In this episode we talk through the major events and headline makers of the first half of 2022. We go through the topics of inflation, energy prices, the market sell-off, low unemployment and much more. We also talk about the next 6 months and what we hope to see!
Thanks for listening!
In this episode we talk through the major events and headline makers of the first half of 2022. We go through the topics of inflation, energy prices, the market sell-off, low unemployment and much more. We also talk about the next 6 months and what we hope to see!
Thanks for listening!
Welcome to Life finance in between podcast what's up guys? I'm Eddie Thomas, is brought to you by wealth management services in Hershey PA, I'm hope everyone's having a good day. I'm recording this July 5, so I hope everyone had a really good Fourth of July, whatever you decided to do, I know the weather was really nice for it, mid 80s or so and everyone had a good cookout and just celebrated with friends, family, whatever you wanted to do. So coming into this week, obviously, we rounded out the first six months of the year of 2022. And it's been an interesting six months to say the least. I think if you look back a year ago, 2021 to now I don't think you anticipated most of what happened over the past, especially the last six months, it feels like January, one hit. And things just started going on left and right, left and right things were happening. And it really hasn't stopped in the past six months. And it's not all bad. It never is all bad. Just the bad, could be louder than the good. And I've talked about that before. But wanted to get on here today and kind of give my thoughts on the first six months in the market and the economy and just in general. And then what the next six might look like and and kind of what I'm looking forward towards. And those six months here. So if a recap in the last six, I feel like there's a few buzzwords that can really put it all together if we wanted to. And you've probably heard them a couple of times. So let's let's go through them. And let's talk about them. So first one, I don't know if you've noticed it, I don't know if you've heard of it, maybe would be inflation, undoubtedly inflation. Second, if I had put Russia and Ukraine into that category, how obviously the markets have had a softer start the first six months of the year, interest rates are rising. But we have low unemployment. And those are kind of the the six things that first come to mind if I'm thinking about the markets and economy in the past six months. And then I'd also put in that the continued spending by consumers and then now the potential lowering of consumer sentiment and what that might do. So I would put those handful of things into one big bucket. And I would say, obviously, add a few other things in there and the day to day. But if you're going to look at general themes, those cover a lot of what we saw in the first six months. First thing, let's talk about inflation. Let's talk about the biggest issue that a lot of people are facing today and both the markets and their own kind of financial wellness, and what's been happening and what might happen. So it's no secret that everything costs more right now, because of inflation. It's no secret gas prices are up. It's no secret cost thing things cost more at the grocery store. Products and stores just cost more again, no secret whatsoever. But we could talk about why. And there's three main drivers of the inflation in my opinion. And that's one energy costs. And you can loop that in the Russian Ukraine in the beginning, but not as much now. And we'll talk about that to the supply chain. And then three, too much money to go around. So if we're thinking about energy costs, why that impacted inflation so badly is yes, slightly because Ukraine and Russia, we imported roughly like a percent of oil from Russia. And obviously any short of sock shock to the oil market in globally obviously send it reverberations throughout the world economy. And we're not immune to that. But the other part of it is what happened was two years ago and 2020. Nobody was really using as much oil that was being produced oil and gas. Because what can we do, you're not going outside, you're working from home, you're not really driving, you're not taking trips, you're not taking flights. So there was no real need for oil and gas and filling up your car or for the to buy that ticket to go somewhere via plane, there was just no need to do any of that. And because of that what happened was oil producing companies, gas producing companies stopped producing as much and they kind of took their pedal off the off the gas their foot off the gas. And what that does is it shuts down a lot of those production facilities for better or worse, they're going to be shut down or at least slow down to a rate that isn't sufficient in normal times. Now with that you had the shutting of these facilities, the shutting of refineries and workers not neat being needed. So layoffs fairings whatever it may be, you had that. So that was two years ago, you fast forward to today. And our energy consumption between gas and our traveling and between whether you're driving or you're flying increased rapidly at a rapid pace. And oil producing companies can't just turn a switch on and off like that. They can't say, Okay, people are traveling more. Okay, cool. Let's produce more right now and get into the consumers. It's just not at all how that works. It's a process, it's 610 12 months until we start seeing when those companies start producing more until we see that impact the prices we we pay at the pump, or the price, we pay for the ticket on the airplane. So that's kind of where we're at, we're in this kind of in between zone where oil companies one can't, or trying to get to the point where they can produce more, maybe it's either they can't because they shut down our facilities. They have low unemployment, the