Financial Weatherman Weather Map

We’re going to start this week on the Trends in Financial Markets weather map, if you will, with a 15-year chart of inflation. Now this is the commodity index; that’s the low of 2008, and you can see commodities went up nearly two times from that point. That was the depths of despair when everybody sold stocks and went the wrong way pretty much. Then you had a huge increase in commodity prices. Everybody was worried about inflation in 2011 because of the Fed balance sheet, which I’m about to show you. Well, instead of inflation, we made more of the commodities and we saw deflation or disinflation during this period right here.

Recent Inflation Trends

Look right here—that’s why everybody’s Trends in Financial Markets about inflation. It’s called a recovery, and I’m going to shed some light on what the Fed is doing, especially with their recent meeting. Now this is the overall inflation rate: boom, 6.8 percent is the highest in 40 years. Supply disruptions, and we’re going to get to that as well as what does inflation mean at 6.8 percent? You would expect bond yields to soar and bond values to go down—not so fast as we go through this presentation.

Federal Reserve Balance Sheet

And we’re about to see the Federal Reserve balance sheet.Trends in Financial Markets this is the amount of printed money that the Fed puts into the system—lubrication, we could call it. They were below a trillion, arguably way too tight back in 2008. Well, the crash happened; real estate, actually the entire real estate industry and banking industry were essentially bankrupt at that point. They printed lots of money and took the balance sheet all the way up to, notice they kept printing money through 2013-2014. They leveled it out, and that was about 4.7 trillion at the peak of electronically printed currency. Key concept here: now they’ve gone to 8.7 trillion. They were screaming inflation back in 2011, and the Fed actually ended up printing more money, but inflation went down.

Market Responses

Now what does it mean for the financial markets at this point? The Fed is going to stop printing money in 2022. There’s part of your update, and the financial markets actually responded in a fairly benign way when they made that announcement here in December. So let’s go to the next one—S&P 500 index. There is the low of 666, ironically back in 2009. It was March 9th of 2009. I printed a list of 20 companies we believe won’t die because nobody wanted to buy stocks at that point. The stock market did not recover to new highs until the end of 2012. Wow, that’s a key point: 12 years of zero return on the index, on the index value, except for the yield of about one or two percent.

Market Trends and Future Outlook

Then you have this explosion. Look at this explosion that’s happened since the pandemic last year. When we look at these, we say, “Wow, what’s the trend?” Well, you can have long periods of a flat market. How are you going to succeed? It’s called interest and dividends because you still own great assets. If you go through 2000 all the way to 2012 with no appreciation and several downdrafts, how do you benefit? We cover that in the program at networthradio.com, and we get into much more detail about how to upgrade your financial plan. Go to networthradio.com, fill out the preliminary client questionnaire, and yes, if you’re already a client, we would love to Zoom or have you in the office to upgrade your plan again for the next decade.

The Technology and Innovation Landscape

Are we going to get this kind of appreciation again? We don’t see it very often. In 35 years of doing this, you don’t see it very often. This is technology and innovation. Back in 2000, the NASDAQ 100 fell by almost 90 percent. It was technology that was the rage in 1999, and here you see the low and an extraordinary high of almost 15 times what the low was back there. Well, we started to correct again here at the end of the year. What does it mean? Multiple contraction. The Federal Reserve said, “We’re going to raise interest rates; we’re going to stop printing money,” and that says multiples will come down. When you buy stuff that is at seven times earnings, like some of the medical dividends, you’re actually protecting yourself from the next correction.

Financial Innovation and Speculation

Now here is financial innovation: purpose acquisition companies. That’s a way for a company to go public. Somebody raises 500 million dollars, for example, and says, “We’re going to buy a great company and take it public like that.” They’re coming public too soon, and look at this financial frenzy. Almost 500 companies IPO’d as a special purpose acquisition company. What does it mean? It means that companies can go public much easier and many of them way too soon. I’ll cite electric vehicles as a speculative bubble. When the Fed starts to tighten, speculative bubbles, like cryptocurrency and potentially some of the electric vehicle companies, actually contract big time—that’s a warning.

Energy Market Insights

By the way, this is West Texas Intermediate crude. The high in 2008 before the collapse was 147 dollars a barrel. Wow! Inflation adjusted, that would be 200 dollars a barrel at some point if it was inflation adjusted for a super cycle. This arguably looks like the beginning of a super cycle. What happens during that time? Well, energy companies make a lot of money, but they’re paying the highest dividend rates in the S&P 500 right now. Solar—we are BTU agnostic. We don’t care so much about traditional energy versus clean technology; we’d like clean technology better, of course. But what’s happened to solar prices? You can put a solar roof on your house with a battery wall, and boom, what do you get? Low-cost energy and clean technology. Wow!

Cryptocurrency Market Trends

What does that mean? Lots of batteries—there is a battery gold rush, especially with the infrastructure package. This is good news for the solar industry and, of course, for the planet and climate change. Here we go with Bitcoin. What about cryptocurrency? The peak value was 2.6 trillion, okay? 2.6 trillion right here at 69,000 on Bitcoin. It represents, by the way, about half of the cryptocurrency market, so they tend to move together; they’re correlated just like stocks. Well, don’t forget this: In 2017, Bitcoin reached 20,000 a coin. In the pandemic, when you wanted your money the most to buy bargains or at least have some cash, Bitcoin had declined below 4,000—an 80% decline from that peak. Wow, that is a bad two and a half years.

Conclusion

So, don’t assume that it always goes up because you could lose 80 percent over a period of two and a half years based on this. Now we look at this—whoa! What happened here? There is a problem in the cryptocurrency market, and we cover it at networthradio.com in the New Year’s program. We cover it in more detail. So 2022: medical dividends, energy infrastructure, global high yield—yes, well managed and tactical safety. Those are the four things we’re building into each and every investment plan at McGowan Group Asset Management.