July 2021 Economic Update

A few things have changed since last month. Another stimulus program, mainly in the form of infrastructure and increased government services, has been approved, and the Federal Open Market Committee (FOMC) has started to confuse the market a bit.

It should be interesting to see the various government agencies get the money and start implementing the directives. The FOMC seems to be indicating a potential rate increase is possible in 2023, and the market did not like that until some figured out that this was a couple of years away.

The FOMC also is now at least thinking about thinking about tapering bond purchases. Still, any action on that front will likely be out until the first quarter of 2022, with some exceptions.

The market and economy seem to be humming along nicely, with much talk of inflation still hitting the airwaves. As I see it, some, not all, of the inflation we see now is transitory. I also see this as less of a problem for some than others. The inflation number discussed in the news is the Consumer Price Index (CPI). However, not all of us consume goods precisely as the government thinks we do. For instance, the older you are, your healthcare costs become a more significant part of your spending, and healthcare inflation has been skyrocketing for years. The lower-income folks are seeing their rent and food prices rise, which makes up a disproportional amount of their income. Middle and higher-income individuals purchasing high-end goods and services will, I believe, see prices potentially decline as innovation brings down costs. Either way, we have been a bit spoiled to a low inflationary world so that now even a relatively slight increase will bring forth cries of pain. Inflation is and likely always will be the silent nemesis for which savers must plan.

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• Our Quickly Changing World – most common questions

• If Inflation Rises & Rates Rise – What Happens to Bond Holdings?

• Volatility Continues – What to Expect

Our Quickly Changing World – Most Common Questions:

What is bitcoin or cryptocurrency, and is it in my portfolio? Or my personal favorite, I own bitcoin. What is it? As we see it, the transition to cryptocurrency of some type is a natural progression brought on by the continuing march of technology. Despite the best efforts of governments around the world, we believe that there is no way to put the cryptocurrency genie back in its proverbial bottle. After all, one only has to look back to 1950 to find when credit cards first came on the scene. The issue is that these currencies are highly volatile, largely misunderstood, and not all created equal.

The technology behind cryptocurrency, blockchain, is much bigger than cryptocurrency. Other common questions are what is an NFT or (non-fungible token) and what is a Smart Contract? These are all related to blockchain and promise to change our world yet again in the not-so-distant future. NFTs allow for the safe exchange of art and other similar items. Smart contracts allow parties that have never met each other to transact with a degree of trust.

What is the future of self-driving cars and Electric vehicles (EV)?

Electric vehicles are old news, and the next step here is likely hydrogen-powered vehicles, which are likely further in the future. Battery technology is still catching up, as is the infrastructure involved in driving cross country with ease. Longer-lived batteries are likely where we will likely see more widespread adoption of EVs. Right along with the EV evolution comes self-driving technology, which is already being used in some areas. The self-driving story is more significant than simply being something cool to see and experience. How will we now spend that extra time? Will we be more productive, work on our relationships, watch more movies, or play more video games? If history is any guide, leisure activities will win the day.

We also get many questions surrounding robotics, practical uses of 3D printing, biotechnology, genomics which we do not have the space to address here. Nearly all these new technologies are being driven by underlying artificial intelligence. We see all these things as being items that will and are changing our world soon.

The business involved in these industries are often extraordinarily volatile, and the innovation space can change quickly. We advise extreme caution, a long investment time horizon, and working with someone experienced who consistently monitors the space and your portfolios.

However fun these technologies are to talk about, they often take away from some of the “boring companies” to the point where we see some attractive opportunities. We suggest not getting too carried away by the press, be ready to adapt over the next five to ten years. For more information on how to invest for a changing future, CONTACT US HERE.

If Inflation Rises & Rates Rise – What Happens to Bond Holdings?

The short answer is your bond holdings will decline in value at various rates depending on the length of time until maturity. Many fixed income or bond securities are losing value for their holders daily to inflation and, of course, taxes on those fixed-income payments. So assume for a moment that your bond that you bought back in 2011 matures and gives you back $1,000. That $1,000 now only buys goods and services worth about $803, and this was during a time of relatively low inflation. The bond paid you along the way, an amount that hopefully kept up with inflation. However, you now must reinvest this into bonds that are potentially paying a lower interest rate that is no longer keeping up with inflation.

For more information on how to invest for income in the current market environment, CLICK HERE.

Volatility Continues – What to Expect:

The short answer after two months of volatility is that we expect more volatility. May showed us a quick correction on many growth stocks, and during June, we saw several moves. Each time the FOMC meets, a political figure gives a speech. When certain celebrities “tweet,” or when the Reddit/YouTube crowd decides to pump or dump a security, the market tends to have a strong emotional response.

As I wrote last month, we do not think this type of action is over. However, we are bullish and believe that we will continue to head higher more extended term. We are also enjoying the opportunities this volatility brings.

As a reminder, this note is not about personal investment advice, which requires an in-depth understanding of your situation. Continued volatility and what we believe is an environment that favors solid research, discipline, and consistency suggest the need for someone with the right experience to guide those successful individuals who understand the value of their hard-earned expertise.

For individual advice and more information about some of the changes happening in the market and economy, you can schedule a no-cost call directly with me by CLICKING HERE. We are also happy to provide you with a copy of our Amazon best-selling book Build a Life, Not a Portfolio; A Guide to Your Financial Future Based on Your Values.

Additionally, you can tune into our weekly Building Your Life Podcast and search for topics of interest.

We continue to have one goal; to help you build a life you love supported by a portfolio that fits your specific needs.

Talk soon,

John

Guardian Rock Wealth Investment Mgmt. Inc.™™ (GRWIM) was incorporated on January 16th, 2002, in the state of IL.

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