At the time of this writing, the DOW, NASDAQ, and S&P are all up! So, is the bear market over??? Well, if you ask the commentators on cable news, then yes. If you ask the government, then yes. If you ask your current financial advisor, I have a strong suspicion, yes.
However, what are the analysts saying about this? I gave an update a few weeks ago about the current outlook for the rest of 2023 and running into 2024 from a financial newsletter I subscribe to written by Paul Dietrich, the Chief Investment Strategist of B. Riley Wealth.
Just to let you know, Paul does not like annuities. Paul manages money and earns his living by having his clients in stocks, bonds, and mutual funds. So, when I see a guy giving information that directly affects his personal income in the negative, I tend to take him more seriously.
As a reminder, I am not securities licensed and this is no way to be taken as advice to buy or sell any securities products. This material is for educational purposes only.
Here are some of the highlights of Paul’s latest newsletter:
It doesn’t take a stock market historian to know that something terrible will happen when the stock market surges and the S&P 500 companies’ earnings decline -6.8% in Q2 2023. This quarter will mark the most significant earnings decline reported by the index since Q2 2020 when Covid closed down the country.
This was the third consecutive straight quarter of the year-over-year earnings declines. That is officially an “earnings recession.”
This has never been a sustained period when the stock market continued to go, P.E. ratios continued to go up, and S&P 500 earnings declined quarter after quarter.
Many analysts and market commentators say, “This time is different.” It is never different!
I personally love it when the financial elites say, “This time is different” because they are implying they have learned from their mistakes. They never learn from their mistakes! Just like King Solomon said, “There is nothing new under the sun.”
Is the economy growing stronger?
No! Except for the strong labor market, the underlying economy continues to decline. But, at a slower pace than analysts expected. Even the labor market growth is slowing. Consumer spending on goods and services is slowing. Wages are slowing.
There is a massive difference between the economy getting stronger and just delining at a slower pace.
Is Inflation Declining?
After the Fed Reserve raised rates by 5% over the past 18 months, inflation came down from its “supply chain crisis high” last summer.
The Fed continues to worry about “core inflation”, which is all inflation except food and energy.
Did you know that they do not count food and energy in the inflation numbers??? Why do you think that is? Because the amount of outrage that would ensue if people were told the truth would be immense. And most politicians are cowards and rarely tell the truth about anything that could get them kicked out of office.
Everyone knows, at least in their gut, that inflation is way higher than what they tell us. And since the majority of Americans spend the majority of their money on food and energy, they want to exclude that calculation from the official inflation numbers.
So, what is the real inflation on food and energy? In January 2021, the price of regular gas was $1.73 at the BP by my house. The highest I’ve seen it in the years to follow was $5.00! That is insane to us Midwesterners. That’s an 189% increase!!! That’s the real inflation numbers they don’t want to talk about. Currently gas is around $3.50 per gallon in St. Louis, so we’re still hovering around 102% inflation for energy. Unacceptable!
The Fed will raise rates at least two more times in 2023. Two quarter-point rate increases would bring rates to 5.5%-5.75%. That will significantly negatively impact credit card rates, mortgages, manufacturing, real estate, and banks.
Translation: Things will get even more expensive and people will be spending less money which in turn causes things to slow down even more.
Does This Remind You of The 2001-2002 Dot.Com Recession?
David Rosenberg, the current head of Rosenberg Research and the former Chief Economist of Merrill Lynch, recently published the following comparison of today versus the 2001-2002 Dot.Com Recession. The man is a prophet in our industry.
Look at the comparisons: (Condensed for the consideration of the length of this newsletter)
- Valuations are hitting nosebleed levels, especially in growth stocks
- A very tight labor market and perceptions that the business cycle had been repealed
- Coming off a +175 basis point Fed tightening cycle from June 1999 to May 2000
- A prolonged phase of yield curve inversion that was widely viewed as a relic from the past
A yield curve inversion means when shorter-term bonds and T-bills are paying a better interest rate than longer-term bonds and T-bills. This has been the case for a while now and has always been the best indicator of a recession.
