Been Here Before

by | Sep 29, 2022 | General

This is not our first bear market and it won’t be our last

The Federal Reserve and the stock market have concluded that the only way to bring inflation down is to engineer a recession. With 20-20 hindsight it is clear that the Fed screwed up in 2021 by failing to begin a measured increase in interest rates back to pre-Pandemic levels.

The following chart illustrates the delay in taking action last year and the super aggressive rate increases this year, which run the risk of pushing us into a recession.

Fed Funds Rate for 10 Years

If there is a recession it will be one of the stranger ones—unemployment remains below 4%, consumer spending is at an all time high, and corporate profits continue to grow. Still, the Fed has the power to force a recession, so there’s no reason to bet that one will be avoided.

As long-term investors we spend our time thinking about what to own rather than when to buy and sell. We were net sellers of stocks in 2021, not because we thought a bear market was coming, but because we saw stock allocations in portfolios rising above our target ranges. That’s all changed now.

As this temporary drop in stock prices continues, allocations to stocks are dropping in our portfolios suggesting we buy stocks to maintain allocations. We aren’t in a rush to buy, but it is clearly too late to sell.

Here’s a sampling of what we think about during a bear market: 

  • Will Visa and Mastercard still be in business in 2024? 
  • Will the shift from using cash to using credit cards to pay for goods continue? 
  • Will more merchandise be bought online in 2024 than in 2022? 
  • Will more transactions happen on your phone in 2024?

These questions answer themselves and the only sure way to profit from the opportunities created by these trends is to remain invested.

We know the companies that benefit from these trends will survive whatever economic valley we need to cross in the next year or so. 

Best regards,

Daniel A. Ogden


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