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3rd Quarter Newsletter 2022


    The end of September brought the quarter to a close with a battle between the Fed and Market Bulls. The week ending Friday, Sept. 23, saw the S&P down 21.6% for the year. The DJIA was down 17.3% ytd, and the NASDAQ down 30.1%. Things weren’t much better on the bond side: 10-year Treasuries were down 16.1% for the year; and munis down 11.3% ytd. Inflation (Core CPI) was 6.3%.[1] On Wed. the 28th, in what Bloomberg News called “the biggest cross-asset rally since April 2020,” Advisor Hub reported that almost $7 billion poured into the largest exchange-traded funds tracking U.S. stocks, investment grade bonds, and high yield credit. News of the Bank of England’s intervention in the bond market appeared to fuel the rally. The relief was short-lived. In an abrupt shift of sentiment Thursday, the 29th, negative news from the UK and troubling new inflation data roiled global markets and “zapped animal spirits in U.S. Equity Markets and sent bond yields soaring, piling more pain on beaten-down bulls.”[2]

   As we make our way through October, a month long associated with spookiness in the Markets, the Fed continues to remind us that wrestling Inflation to the ground is their focus. They will aggressively tighten until they kill the Hobgoblin. John Mauldin, of Mauldin Economics recently wrote in an article titled “Where Are the Workers?” that it should be clear by now “Federal Reserve leaders intend to keep hiking until the economy breaks; and interest rate hikes are not a very efficient tool to do this.” The goal must be to significantly reduce consumer demand, which has been keeping products and service prices high. Often consumers will voluntarily decrease their demand, as prices rise, and they have less income. Mauldin observes the Consumer has not been cooperative as inflation rose during and post Covid. “We have seen Paree,” he says, “and no longer want to stay down on the farm.”[3]

  The Fed has learned that Demand will need to be reduced involuntarily. Sharp increases in rates typically bring loss of income by removing jobs and/or cutting wages. But demand for labor remains high. Help Wanted signs are everywhere. Companies are offering generous salary packages with flexibility for workers still dealing with a post Covid hangover. But there are not enough people taking these jobs. “The U.S. has the opposite of a jobs recession” Mauldin says. There are simply more jobs than workers; and like the Inflation we are battling now, it is not transitory. It didn’t resolve as we moved beyond Covid. Bad news for the Fed; “their main suppression tool is broken.”[4]

  The Supply Chain mess is another lever to Consumer Demand which continues to haunt the Fed. Even as inventories in certain areas are already catching up, Port backups remain significant, according to Nathan Baney, writing for Axios in an August 8th, 2022, article, “while there is less cargo flowing now, there is still so much backed up. And the global semiconductor chip shortage, which has driven the shortage of new vehicles, will likely take years to resolve.”[5]

  The selloff in Financial Markets is the one thing seemingly working in the Fed’s favor. Going back to 1950, significant market declines have frequently been linked to reversals in inflation. When, from time to time, it looks as though the seven months of rate hikes this year may be having some effect, and the Market stages a rally, the Fed steps in to squash its premature optimism, like country fair goers playing a game of Whack A Mole. As we write this newsletter, we are experiencing yet another sharp rally. Wall Street awaits the next round of earnings reports. Meantime the Fed continues to make clear that overpowering Inflation is their only goal right now; and that we all need to share the pain of that process. This frightful dance could continue for some time.

  The markets began declining before the first Fed rate hike and will not wait for it to signal the last hike before they mount a sustainable rally. History has shown us there can be many false starts at the bottom, and when we are still on our way down to it, caution is called for. Cash will help us weather the battle and be prepared for opportunities when it’s safe to move to offense.

 Mr. Maudlin observes:

Let’s begin by throwing out projecting an end of Fed fund rate increases based upon inflation, unemployment, or other macroeconomic factors. The end of Fed tightening will come when something breaks and the Fed will have no choice but to reliquefy the system, an event which I would expect before year end, and most likely before the end of the World Series. The strains are already great, and as Scotty famously told Kirk, “I dannae if she can take anymore, Captain!”[6]

  Halloween is approaching. Soon little Captain Kirks and all manner of characters and creatures will be out celebrating. The big fad in our area this year is a gruesomely realistic 12-foot skeleton with LED eyes. Like so much in 2022, they are outsized. They have been sprouting on folks’ lawns for 3 weeks now; and many retailers are sold out. In another example of high consumer demand, these giants are going for $600, if you can find one. We can’t blame people for wanting a chance to escape the pain for a while, dress up in disguise, and go hunting for free candy. If you find yourselves Trick or Treating this year, have fun, but be careful out there. And you can skip the Feds’ house. They turned off the lights, locked the door, and posted a large sign saying NO MORE TREATS TIL FURTHER NOTICE.

 Looking forward to brighter times, please see the enclosed Save the Date card for our OPEN House, Friday, Dec. 9th. More details to follow.

Our door is always open to you;

                                                                             Debbie, Preston, and Katie;


Past performance is no guarantee of future results. The Dow Jones Industrial Average is an unmanaged, price-weighted index of 30 large capitalization stocks with dividends reinvested. Please note that investors cannot invest directly in an index. The NASDAQ Composite is an unmanaged, market capitalization weighted index of stocks listed on the Nasdaq Stock Exchange, reported as price return without reinvestment of dividends. Please note that investors cannot invest directly in an index. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. The Standard & Poor’s 500 Index (“S&P 500”) is an unmanaged, market capitalization weighted index of 500 widely held stocks, with dividends reinvested, and is often used as a benchmark for the U.S. stock market. Please note that investors cannot invest directly in an index. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Amounts withdrawn are subject to income taxes. Withdrawals before age 59½ may also be subject to a 10% federal income tax penalty and plan restrictions.


[1]  Curtin, Griff, Franklin Templeton, “What Happened Last Week,” 9/26/22.

[2] Bloomberg News, “Dip-Buyers Schooled Again After $7 Billion Dive Into Risk Assets,” www.advisorhub.com, 9/29/22.

[3] Mauldin, Jim, Mauldin Economics, “Where Are the Workers?” 10/7/22.

[4] Mauldin, Jim, Mauldin Economics, “Where Are the Workers?” 10/7/22.

[5] Bomey, Nathan, Axios, “Supply Chain Bottlenecks Beginning to Clear Up,” 8/8/22.

[6] Mauldin, Jim, Mauldin Economics, “Where Are the Workers?” 10/7/22.

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