserve will cut interest rates one-quarter point in the June meeting and will also cut interest rates at one-quarter point in November and December of 2024, which both dates will be after the election. Everyone is predicting that these decreases in interest rates will power the economy higher, but that is not the case. Just as the higher interest rates have not really hurt the economy, I think lower interest rates will do little. The economy has survived during these high interest rate cycles because corporate America was so flush with cash that it did not need to borrow money and therefore did not affect earnings. Only the small companies actually use bank financing now, and the larger companies self-finance their own operations. It is fairly clear that the economy is in an exceptionally good pattern and with a slowing economy and inflation coming down, it is fully anticipated that the rest of 2024 and 2025 would be economically strong. If you want to create generational wealth for your children and grandchildren, now is the time to be invested.
We would love the opportunity to sit down with you and discuss your portfolios or any other matters that you find of interest from a financial standpoint. We can help you with Estate planning, gifting programs, and how to invest money for your children and grandchildren. We would love to have the opportunity to get you invested, even with small amounts, for future generations. In order to build financial wealth, money needs to be invested long-term. You cannot start building that financial wealth until you get invested. I hope that the readers of this posting will take my advice and do what is best for their families beginning today.
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.
