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Which Way Is Up?

Hello, and welcome to our market alert video for today, which is November 17, 2023. I hope it finds you in good spirits and that you are healthy, wealthy and wise. And for all of you in SCWPer Nation, I hope you’re out there SCWPering your little, you know what’s off, and that you are enjoying yourselves. And for those of you clients that are not SCWPerS, yet, it is our job to get you there. And we’re excited with the prospect of celebrating your SCWPerness at some point. So this week has been very interesting. We got the inflation numbers in, and they actually came in lower than what we expected. And in fact, they were negative inflation dropped by .04%. And so that wasn’t what we expected. We’ve been right almost every month this year. And there you go, we have one that where our forecasts was wrong. And we’re like, wow. So that’s what it feels like to make a mistake. Jee wiz. Nah, don’t like that. Don’t want that. So let me share my screen with you, and show you what happened and where we think we go from here. So this right here, this chart is to explain how they go about calculating the inflation rate. Now, what you can see here is that this, this box right here, the date, these are the dates, which makes sense. This is the CPI level, the inflation rate, this is the change from month to month. So in other words, the previous month to the new month, what changed was that this is the annualized. So if you take that month to month change, multiply it by 12. And then this is the year on year change. What’s the change between now and last year. Now the way they calculate inflation is they take the month to month change from last year, which was in October was .41, and they drop it off. And then they add this year is minus .04. So when you take a positive number, and you take it off, and you replace it by a negative number, the net is a bigger negative, right. So if you add if you do the math, that’s almost a half a percent drop since last year. And that’s why the inflation rate went from this 3.7 down to 3.2. And so you can see here, this chart, and we’re sitting right here now, in October where to November where the inflation rate went up. Now, what we did is we said the Federal Reserve wants to get inflation down to 2%. Right. So by the end of next year here in December, we want inflation to be 2%. Well, to do that, we did the math, and you have to have a an average of .17% inflation over the next 14 months. If you have that, then what happens is inflation will drop down to 2%. Why? Well, because if you look at when the months are pink right here, it means that they are lower than the prior year’s reading. So for example, here in January of 24, if the inflation rate is point one seven, that is lower than last year, than 23’s inflation rate at .8, and then the following year in February .17 is less than .56. So we’ve got a bunch of months that are easy beats right here, it should be easy for inflation to be lower than last year. And that brings the inflation rate down as you can see. Now, in spite of that, though, with these two months, they’re in green. Why? Because again, back in January of 22, inflation dropped by .1%. That’s a hard beat .31 in December of last year, that’s an even harder beat. So because of that we think inflation will go back up to 4%. Because we’ll have two months where the month on month change this year will be higher than last year, which is why we think that we’ll see inflation peak right here December at around 4%. Now if the Fed is in fact successful, and we get this down the inflation rate, then it means that towards the second half of next year, maybe the third quarter, they might be lowering interest rates will have a soft landing, no big bad recession, the profits should be okay market should like it. So in that scenario, both bonds and stocks should do quite well. Now, I want to show you what would happen if what a lot of the doom and gloomers are saying could happen, which is this scenario right here. Which is let’s say that inflation for the next 14 months, goes down by the same rate it went down in October that minus .04%. Well, you still have these two months that are higher than the other two months a year ago before. So the inflation rate still peaks out here in December, but look what happens over here in August, September, October, November, December during these periods here, you actually have negative inflation that’s called deflation. Deflation is really, really bad, it’s way worse than inflation. If that were to happen, the Federal Reserve is going to have to scramble. And because we probably have had a really bad bear market, a really bad recession. And they have to like start lowering interest rates very, very quickly to avoid this deflation, because once it takes hold, it can destroy an economy, it’s very, very bad. So this is the scenario that some people, quite a few people actually are projecting for next year, which is that we have a really bad recession. Inflation goes way down too fast, because the Federal Reserve raised interest rates so high, and the consumer has tapped out and they can’t spend money, we get deflation, they have to really go after it with interest rates, terrible recession, and we have a bear market. So this is the I call it the doomsday scenario that some people are looking for, in fact, some of the largest banks in the country are saying this could happen. Now, that isn’t our view. But it certainly is possible. Now, in this scenario, bonds will do very, very well, in the previous scenario, bonds should do well as also stocks in this scenario, not so much, which is why we have our sell strategy or Invest and Protect Strategy to get out and protect ourselves. We want to make sure that if that is in fact, the scenario, that we protect you from that, which is why you’re here, I would think so right now, given that our view is that we have the scenario where the consumer seems to be holding on the economy seems to be okay. And inflation is coming down at a reasonable pace, that next year should be a very good year, both from stocks and bond perspective. Now, we do want to wait until the Fed tells us what we’re gonna get one more reading on inflation, on December 12. And on December 13, the Fed is going to tell us what they’re going to do with this month’s inflation reading, and the one that we get in December, so they’ll have two of them. And they’ll be able to tell us what they think going forward is going to happen. And therefore what they think inflation is going to be. Okay. So that’s what they’re going to and what they’re going to do with interest rates. So we’ll see what they say that’s why we want to wait, there’s a possibility that we might be going back into bonds in December, because if in fact, they are done raising interest rates, and if in fact, inflation is coming down, interest rates should come down too and bonds could experience a very significant rally, meaning they could go up quite a bit next year. So we’ll keep you posted. But for right now, we’re on hold waiting on the Fed. So a lot of information this week. I hope you absorbed it. I hope you enjoyed it as much as I did. I love this stuff. And we do and we’re watching it for you so that you don’t have to and I hope that gives you peace of mind. And if that does, then we’ve done our job. So thank you for letting us worry about all of this stuff for you so that you don’t have to we will make changes accordingly as we see that as we see them fit. And so we’ll keep you posted as I said, please share this video with your friends, your family business associates. We want to help as many people become SCWPerS as we possibly can. Alright, so thank you for watching this video and we will talk soon.

Please note: transcript has been modified after the time of recording. 

Economic indicators and stock market performance cannot be predicted. Opinions expressed regarding the economy and the stock market belong solely to Ken Moraif on behalf of Retirement Planners of America and may not accurately portray actual future performance of the economy or stock market outcomes. Opinions expressed in this video is intended to be for informational purposes only and is not intended to be used as investment advice for individuals who are not clients of Retirement Planners of America. All content provided is the opinion of Ken Moraif, CEO and Founder of MMWKM Advisors LLC (d/b/a Retirement Planners of America). ©Copyright 2023