April 8, 2024 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage. Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for April 8, 2024

CLICK HERE TO WATCH THE UPDATE

2024 1st Quarter Economic Update for Retirement

In this Episode of the Secure Your Retirement Podcast, Radon and Murs speak with Andrew Opdyke about a 2024 1st quarter economic update and the expected economic changes in the second quarter. Andrew is a Certified Financial Advisor and Economist at First Trust Advisor. Listen in to learn how the current concentration performance and the 2024 elections will impact the market volatility and economy, respectively…
CLICK HERE TO LISTEN TO THE PODCAST
 
CLICK HERE TO WATCH ON YOUTUBE

2024 1st Quarter Economic Update for Retirement

Every three or four months, we have the privilege of having economist Andrew Opdyke on our show. He’s back to help us make sense of the economy ahead because, as we all know, 2023 ended better than many people expected. We had ups and downs throughout 2023, but the start of 2024 has proved to be rather positive. Will it stay that way?…
CLICK HERE TO READ THE BLOG

2024 1st Quarter Economic Update for Retirement

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Every three or four months, we have the privilege of having economist Andrew Opdyke on our show. He’s back to help us make sense of the economy ahead because, as we all know, 2023 ended better than many people expected.

We had ups and downs throughout 2023, but the start of 2024 has proved to be rather positive.

Will it stay that way? We asked Andrew to start our conversation about the Q1 2024 economic update.

What Andrew Has Seen in 2024 So Far in Q1 2024

We’ve seen some strong and weak data in 2024. At the end of 2023, the expectation was that the Fed would cut interest rates six times in 2024. Instead, we’re likely to see two or three rate cuts instead.

The Fed really wants to get inflation down to 2%, which is positive.

Personal consumption expenditure prices ticked higher last week on a year-on-year basis compared to the prior month. Inflation on the month was 3%, and there’s a lot going on here:

  • Russia-Ukraine war
  • Israel–Hamas war
  • Earlier last week, a boat collided with the Francis Scott Key Bridge in Baltimore.

All of this is impacting economic recovery.

If inflation remains higher than the 2% the Fed wants to achieve, interest rate cuts may wait even longer. With all of this said, the economy is growing, consumers are continuing to spend, and only time will tell how things will play out.

In Q1 2024, markets are up, with strength in AI and Nvidia and the hype around these new technologies.

While the markets did react slightly to the lack of rate cuts for a day or two, there has been less pushback than expected.

Why Did Markets Not See a Pushback with the News on Rate Cuts?

If you look back to last year, we’re kind of in a continuation phase. At the beginning of 2023, if you had told people that the Fed was going to raise rates and that profits were going to be flat or slightly down, very few people would have predicted that the market would rise 24% in 2023.

Instead, what we saw was people willing to pay more for certain company stocks.

There’s almost a disconnect between the logic of the market’s performance because the top 10% of companies have about 75% of the market cap. Growth is sort of condensed in these companies, and this is the highest we’ve seen it going back about 100 years.

If you look at smaller cap companies, they’re still trading at relatively normal levels.

The question is, what happens if market conditions impact these major stocks that account for 75% of the market cap and everyone starts selling? We could see a lot of volatility.

Right now, the market is moving on the idea of AI and its potential, but we haven’t really seen the profits from the technology to justify this. We’re in a phase where we’re seeing growth based on potential hopes and expectations rather than evidence that these technologies will be the game-changers companies predict.

Elections, Negative Conversations and the Year Ahead

Election season is always interesting because of negative conversations, uncertainty, and doubt. We just don’t know what policies will look like or how they’ll impact the market, so it leaves a big question mark for investors.

And while we have a presidential election every four years, the market does brace for the mid-term elections every two years, too.

Presidential elections do heighten concerns, but what we notice is that there is always emotion during one of these elections. You have people on all sides saying, “If this person wins, I’m moving to Canada,” and it showcases:

  • 50% of the country will be happy
  • 50% of the country will be unhappy
  • Everyone is going to go back to work

Regardless of who wins the election, you can be positive that Apple will be building another iPhone, and companies will continue producing products.

What the data tells us is that we’ll put a bunch of emotional energy into the election, and markets will have volatility before and during the election. But when the results come in, the market will tend to rise.

Once an election is over, companies tend to continue with their plans.

Short-term volatility is likely during an election, but after the “smoke clears,” markets tend to pick right back up, barring any major economic issues.