unemployment so low that nobody's looking for a job. So they can't find petroleum engineers or people to work those sites. And additionally, they think in the next, if they start producing more now to meet demand, and demand decreases, again, they're not stuck in the same issue they had before where they've produced too much, they don't know where to store and it's wasted product. So we're in this weird in between where it's like we they don't want to they need to produce more, and they're trying to but they don't want to produce too much because they know long term, they're not an energy source that's really going to be relied upon or wanted or needed. So they're in this weird weird in between that. They're trying to find their way through. And we're trying to find our way through as consumers as well. And I think that is the major issue and the energy prices. It's not Russia and Ukraine is the idea that we had a year where we didn't need energy, oil gas, we didn't need it. And then very quickly, that increased dramatically to the point where they couldn't keep up with that. And also, they know if they overdo it now and it gets turned back off. They don't We don't need it again, they're in trouble. Because they're going to make too much of their product, and it's going to have nowhere to go. So that's the first driver of inflation is the energy costs and practices and producing. Second is supply chain, April 1 trying to shut down. Obviously, China is a major manufacturer of just products that we buy as consumers in the States, or at least pieces the products that we buy as, as consumers in the States. And when companies couldn't no could no longer get those for the last two months, we saw the market react pretty roughly and have a nice little sell off. Because people my investors didn't think our can our businesses will be able to get the things we need to sell to consumers to us as consumers. And partly was correct. It is it was very tough, and it is very tough to get proper supply. If you're a company that sells products to consumers. I think we're starting to see that alleviate slightly now because China's opened up as of June 1, or they're starting the opening up process. But the unfortunate part of that for the next couple of years, until companies bring their manufacturing back stateside or into different countries is your current work kind of China's will so if China thinks they need to shut down because of COVID again, then we are we have supply chain issues again. And so obviously, we're hoping that doesn't happen. But you can't ever say you can't say it's not going to happen either. You don't really know. So there's the other side of its supply chain. And then obviously you have Russia and Ukraine and Europe, which is providing its own raw material supply chain from Ukraine and Russia. Because outside of the oil and gas, we did import few things, but we still import it from Ukraine, and so did the entire world. So again, it's more of a global issue. But between China between lockdown to different countries, and the Russia and Ukraine war, the supply chain has been very, very tested to say the least. And I actually think long term. After things settle hopefully within the next six to 12 months. Long term, I think companies are going to make changes they need to to make sure the supply chain stays a little more consistent, constant and efficient. But that takes time and money. And we're probably three four or five years out from even seeing the first impacts of that so we have to get through now so we can get to none. But so that's the second impact on inflation and the third is too much money. I know this everyone knows the stimulus is needed when COVID first hit we didn't know what was happening. We didn't know what the proper steps forward we're gonna be personally on a political scale and then the globe told like as complete well overproduction when and everything else, we had no idea. So the response was when people were losing a job or getting laid off, and just in general was let's help people out with as much as we can money wise, whether that was unemployment benefits, whether it was the stimulus checks, whatever it might be. Now, what happened was people were able were either one able to save those, and spend them in a later date or invest them, or they were able to spend them now when they first got them. And then as they continue to come out, where they continue to get those benefits, they will continue to keep spending the savings rate in the past two years, maybe not now, but before 2022 was the highest it had ever been for consumers. So we're sitting on a lot of cash coming into 2022. So if you combine the amount of money that was handed out before, call it one 122. So between March of 2020, to one 122, the amount of cash that was handed out, and then you add on to that the inflation rate, the inflation that we were seeing, and the supply chain issues. It's a lot it's too much money chasing too few goods, which in turn pushes up inflation. We're starting to see that settle a little bit. And the reason I say that is because yes, we do have continued spending, but we're starting to see a slowdown in spending. And then the other side of that is we're starting to see consumer sentiment tick down. And what consumer sentiment is, it's really the the measure of how confident consumers are you and me, and our own personal finances, and then our view on the economy as a whole. And we're starting to see that decrease. So when consumer sentiment decreases over a longer period, that's when you start to see spending continue to reduce because people want to prepare themselves for a worse off situation. So how do you do that you save money, and you don't spend it. So I think we're gonna start seeing people spend less in the next six months, which will bring down inflation, I think we're gonna start seeing oil companies produce more and get to a point where