July Power Hour – Market Update

 

July Power Hour Summary

Market Update –

This has been the worse half year since 1970

United monitors items typically present at the start of recessions.  Of the 7 items tracked, only two (yield curve and inflation trends) suggest a near term recession.  This is unchanged from last month.  Two categories were revised from positive to sideways (employment trends and earnings quality).

Consumers are becoming increasingly strained as the Consumer Stress Indicator (Food at Home + Mortgage Rates + Gasoline Prices) reached levels not seen since the 80’s.  Spikes in this indicator have previously preceded or coincided with recessions.

The markets, ever forward looking, are trying to price in this recession right now (whether or not it actually happens).  Depending on what earnings decline or multiple you want to use, it can still bring (stock) prices lower in the short term.

But the reality is that over the last two years (2020 & 2021) corporate earnings have grown over 40% and the market has only about 16% higher on the back of that.  That means that the market in whole and many stocks are at a discount, which is a combination of a multiple contraction and estimated decline on corporate earnings already being assumed. (but as of yet, hasn’t happened) However, this isn’t sustainable longer term, especially when you consider the median earnings growth in the year following a recession (if we do have one) is 17%.

This is why buying stocks through the bear market cycle is ensuring you are buying a slice of future growth at discounted prices.

The key to keeping ahead through this is having some preservation on the way down (which we have as every equity strategy is currently outperforming its benchmark) and having dry powder on hand to take advantage as prices get even lower (which we have in our strategies as well).

Defensive stocks remain in a leadership position when compared to cyclical and sensitive sectors.

Focus Topic – Inflation and Wealth Insurance

Positioning your portfolio to keep up with inflation -Invest in Inflation protected stocks

  • Healthcare
  • Consumer staples
  • Materials
  • Utilities

Think the types of things people will pay up for through inflation and not cut back on.  That would be their healthcare/medications, and consumer essentials.  Materials and energy should also go up because they are a reflection of the things being inflated. Our portfolio manages are doing this!

 

Use Gold and Silver as Wealth Insurance and Inflation Hedge – with Nathan Akers, National Gold Consultants

The way inflation is calculated with the CPI (consumer price index), has changed many times over the years. Really, this is done to reduce government expenses (like the raise on Social Security checks) and increase revenue as CPI can affect tax bracket. The means inflation is probably higher than the CPI indicates.

Gold and silver have stood the test of time as an inflation hedge as one of the only assets to preform well in both inflation and deflation. Precious metals protect purchasing power, for example…

When the Mustang came out in 1964, it cost about $25,000. The same amount of silver that it would have taken to buy a Mustang then is not worth about $95,000 which would buy you a brand new, top of the line Mustang and still leave some left over. The same amount of gold would be worth $135,000.

But it goes even farther back…

A Roman Centurion was paid 18 gold coins per year, equaling about $75,000 in todays dollars, which is about that an Army Captain makes today.

Our currency use to be backed by Gold and Silver, however that was changed with the creation of the Federal Reserve and the federal reserve note (what we call the dollar). This is paper money, really a fiat currency and up until just recently, most of the world has been operating on fiat currency, until March 25th when Putin tied gold inextricably to the ruble. He declared a flat rate for trade for gold at 5,000 rubles/gram, essentially creating a floor for the trading price of gold and bolstering the ruble.  Since then, other countries have been following suit and/or using bitcoin or other crypto currencies.

Physical Coins vs Funds

Prior to this move by Russia, gold prices have been heavily manipulated by the paper gold and ETF market. These paper markets have been suppressing gold (and especially silver) prices for quite some time, however with this new move by Russia, which ties the gold to the ruble, Russia has imposed a floor to the price of gold.

Gold and Silver ETF’s, while they have a place, are much more volatile that owning physical gold and silver. Think about it this way, when there was the raid on toilet paper, would you rather have a certificate to buy some or have it in your possession?

Owning the pre 1933 silver coins National Gold and Silver Consultants recommend is a non-reportable asset. It is not tied to your social security number, there is no 1099 if you sell it.

Not only does gold and silver protect your purchasing power, but it also acts as a counterbalance to equity markets.

A study done by CPM group reported than owning any amount of gold and silver increased your portfolio performance and owning between 1-020% also decreased risk.

However, tracking the value of gold and silver can be confusing. Spot price is the cost for gold and silver still in the ground, it is very volatile whereas the physical coins themselves are not, they tend to stay steadily increasing over time.

Spot price is like buying a packet of flower seeds, not the flowers themselves.

The best way to track value is to contact us annually or semi-annually. Currently, the price of a pre-1933 silver coin we recommend is worth $38-39.

Investing vs Collecting

The precious metals market is like the wild west with lots of retail dealers who are not fiduciaries and do not have to act in your best interest.

An ounce of silver is worth the same no matter what shape it is in. So, if you are buying a coin for $5000 because it is a collector’s edition, then you are collecting, not investing. In order to get $5000 or more out of it, another collector has to be willing to pay that. Otherwise, the ounce of silver is worth the same as any other coin.

So, be careful, are you wanting to invest or collect? Either is fine as long as you know the difference.

What about Crypto?

Not all crypo is the same, Bitcoin and Ethereum are good but unless you are savvy in what you are doing, Crypto should also be used as a hedge with about 10-15% of our portfolio.

Security is important, buy thru an exchange – like Coinbase and then move to a cold wallet.

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We serve clients in Mineral Point WI, Dodgeville WI, Platteville WI, Lancaster WI, Fennimore WI, Boscobel WI, Richland Center WI, Muscoda WI, Spring Green WI, Mazomanie WI, Sauk City WI, Middleton WI, Madison WI, Fitchburg WI, Verona WI, Mount Horeb WI, Barneveld WI, New Glarus WI, Monroe WI, Belleville WI, Oregon WI, Stoughton WI, Darlington WI, Cuba City WI, Hazel Green WI, Belmont WI, Dubuque IA, Freeport IL

 

 

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