The Potential of a Recession and the Outcome

We may still see a soft landing and a potential recession, but it’s very unlikely to be a deep one. GDP numbers show that the U.S. economy grew 3% last year. Government purchases accounted for two-thirds of the growth, and we had a $1.8 trillion deficit.

Activity was led by healthcare and the government, which were responsible for roughly 50% of all job gains.

During normal times, these two account for 17% – 18% of all job gains.

When you dive into things, you’ll notice that there needs to be some healing to where the workers are. We haven’t seen a real transition back in certain sectors, such as tourism and restaurants.

Small- and medium-sized businesses are still facing an increase in rental costs, hiring, lending, and more.

Government support is really helping support the economy, but in other sectors, we are seeing companies adjust, such as in the tech sector, where layoffs are occurring. We’re at a point where there is a fine balance of government spending propping up the economy and the private sector readjusting.

We may see a weakening in employment, but if a recession does occur, it is likely to be a weak one.

Top Concerns for the Rest of 2024

If the Fed starts listening to the market and what the politicians want to happen, it poses a big risk. The Fed needs to stay the course and wait to cut rates until inflation is down enough because if they don’t, it can lead to inflation accelerating again.

Starting to cut rates too early will lead to short-term gains, but in the long term, we would need to raise rates again, restarting the whole cycle.

Spending remains too high.

The Fed lost $140 billion last year because they paid banks to hold onto the $200 billion the Fed gave to the banks a few years ago. We do need to get spending back in check, reevaluate and determine what is sustainable.

In an election year, parties want the economy to look its best. There is a concern that the wrong choices will be made to prop up the economy so that it looks good going into the election, even if that means long-term issues.

Excitement Outside of the Election

We’re seeing some broadening, which is always a positive thing. Earnings for the top 7 companies rose roughly 24% – 25%, but the rest of the 493 companies in the top 500 saw earnings decline 4%- 5%.

This year, we’re seeing earnings growth for the rest of the 493 companies.

You must remember that companies have had to do a lot and adapt to:

  • Supply chain issues
  • Worker shortages
  • Regulations
  • Interest rates

Many companies have found ways to be more productive and consistent with results. If the Fed continues to do its job and reduce inflation, we’re really putting these companies in an even better position in 2025.

Broadening out will ultimately be beneficial in the long term, even if the market isn’t reflecting it just yet.

Click here to listen to other episodes of our podcast.

 

2023 End-of-Year Economic Update

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Andrew Opdyke is back with us to get his insight on the broad economy. He’s been on our show multiple times, and he’s returned with his 2023 end-of-year economic update that everyone should listen to at least once.

Whether you’re trying to secure your retirement or in the middle of retirement planning, it’s always important to keep a pulse on the market.

October-November 2023 Economic Update

October was an interesting month due to the conflict between Israel and Palestine, and inflation remaining stubbornly high. Economic data came in stronger than anticipated, but there were still some concerns.

November 1st, the Fed’s meeting was a sigh of relief for many when they announced that maybe they’re “done” with trying to tame inflation. Perhaps rate hikes may remain on pause for now.

Rate easing may be ahead in 2024, which is what a lot of economists are hoping will occur.

However, as anyone who follows the market knows, just two weeks prior to these reports, there were just too many concerns that inflation may last a little longer. We just don’t have all the data yet to say if 2024 will see interest rates fall, stay the same, or even go a tad bit higher. Right now, as of mid-November, the New Year looks promising.

We’ll need to watch the data to better understand the ebbs and flows of the market right now.

Concerns of Investors Outside of the Magnificent 7 Stocks in the Market

When looking at the S&P 500, it has performed well this year when you include the stocks that are the “magnificent 7.” What are these stocks? They’re high performers that carry the market and include big names:

  1. Alphabet
  2. Amazon
  3. Apple
  4. Meta
  5. Microsoft
  6. Nvidia
  7. Tesla

If you remove these seven stocks from the market, you’ll notice that the market is down in an equal weight market. The percentage of companies beating the index is at a 20- or 30-year low. Equal weight provides a better picture of what’s transpiring in the market, which would show most stocks are either flat or slightly down.

How much are people paying for the top 10 companies in the index? Many investors are paying a multiple of 25 to 30 for these ten stocks and a multiple of 17 for others.

What does this all mean? The top stocks need to continue performing well for the overall market to recover. Andrew would like to see a broader market rise, in which dozens of stocks are lifting the market, and believes that it will take some time to materialize.

Will the Economy Land or Take Off?