our supply and demand is equaled out on that level of things. And we will see reduced inflation from that in the next six to 12 months. And then on the supply chain side, should global supply chains stay relatively consistent and efficient, outside of Ukraine and Russia. So more so speaking for the China side of things that should help with inflation as well. So yes, in the last six months, all three of those factors have been very volatile and shaky, to say the least, I'm hoping in the next six months that there's some steps taken, that are already being taken now to lower inflation through just weather people aren't spending as more the supply chain is able to be more efficient and consistent. And energy prices come down because the production of oil and energy is brought to a supply and demand level that is healthier. So that's inflation wrapped up in three categories. And I already spoke on the Russia Ukraine side of things, the markets being down was on fear of exactly what I was just talking about, whether it was supply chains fear, whether it was inflation, fear that continues now. There's a ton of fear to go around. And this is the first time that we've seen a time like this, that social media has been as present as it is, in 2008. The last time we have seen something even close to this as far as a inflationary kind of period. Or you kind of see 2008 thrown around in the media a little bit now kind of reference back to that. There was no social media, there was social media, but it wasn't nearly as widespread as it is. Now it wasn't everyone involved in it. Not everyone was posting not everyone had an opinion they put online. And now over the last 14 years, we've seen social media grow and grow and grow. And so we're at the point now where we have smartphones that are light years better than they were in 2008. We have watches on our wrist that give us that are just as powerful as our smartphones, we have tablets, we have laptops. And yes, these things were around 2008, but they were nowhere near what they are now. And neither social media and the use we have of it. And so I think things sound and seem worse because you as a consumer just it's hard to escape. You could be walking on the street not thinking about any of this, and your watch goes off with the next notification that inflation is at 8% Or that the market was down 200 points for the day or whatever it might be my point being it's harder to escape when media between traditional media and social media and the tools we use to consume that have really, really taken a much bigger part of our lives. And I think a lot Part of that is driving the fear up in the market and economy in general, and us as consumers and investors, and in turn, that's bringing the market down maybe a little bit faster than it would have been in the past or a little bit worse than it would have been in the past. That's just a theory of mine. It's just a thought I've had and I've been kind of going through by no means do I have any data surrounding that. It's just a theory. What else has been happened in the past six months rising interest rates. And this is actually, by no means do you love rising interest rate periods, because obviously, you don't want to spend more on the debt that you have, you don't want a higher interest rate on the debt that you have. But we've had the last two years in the housing market have been insane. Between the sales that we're seeing the housing values increasing at the rate they were, it's just been an insane two years. And a lot of that was driven by very low supply in the housing market. But that was accompanied by very, very low and 30 year mortgage rates at around. I mean, what was it at some point, I might have been sub three, but I know at least 3%. And so what has happened, and it was very easy for people to borrow money, it was very easy for businesses to borrow money, because the interest rate you are paying on these loans was, like I said, close to two to 3%, which is pretty much free money. What has happened is in an effort to tame inflation, the Fed has increased their Federal Reserve rate. And what that does is that's the length, that's the lending rate between bank to bank, one that's higher, and it's more costly for banks to do their lending business, that gets pushed on us as consumers. And that means our credit card interest rates goes up, our personal loan interest rate goes up, our home equity line of credit, interest rate goes up, our mortgage rates go up our adjustable rate, mortgage rates go up, or pretty much anything you can think of as far as debt and lending. As consumers, those interest rates are going up. And that's in an effort to stop the spending that we have been seeing by consumers through the Fed. Because when you stop or slow spending, that is when inflation comes down. So yes, interest rates have been going up, we're still waiting to see the impact that's going to have on inflation in the market in general. But what it has done in the meantime, is it is showing a clear slowing down of the housing market and the sales in there. We're nowhere near we are where we were in 2008. And there's the my opinion, we're not in any danger of the housing market crash, like we saw in 2008. But we will see some lesser sales and slower growth and sales because a 6% 30 year mortgage, which is where about where it is today is obviously is 100% higher than a 3% 30 year mortgage that we saw in beginning of January. So that very quick rise in interest rates in a very short period of time, we'll slow the housing, sales. And then over time that will push housing values down a little bit. And not even to levels that aren't healthy, I think it's gonna get pushed down to healthy levels, because we've seen housing explode in the past two years at a rate that's not sustainable whatsoever. So when you bring values down to a normal, rising between somewhere between three to 5% per year and not 