Answering questions, Powell's plan & Private Investment Opportunity
update on the state of the economy and investing
photo credit: Engin Akyurt
In today’s addition, I am going to answer a few questions I have received from various subscribers after I give an update on where the economy is at.
Feel free to email me any questions you have pertaining to our 4 pillars of wealth:
Macroeconomics
Geopolitics
Monetary policy
Investing
Let’s get started!
Where are we?
I have noticed that we are in a S.I.S. cycle (spending, income, spending). Even though inflation is coming down in certain areas, it still has potential to boost back up at a moment’s notice.
Basically, spending fuels income which fuels spending. Or how economists say it, spending is being financed by income. What I am describing is something called monetary inflation.
Monetary inflation is a massive increase in the money supply of a country or economic system. This was partly created by higher raises and new employee retention incentives over the last two years.
Wages are up significantly because there are too many jobs available per worker. Due to how our economy is structured, layoffs are the only way to break this cycle.
When unemployment increases earnings will come down to a more moderate level (at least 20% ).
Note: In order to have a 2% inflation rate you have to bring down corporate profits which brings down wage increases.
The Giant Awakes…
Another trend I am closely watching is the reopening of global economies. The savings of those citizens will be deployed wherever they go.
China, the world’s manufacturing base, has restricted travel for its citizens for awhile. And now they are rolling back covid barriers.
Chinese citizens have a lot of pent up demand (at least $720 billion in savings) and are now ready to unleash it globally.
This might cause inflation to increase in:
hospitality services
short-term rentals
leisure items
Only time will tell if it has an affect on the Fed Reserve’s efforts to bring down inflation.
Powell’s new plan…
As Fed Chairman Powell slows interest rate increases, a recession is being kicked down the road as markets rally in support of his actions. When he pauses rate hikes and there are no instant ripples through financial markets, Wall Street will claim a soft landing is happening.
When retail investors and retirement fund managers cautiously re-enter the market, governments will unleash more inflationary spending.
Overall, this doesn’t look good for Q3 of 2023.
The remedy nobody wants….
In my humble opinion, we are still on track for a late 2023-mid 2024 recession.
The economic decline, that is on its way, potentially in the second half of 2023, will be the cleansing mechanism the global economy needs to properly reset itself.
There is too much money floating around which is causing products and service prices to slowly decrease.
As consumer savings come down and companies experience pain in their profits, there will be more appetite to normalize prices.
All I have to say is, get ready….2023 will be an interesting year.
Answering Subscriber Questions
Going forward I will answer all questions in the email blast/post. If you have any questions please email me at info@hipturist.com
Let’s get started!
Question # 1
Why are there so many layoffs and will they continue into 2024?
Great question. First let’s establish what is going on.
The Fed is in a rate hiking cycle, meaning they have to (in their opinion) bring down inflation to a suitable level so people can have an easier time spending into the economy.
When the Fed makes it harder to borrow money companies typically respond with layoffs.
Companies laying off employees are trying to accomplish a few things:
They are trying to afford workers that are hard to rehire (frontline workers)
They are trying to stop spending more on salaries and bonuses so they can fund business activities
They are trying to have cash on reserve going into a recession so they can weather the financial storm
As of now it looks like layoffs will ramp up as the Fed slows down the rate hikes and leaves it elevated for awhile.
My prediction is that when unemployment goes above 5%, the Fed might change their plan because a 10% unemployment rate is the scariest thing in an economy.
Question # 2
Why is geopolitics so important right now? What should we know about it?
Geopolitics is an area of focus that is not truly understood, but it is very influential in our day-to-day lives.
By understanding geopolitics, you understand how the world functions or how it is structured.
Geopolitics also shows you how a country adds value, meaning what does it produce and who buys it.
What a country has a strategic advantage over allows its government to:
set political policy
have leverage over other countries
focus on its self-interest
What you should know is, a country’s self interest accomplishes two things;
The government can pay for social programs it provides to citizens
The government can give incentives to its business community to continue to hire people and build what a country needs domestically and can sell
For example, if China governed Taiwan it will have better access to high-quality micro chips. With such geopolitical power, China can begin to produce higher level tech products and components at a faster rate.
Currently, most of the chips that come from China are used for casino slot machines and toys. With Taiwan’s chips under mainland control, China can manufacture weapons and advanced computer systems which will compete with the US.
Question # 3
When will markets go back to normal, and when should we start to invest again?
Let me ask you a question. Is it better to buy assets cheap or when they are at an extremely high price?
Right now every investor is facing this question. Do I wait until stocks begin to go up, so I can buy as it rises (momentum) or should I be okay with buying assets that are continuing to go down?
The only way to answer these questions is by understanding what is your risk tolerance level and what is your goal? As a financial advisor, I deal with this type of question daily. As a soon-to-be fund manager, I have to dwell on this question constantly.
What helps me get through all the noise is sound investing life principles. I rely on my understanding of how markets work to make my decisions.
I started the Off-Grid Income premium for this same reason. It allows me to allocate time to sharing exciting new investment ideas and opportunities with premium subscribers.
This is the last time to lock in the $10 per month price for the premium subscription. Prices are going up tomorrow.
This week we begin talking about:
Private Equity
Angel/Venture Investing
Off-Market Deals
much more
I can’t wait to teach you my methods of analyzing investments!
Subscribe now to also gain access to my research about:
stock market insights
geopolitical & economic deep dives on what truly matters
I see many opportunities right now with where things are headed. I don’t plan to miss any good opportunities, neither should you!
This is the market environment where wealth is created for those that act now.
Until next time,
Off-Grid Investor