Soft landing. Hard landing. A lot of terms are thrown around for the economy and how it will end up after the pandemic and the high level of inflation that we’ve seen. Some economists are of the mindset that the economy won’t land but will take off.

However, Andrew believes that we’re likely to see a soft landing.

What we saw in the third quarter is that companies have excess inventory, which is due to a slowdown in production after COVID. Companies purchased a lot of inventory due to supply chain issues and are likely to:

  • Slow spending over the next 3 – 9 months
  • Avoid some growth initiatives due to high-interest rates

Will we hit a recession? Who knows? A recession has been six months away for 18 months now. Companies are buying less, building is slowing and if we do go into a recession, there’s a good chance that it will be very shallow.

We need to get back to sustainable interest rates without outside influence and stimulus.

Entering into 2024, we should start to learn more about the strength of the markets and economy without any outside influence building it up.

Building an Investment Portfolio to be Recession-proof

If we enter a recession, will interest rates still remain high? Look at companies that have sustainable cash flow, because even Apple must pay the high interest rates of today when they take out a loan and they add tens of billions in free cash flow quarterly.

Investors will want to dive into balance sheets and see which companies can fund their own projects without loans.

You should also look at:

  • Smaller companies with healthy cash flow
  • Exposure to small- medium- and large-cap stocks
  • Potentially add international stocks

Recalibrating your portfolio to deal with the unknowns and still have exposure to potentially risky technology.

Hamas and Israel Conflict

The United States has been sending money to Ukraine and is now funneling money to Israel. Ongoing events like these play into how the economy will look in the future.

The main risk of this new conflict is in the energy markets.

If Iran or others enter the conflict, it can lead to higher energy markets and a further rise in inflation. Economic repercussions of the Israel and Hamas war are likely to be a lot less than even Ukraine and Russia.

Trade conflicts and fracturing are occurring, and the US is doing a good job by determining who our strong trade partners are and reallocating our investments to these countries. We’re importing less from China and are trading more with:

  • Canada
  • Mexico
  • Japan

We have shuffled back and pulled away from China, pushing them from the first to the third trade partner that we have.

AI and the Hype Around It

Cryptocurrency was a major trend in past years, followed by blockchain. Now, we’re seeing a lot of people harp on the idea of AI. We’re at a point where we were with the Internet first coming about, where companies knew that the landscape of the way we work was changing.

What does AI mean for us?

The environment and world are changing. Some professions may become obsolete, and some new jobs may be created. If you look at the top 10 companies in 1999 and today, only two remain: Microsoft and Exxon.

AI may be won by the biggest companies, but if history repeats itself, we’ll see some companies born out of AI that may change the world. We may see the next Facebook or Meta created, and it may be a company everyone is overlooking.

What are you Most Worried About?

Geopolitical issues that are popping up, and more are likely to be added, are a major risk to the economy right now. China is likely to see a more difficult path in the next 10 – 20 years. We’re also entering an election year, and the negative side of the election can cause market fluctuations.

Escalation of Russia and Poland, Iran entering the Israel and Hamas war or China invading Taiwan can all effect the economy. 

What are You Most Excited About?

AI excites Andrew, and he believes that while the technology is likely to change the world, in the next 24 – 36 months, we may see some major changes thanks to AI. Humanity is “fighting the fight,” with more people being literate and doing some amazing things.

We’re seeing how dementia has been in decline in the last decade, and as a whole, we have more people than ever trying to solve problems that have plagued the world around us.

Andrew is unbelievably excited to see how human potential is being unleashed.

Need help reviewing your retirement plan? Schedule a free 15-minute call with us today.

July 31, 2023 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for July 31, 2023

CLICK HERE TO WATCH THE UPDATE

This Week’s Podcast – Andrew Opdyke – 2023 Mid-Year Economic Update for Retirement

In this Episode of the Secure Your Retirement Podcast, Radon and Murs speak with Andrew Opdyke about a 2023 mid-year economic update and the future. Andrew is a Certified Financial Advisor and Economist at First Trust Advisor.

Listen in to learn the expected and unexpected turn of events in the economy today and why inflation might not allow for rate cuts this year.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Week’s Blog – Andrew Opdyke – 2023 Mid-Year Economic Update for Retirement

Andrew Opdyke, an economist for First Trust, was back on our most recent podcast. For those who don’t know, Andrew comes on our show about once a quarter to update us and our community on recent economic events.

This time, he provides us with a great mid-year economic update that will help you when retirement planning.

