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Market Commentary 07-15-2021

Kris Venezia, Market Analyst

I want to talk about cash and what people are doing with it.

I am going on vacation to New York and spending money on travel and going to a wedding so I'll be buying clothes and gifts and going out to eat in New York. There are certainly other people traveling, we know air travel is growing from April 2020, but, there are many consumers still reluctant to spend.

I would say most investors believed spending would come back in a huge way this summer. The expectations were really high, but we have not met those expectations so far.

Retail sales are improving but they are still having a choppy growth recovery. Consumer sentiment is still lower than what the data showed during more robust economic times.

We know from listening to bank earnings that clients of JP Morgan Chase, Bank of America and Wells Fargo have a lot of cash sitting in bank accounts. Clint, Daryl and myself also have found when talking to clients that we are noticing cash build ups in bank accounts.

The problem with all this cash sitting in bank accounts is monetary policy is punishing people who are hoarding that money at the bank. Rates are extremely low, with Clint pointing out that the average interest rate for a bank account is at .06%.

The reason central banks, like the Federal Reserve here in the U.S., keep rates low is to encourage spending. They are trying to pump up the economy following a bad year. central banks are saying, "Hey you, who saved more money than usual in 2020, go out and spend money, and if you don't spend money we're going to give you basically nothing in return."

This all leads to my final point which is something you will here from us at First Choice. We will most likely be advising you to get that cash to work. It can be a savings goal, like a new car, or it can be giving to charity, or, if you want to save it, let's look at ways to invest that money to find assets that offer better potential returns.

The money in that checking account will stay at the same number, but it will decrease in value (most likely) because of inflation.

Daryl Eckman, President

​The word on everyone's lips in our world is inflation. Another kind of thought is, is inflation temporary?

The CPI shows a high number which says that inflation is high. At the beginning of the shutdown, the number was low with inflation low. In the last three months, inflation has risen, the CPI is up around 8%.

Hardcore inflation really comes from printing too much money and that is the long term problem. Inflation is a monetary phenomenon. It is too much money chasing too few goods and services.

Question: What investments are good for protecting against high inflation?

Well, one of the things we have done is move a little out of the bond market. We have shortened the length on the bonds that we are going for as well. We have to worry about long term bonds because the value of the bond could go down if inflation is very high.

We might look to shift in the coming months more for protection. We have a good presence in the stock market which tries to protect and hedge against inflation.

Now, corrections happen and at some point there will be a down turn, but we believe the portfolios are setup to be more protective in this environment.

There are more investors looking at alternative investments. We pay attention to precious metals and commodities, but we think in the long term those assets have not performed as well as other areas.

We need to be content and patient and not over commit the portfolios in any direction.

Clint Carpenter, Director of Operations

We’ve seen several months of sustained wage growth, and if we look at the last quarter, that’s leading to an almost 6% pace of growth, when annualized. That’s substantially higher than the last economic cycle when we saw only about a 2.5% rate of growth.

Basically, employers are doing what they must do to address persistent labor shortages: they’re coughing up more money. We’ve talked plenty about how the reopening of the economy has fueled demand for goods and services, but businesses are struggling to meet that demand because current pay rates just aren’t attracting the qualified applicants that employers want.

There has been a lot of talk about how pandemic unemployment assistance has fueled some of this, but we’re seeing this across all areas of the job market, not just the lower-wage earners that may have made a bit more on unemployment than they did working.

Question: Are there any sectors, like construction, where there is higher wage growth compared to other industries?

It’s pretty interesting - basically, all major industries are pacing above 3%, even higher-wage areas like information, financial, professional and business services, which pay far and above the unemployment insurance levels to begin with. The industries that have seen the highest change in wages are in transportation and warehousing, but also more in the service industry - leisure, hospitality and retail. Those are obviously some of the most recent industries to reopen fully, and starting from lower wages to begin with, so that makes some sense. But, we’ve also seen large increases in construction and manufacturing and professional services, though, so it’s really just widespread.


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