- We had the Internet mania back then, and we have the A.I. frenzy today. Both have enormous economic and productivity influences, but both are also involved in financial asset bubbles that popped in a dramatic fashion.
This one is my favorite:
- The smug complacency in 2000 looks eerily similar to what we have on our hands today. By the fall of 2000, when the stock market was about to roll over, and the economy was seemingly resilient, everyone was asking back then the same question being posed today: “Where’s the recession?” The answer is the same – have a bit of patience; it’s coming sooner than you think.
Here is Rosenberg’s last central point:
We have come off the most pernicious Fed tightening cycle since 1981. The yield curve inversion in terms of duration, depth, and dispersion is a 99% recession signal, and the timing is always difficult, but the classic lags mean the 3rd or 4th quarter of this year.
It has to be stated that what helped extend this cycle was the excess savings on household balance sheets that came courtesy of the Biden Budget Buster that sent out stimulus checks to everyone and paid people more not to work than to work, and these savings that were amassed for months now have acted as an antidote to the Fed rate hikes, but this energizer bunny is starting to run out of gas now not just in the flattening out in chain store sales, but it’s also evident in some pockets of services like restaurants which have started to sputter.
But when you look at the wave of large-cap retailers who just cut/missed their earnings guidance – Walmart, Best Buy, Advance Auto Parts, Foot Locker, Home Depot, Lowe’s, Tractor Supply, Dollar Tree, Dollar General, Target and Ross Stores, I have to plead ignorance on why it is that so many folks out there are still peddling the consumer resilience narrative just because people are still flying and going on cruise lines. That is what we’re down to on the consumer spending file.”
The article continues on for a while, and I’m happy to email it and share it directly with anyone who would like to read the entire publication. I just don’t think it’s appropriate to post a paid subscription on my website.
What does this have to do with annuities and why am I telling you all of this?
I have had a lot of conversations recently and it feels like people are finally waking up and learning that this is very much a “rinse and repeat” process in our economy.
I’ve heard these comments:
- I’m tired of losing money
- We made it through 2008 and luckily regained our losses but cannot afford to lose again
- Our financial advisor says everything will be fine, but we just don’t believe it
- We don’t want to worry about this stuff anymore
- We’ve been through the ups and downs, and now we just want to keep what we have
These are all positive indicators that people in retirement, or near retirement, are not buying the narrative anymore of “just invest in a diversified portfolio”, “you’re going to average 5%”, or “you’ll be okay if you only withdraw 4% of your portfolio.”
This is all generic crap that doesn’t work anymore!
The best way that I have found, and I’ve looked at tons of different strategies, is to give yourself a guaranteed foundation of income with Social Security, Pensions (if you’re lucky enough to have one), and income annuities. Then you can take as much risk as you want and get rid of the anchor of bonds in your portfolio to turbocharge your growth in the good years!
And, if you have enough guaranteed income from things like pensions or rental real estate, then have a safe bucket of money using a growth annuity that you can withdraw from if/when you need to take a chunk of money out for large purchases or emergencies while your stocks are in the toilet.
I tell my clients all the time, “Look, I’m a fireman and I was able to figure this stuff out. You don’t have to be a genius to realize what’s going on. Get a solid foundation of income and then the rest is just noise in the news that won’t affect you one bit.”
The very best way to get that solid foundation is with annuities. They can be dated all the way back to the Roman Empire. This is not a new concept that people should be scared of. However, there are people out there that want you to be scared of them because they have a vested interest in you continuing to risk your money in the market.
At the end of the day, I don’t really care if you fund an annuity with me or someone else. Just know that there are effective ways of using them and counterproductive ways of using them. I have put together a series of videos that will walk you through 4 different case studies, and I bet one of them will ring true for you. So, please take the time to watch “20% More Income In Retirement” to learn how to use annuities in the most effective way possible.
Then reach out to me with your questions by booking a short phone call by clicking the “Schedule a Call” button.
I hope everyone is enjoying their summer and this finds you well!
All the best,