CLICK HERE TO READ THE BLOG

Andrew Opdyke – 2023 Mid-Year Economic Update

Written by

Andrew Opdyke, an economist for First Trust, was back on our most recent podcast. For those who don’t know, Andrew comes on our show about once a quarter to update us and our community on recent economic events.

This time, he provides us with a great mid-year economic update that will help you when retirement planning.

We’re going to:

  1. Summarize the first two quarters of the year
  2. Summarize what Andrew expects over the final two quarters of the year

If you want to listen to the podcast, you can find it right on our site here. Otherwise, we’ll cover the most important parts for you below.

What Happened in the Last Quarter and What are Andrew’s Thoughts?

We’re a little more than halfway through the year, and the first half of the year was more comfortable than the last quarter of 2022. Even the markets have been far less volatile, which is a good thing for investors. 

At the end of the first quarter of the year, we saw the Silicon Valley Bank collapse and a few domino pieces fell along the way.

Today, the Fed agrees that they have more work to do. We’re at the halfway mark of the year, and we’re seeing:

  • Inflation trend lower at 3% year-over-year, although Andrew believes this to be a little misleading
  • Energy prices are slowing down a bit
  • Taking out food and energy, we’re seeing inflation fall from 5.9% to 5%, which is hitting consumers quite a bit

Inflation has remained stubbornly sticky, and the Fed is expected to raise rates at the end of July and maybe another before the end of 2023. The question remains:

  • Will we see a recession?
  • Will employers begin laying people off?

We’re seeing manufacturing come down a bit, but construction activity is at record-high levels. Employment, at the time of this article, is still progressing and remains strong. Consumers are still spending.

Has everything transpired as expected?

For the most part, the economy is doing well and even the markets are stabilizing. There was sort of a concentrated performance in the tech industry at the beginning of the year.

Andrew believes that the market may get a little bumpier going into the end of the year.

Rates Hikes or Cuts: What Will We See?

Rate hikes and cuts are always top news stories and something we hear a lot about from our clients. Andrew believes that at the end of July, the Fed is likely to raise rates again. He expects an additional rate hike before the end of the year.

At the mid-point of August, he expects that the CPI will dictate the future choices from the Fed.

CPI was from activity almost a year ago. We’ll see some bumps in the newest CPI due to the Ukraine/Russian war.

The Fed has changed pace often this year because the ability to guide and navigate this ever-changing environment is evolving. What the Fed doesn’t want to do is repeat the mistakes made in the 70s and stop inflationary measures too fast.

Andrew anticipates the rates will have one or two hikes before the end of 2023 and sometime in 2024, rate hikes may follow. As inflation begins to trickle in the right direction, the Fed will begin to lower rates.

Most countries are seeing similar trends as the United States, but we are seeing:

  • Germany has rising inflation
  • United Kingdom’s inflation remains flat

Energy price rises in the US can put some pressure on the UK economy. At this time, we’re not seeing a Central Bank that we can say, “Hey, they’re doing everything right.” Every Central Bank is working through these ups and downs.

Recession Risk at the Mid-point of 2023

Recession is something we’ve been talking about for a while now, and with everyone spending like normal, it’s almost a self-fulfilling prophecy at this point. Andrew estimates that there is an 80% chance that we’ll see a recession.

When will this recession happen?

No one knows. We may see a recession in 2023 or 2024. We’re seeing facilities being built today without orders in the pipeline in the coming year. What does this mean? Businesses are sort of holding back a recession, but something needs to happen before orders run out for the momentum to remain.

Reading through banking reports, it looks like consumer savings may fall back to pre-COVID levels by the end of 2023. Less money in the bank may lead to consumers spending less, which also raises the risk of a recession.

If we hit a point where consumer spending falls and rates are high, it will likely push us into a recession.

Can we avoid a recession? Possibly. However, it’s a very delicate time. We’re even seeing the markets perform very well this year.

2023 Mid-year Economic Update: Stock Markets

No one would have guessed that going into 2023, the market would be where it is today. Technology and AI helped lift the market at the start of the year, but Andrew is seeing the market broaden a bit.

We’re seeing 3% – 4% of market growth happening from outside of the tech sector.

Most people started the year with expectations that the market would go down, but it hasn’t really happened. Instead, we’re seeing people paying not based on earnings but higher multiples from these companies. We’re seeing the top 10 tech companies trading at 30 times their earnings. The top 11 – 50 companies are trading at 16 – 18 times their earnings.