10 to 14% per year, that's healthy for the economy. And we need that. The one issue we still have in the housing market, which I hope we learn from is that we still have very low supply, meaning there's not enough houses to really go around for people that want to buy them. And I'm hoping over the next couple of years, there's a focus on building more. So we kind of avoid the increase in housing values due to lack of supply, because that's really not super healthy to have long term. I think we're seeing the last two years what that looks like. And hopefully we build more in the next couple of years to offset that. Some other positives that we've had low unemployment, unemployment still incredibly low 3.6%. I think the next report comes out Friday, July 8, I think I could be wrong. Don't quote me on that. I'm curious to see where it's at. But even if we have a slight uptick in unemployment, we're still at a healthy rate for unemployment. I mean, 3.6 is historically as low as it gets. So even if we go up a little bit, we're still going to be in a good spot. And I hope it stays that way. It means businesses are still doing well. They still need people to work so they can produce, whether that's a product or a service so people can then consume that product or service and the economy keeps keep growing and being more efficient as time goes on because of that. So I think unemployment still in a good spot. And then banks They have passed their annual stress test they get put under. What that is, is it's the Federal Reserve puts banks under a stress under a hypothetical situation that they create. So I think this year was the hypothet hypothetical situation that the economy contracts by 3.5%, unemployment jumps to 10%. And housing values or real estate values dropped significantly because of those two things. And it's pretty much measuring if those things happen, will banks have enough capital to continue to operate as they need to, because what we didn't have in 2007 to 2009 was a bank stress tests like that. And we saw what happened when we didn't really keep giving them annual checkups on how they've been doing. So we've implemented that. And now we have those. And like I said, that was the scenario that they got put under for the test. And they all passed pretty much with flying colors. So we're in a really healthy spot, as far as the financial system is concerned on that side of things, which is a positive long term in the short term and long term. Like I said, that's good. For the next six months, unemployment is good for the next six months, rising interest rates will cause a little bit of short term pain because our loans or debt will cost a little bit more to us. But long term, it will bring down inflation, which is a positive energy prices hopefully come down, supply chain hopefully eases itself. And the money that was pumped into the system should be working its way through the system, or stay on the sidelines for a little bit, which is a positive as well. The other side of it, and this will kind of round out this conversation is within the next six months, we're gonna have midterm elections. Not to dive into the politics side of this. But if the House or Senate flips and goes to Republican as a Democrat, now, the market actually really likes when the presidency is held by one party and neither the House and Senate is held by the other. And it doesn't matter whether it's Republican as president or Democrat, as President, and then the House and Senate as Republican or the House and Senate as Democrat as long as they're split. And the reason being, is because we know at that point for the next two years, that not, not a lot is going to get pushed through because one party or the other party is going to block pretty much any efforts made. And while yes, sometimes this causes political tensions that are unnecessary for the market. And investors, we know that the next two years are going to be pretty, pretty consistent with what we've seen, and what we're used to already. So it's actually positive for the market more often than not, when that split and one party can't make decisions, and can't really get too much through without jumping through a couple of additional hoops. So should that happen in six months, I think that's going to be a positive as well. So yes, this last six months until now, I've been a little rocky in the market. And I'm sure personally as well dealing with inflation. But ideally, ideally, the next six 810 12 months, we're going to see the tide start to shift. If I had one word of advice, taking the last six months into consideration and going into the next six to 12 is we just got to try to find the little bit of patience that we have left trust in the plans that we have trust in the investing plans that you put into place for yourself or that you have put in place for you understand why you're invested in where what you're invested in, and just know that this will pass this too shall pass and just have a little bit of patience because we're gonna get there, things are gonna turn around, but it was just the first six months were something that we weren't that not many people are anticipating so we'll get there things will be okay, but I just wanted to come on here and recap that first six months explain kind of what we saw quick and detail what the next six to 12 months might look like for us. So that's it for today. Until the next one guys stay happy, stay healthy, and I'll see you. Securities offered through securities America Inc. Member FINRA slash SIPC. advisory services offered through securities America advisors Inc. Wealth Management Services and securities America are separate entities. The opinions and forecasts expressed are those of the author and may not actually come to pass. This information is subject to change at anytime based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. Past performance does not guarantee future results.