July 2022

July 01, 2022

As my son pointed out this afternoon, we are to the half-way point of 2022 (almost anyway).  I thought 2020 and 2021 were rough.  We are half-way to the middle of the decade; things better improve! 

To recap, this was another awful month for investments across the board.  The only investment not negative was the G Fund and it was only returning a paltry 0.29%, or $0.29 per $100 to put it into perspective.  Of course, with inflation at ~10%, the G Fund was down over 0.5%.  Right now, TSP investors do not have any good options for investment.  I’m going to break this into two categories.

1. Working investors
2. Retired investors

For the first group, this is the time when I would be investing every thing I can into the market.  A correction like this allows buying opportunities we haven’t seen in several years.  The more an investor accumulates now, the more participation in the upside.

For the second group, life is painful.  If I were pulling out money to live from my investments, this downturn would look very painful and concerning.  I would be cutting costs where I can to allow my currently invested money to participate in the recovery.

And I said it, recovery.  Recovery implies we are in a recession, and like I have said before, I think we are in one now.  The Atlanta Fed seems to agree with me as they have forecast a -1% GDP for Q2.  I think this recession will last about 9 months (Q2-Q4) with a very slow recovery hampered by stagflation. 

Key to our recovery will be energy prices.  We have seen this before in the 1970s, and no one wants a repeat of the 70s.  We are in luck as this is a mid-term election year.  While I don’t get into politics on this forum, politics is essential to understand as politicians pass laws and regulations.  Right now, we are seeing a battle between the Green New Deal proponents and fossil fuel producers.  They both have their strategies to achieve their goals, but ultimately it is the voter at the ballot box that will decide.  If energy, and I don’t just mean gasoline, continues to rise, the economy will continue to falter-politicians cannot afford to let this happen.  If one side does not come up with a solution soon, the other side will win and implement their own solution. 

Bottom line, when a solution is decided upon, the economy will respond positively. 

Unfortunately, we will have to wait until November to find out.  Of course, there is a chance that neither side has a good solution and energy prices continue to rise.  I reserve the right to alter my opinion should that occur, and in that scenario, stagflation will continue longer than 3 quarters.

I do not see positive returns in the next couple of months.  Everyone is holding their breath to see where the bottom will be and how high inflation will go.  I cannot pick the inflection point, but based on my analysis, we will see a few more negative months over the next 6-9 months with some very flat months mixed in.  We may even see a rally or two between October-December.  If I were to sell now, I would lock in my losses, but by buying more, I am locking in future gains.

Keep Investing!