A sustainable bull market will require some of these non-tech companies to have strong earnings and returns.

Based on GDP and employee output, we’re not seeing the rise in productivity that tech companies expected with AI. Many of these technologies take time to evolve and be adopted by users, which could cause some of these tech stocks to come back down.

Foreign Economies

China reports not seeing the bounce back that they expected of 5% growth, which is low for the country. Apple and Tesla moving to India is changing the economic landscape. With the country likely to have the world’s largest population soon, it’s very likely that India will begin to grow rapidly.

Top-down leadership works well in short bursts, but communist countries have been, traditionally, difficult to maintain long-term.

For example, the tech sector has been the backbone of the US for the past 20 years, but China has had a lot of difficulties in this arena. China is known to replicate ideas and innovations, which means they continued to fall behind on tech that others had already released.

Finally, when companies in China started to innovate, the communist government started to put the clamps on them because it didn’t look good for the government when these companies were acting independently.

We saw this with tech investments and Alibaba. Investors have been scared away from China due to this clamping down.

We’re also unsure of where China’s economy stands because the country has been known to provide inaccurate information. Andrew expects that over the next 10 – 30 years, China will struggle to grow.

Geopolitically, the world may look very different in the next 5 – 10 years.

Forward-looking Questions: Concerns for the Second Half of 2023

As we move into the end of the year, there are some major concerns, especially with a lot of the big company’s price-to-earnings (P/E) ratios. If confidence wanes, we can see some pullback while P/E goes back to normal levels.

Commercial and office real estate loans are coming up.

We are seeing a lot of foreclosure talks that can hit local and regional banks. Large banks are less susceptible to these potential risks of foreclosure.

Russia and Ukraine will remain a major question mark. China’s threat to Taiwan will remain critical to the market, especially if things intensify, such as an increase in training in the area.

Andrew believes the biggest headwinds are:

  • P/E for many companies is too high
  • Money is coming out of the system

In 2020/2021, we saw the government inject a lot of money into the system. PPP loans, COVID checks, treasuries trying to hold money – all of this can have an impact on the economy and cause growth to slow heading into December.

Forward-looking Questions: Positives for the Second Half of 2023

Manufacturing investment will help the country, especially bringing back semiconductor manufacturing. Investments like this will roll out for years to come and will boost the economy.

We’re seeing a lot of things today that can help us see a boom in the future. 

Andrew is optimistic that we’re a lot closer today to a recovery than just a few months ago. It’s very unlikely that we’ll need massive rate hikes of 500 – 550 basis points again. We just need to get over the last hurdle, and then we can see growth.

Improvements in education, clean water, manufacturing and so on will drive us forward 18 months from now.

Once we get through the tough stuff, we’ll have a very bright future.

S&P 500 Forecast

Andrew thinks that we’re likely to see a pullback in the market because the markets got ahead of themselves. Evaluations and P/E are too high, but this can change with some major unforeseen growth factors, such as AI reaching its expected potential much faster than expected.

People will need to reevaluate to see if they’re overpaying for something that is underperforming with the tech stocks that are trading well after what they should be, in many cases.

Do you want to talk to us about any of these key points in the mid-year economic update?

Schedule a 15-minute consultation with us today.

April 24, 2023 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for April 24, 2023

CLICK HERE TO WATCH THE UPDATE

This Week’s Podcast -2023 1st Quarter Economic Update

Learn why you shouldn’t worry about the US debt ceiling and its impact from a market standpoint. You will also learn why inflation might last longer and cause a recession if the federal reserve doesn’t prioritize the inflation fight.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Week’s Blog – 2023 1st Quarter Economic Update

Andrew Opdyke was our special guest on this past week’s podcast. If you’ve read through our blog or listened to our podcast before, you know that Andrew is who we rely on to gain insight into the economy. In December 2022, we asked him how is the economy doing right now?

CLICK HERE TO READ THE BLOG

2023 1st Quarter Economic Update

Written by

Andrew Opdyke was our special guest on this past week’s podcast. If you’ve read through our blog or listened to our podcast before, you know that Andrew is who we rely on to gain insight into the economy. In December 2022, we asked him how is the economy doing right now?

And now, at the end of Q1 2023, we’re asking him the same question. A lot has changed in the last quarter that everyone in the middle of retirement planning or in retirement must keep up to date on. P.S. You can also listen to this episode of the podcast here.

Major Points of Interest in Q1 2023

The first quarter of the year started off with a lot of unknowns. Fear of a recession and inflation were hot topics, and now, we have some clarity going into Q2. The year started with high inflation and questions about the Fed raising rates. 

  • How much will the Fed raise interest rates?
  • How long will rates stay elevated?

Finally, we’re seeing some break in inflation. Jobs also came in strong, although the numbers are starting to slow, and we still have a little time before GDP figures are released. We are noticing a divergence in the goods and services of the market.

If you remember, during COVID, the focus seemed to turn to goods.

The goods side is moderated at the moment and may even be in recession territory. However, the services side of the economy is picking up the slack and performing very well. The question on the Fed’s mind is why hasn’t inflation come down yet? And when it does, will economic growth be prioritized or inflation?

No one knows for sure.

On the market side, things are looking up. Many of the companies that struggled at the end of 2022 are leading the way in 2023. The question is whether the market can sustain itself.

Bank Situation in 2023

A lot of people reading this remember the financial crisis, but the new banking issues center around the US Treasury. The Treasury has been known to be one of the safest investments that you can make, but banks got hit from holding assets in an environment with rising interest rates.

Even banks like Silicon Valley Bank, which no one really heard of because the average person didn’t bank with them, have been hit. That’s because Silicon Valley Bank offered loans to many companies that thrived during COVID and sort of fizzled out or was less attractive after COVID.

Small and regional banks started to tighten up lending activity, leaving many small- and medium-sized businesses with less funding after the debacle with Silicon Valley Bank. Tightening in these banks led to a sort of “additional Fed hike” for non-public or large companies.

Larger entities work with major lenders, which are less impacted by the banking situation.

  • Hire
  • Invest
  • Expand

Andrew doesn’t believe that the banking side of things will be long-lasting. We will see the effects of these issues over the next 3 – 6 months as the banks pull back. The result? That’s what we’re unsure about. Growth may slow due to these banking issues. 

US Dollar and Losing Its Place as the Reserve Currency

For 200 years, the US dollar has been the world’s most important currency. International transactions needed the US dollar when trading. The world’s most stable currency becomes the reserve currency status.

The US benefits from being the reserve currency in a few ways:

  • Keeps interest rates lower
  • Higher demand for debt
  • Easier ability to trade on international markets

Every few years, we hear that the USD will fall out of being the reserve currency. This time around, China and Brazil made a deal, and China asked for the payment to be made in the Renminbi. Another deal in the Middle East requested the same, and this has led to speculation that the Renminbi will overtake the US dollar as the reserve currency.

If this happens, it will lead to:

  • Higher interest rates
  • Consumer impacts

Every few years, we hear this same story of the USD losing its reserve status. Even with these changes, over 60% of international reserve balances are held in USD. Between 60% to 80% of international transactions are in the US dollar.

China accounts for around 2% of transactions, primarily because businesses do not trust communism for their reserve currency.

Debt Ceiling Concerns

The US has printed a lot of money in recent years, leading to major concerns about being able to service the debt. While the US has a lot of debt, the numbers do not show the full picture without looking at both sides of the balance sheet.

On both the corporate and consumer sides, we’re at or near all-time debt levels.

We’re also at all-time asset levels, too. However, how much GDP percentage does it take to service the debt? Roughly around 1.9% of the GDP is necessary to pay these debts. In the 80s and 90s, we paid about 3% of GDP.

The balance sheet is in a better position now than in the past. 

However, we should raise our debt ceiling and pay our debtors. A US default is unlikely this year, and these talks will swirl again in a year or two because it’s very interesting and sells a lot of advertising to media viewership. 

What is Andrew Worried About in 2023?

A major concern is the Fed and if they will remain hesitant in the inflation fight. If the Fed remains slow to ease inflation, Andrew expects a recession in Q3 or Q4 of 2023. He does point out that not all recessions are created equal, and he thinks it will be like the 1990 – 1991 recession.

What is Andrew Optimistic About in 2023?

Progress is taking place in the market. He expects earnings to remain around the highest levels in history. Production and output growth are expected to pick up once the Fed gets inflation under control.

The service side of things is expected to keep the economy running.

In the second half of 2023, the economy is very likely to slow, but it will strengthen the economy going forward.

Andrew does believe that market volatility will occur towards the end of the year and in 2024, rate cuts will begin. The net effect is a short recession, and the market will be roughly flat by the end of 2023.

If Andrew is right, the US economy will slow down and then pick up steam in 2024. Overall, he is confident that next year will look a lot better in terms of production and growth.

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