One Way Walk

My dad turned 90 on June 21st. Quite an accomplishment. He likes to say his genes are a big factor. They probably are. Grandpa made it to 90, grandma to 93. As we sat and talked through my dad’s aunts and uncles, it’s a long line of Kline’s and Hoppe’s who made it to old age. 

I’m sure you know that diet also plays a role. My dad has always been a very natural eater. The dairy farmer never warmed up to processed foods the way our generation has. Us kids struggled at times with mom’s natural cooking. Not dad. He was all in. Liver. Fresh salmon. Homemade pies. Red beets (yuck)! Didn’t matter what it was, he ate it.

One of the other attributes usually associated with longevity is disposition. A positive outlook. Putting life in perspective. Not taking things too seriously. My dad has always been full of “jokes.” I have jokes in quotations because, well, some were dad jokes. My kids say I use them. You know them, the jokes where only the person delivering the joke laughs.

We had a party for my dad’s 90th. Lots of cousins came. I wasn’t at the party 10 minutes before one of the cousins came up to me and mentioned my dad had already told him a “joke.” This joke is one that us kids have heard for many years….. “Today’s my 90th birthday. I’d be 91 today, but I was sick a year.” See?! It’s more of a head scratcher than a joke!

When I was younger, I heard some of these jokes a lot. Sometimes, the jokes were at my expense. My friend Chad and I often got ourselves into one situation or another. This would cause my dad to repeat the concept of “a one way walk.” He would say to Chad, “I’m gonna take Jared on a one way walk. Two go, and one comes back.” In other words, if Chad and I acted up, dad would take me out into the woods. Only dad would come back. Again, kind of a joke. Today, he probably would get himself into trouble for saying something like that. In fact, it’s probably a good thing I never told anyone of that “joke”/threat. They might not have let him continue as the school psychologist for Henry County Schools.

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Growth in the economy is usually cyclical. It’s very rare that an expansion lives on like the current one (usually credited as starting in mid-2009). The current period of growth is now approaching 15 years. Generally speaking, we have a recession every ~6.5 years. As I type this, the economy appears to still be growing at somewhere between 1.4 and 2.2% per year. I say “appears” because these numbers are often communicated and then revised.

Relatedly, inflation continues to moderate. Inflation is now below 2% according to the “Truflation” number. You may recall that the Federal Reserve’s target for a stable economy is 2%. Inside the numbers, in the past month food costs are down 2% and household “durables” (think washer/dryer, refrigerator, computer, cars, etc.) are down 1%. These factors continue to drive inflation lower.

Coupled with the economic growth and moderating inflation, the stock market has recovered since COVID. We are at the halfway point in the year, so it’s worth showing how the market has done in the 1st half. The market is what pundits call “bifurcated.” This simply means that one part of the market is doing extremely well, with the rest floundering. The S&P is up over 14%. The S&P is being led by technology stocks at +17% - represented by XLK on the graph below. On the other end of the bifurcation, the Dow is only up 3.8%, with small caps faring even more moderately at 1%. Bonds are actually down about 2%, with interest rates having risen in the 1st half of the year.

When Fed Chairman Powell consistently raised interest rates to their current level of 5.33%, many economists and financial experts predicted a recession. While a “soft landing,” where the economy slows but doesn’t drop into recession, is desirable, repeated interest rate hikes generally result in a recession. And there are certainly signs that the economy is weakening. Credit card delinquency rates are the highest they’ve been since records were kept starting in 1991:

There are numerous other indicators that suggest the economy is slowing. The housing market continues to slow, as evidenced by rising inventories in once hot locations. And the yield curve is “un-inverting.” This simply means that the 10 year Treasury interest rate is approaching the 2 year Treasury interest rate. This un-inversion is usually a sign of a nearing recession. All of that said, the job market remains strong with more than 1 job available for each person looking for a job - historical metrics are around .5 jobs for each person looking. And finally, I’ve given you anecdotal evidence from my wife Corie’s art business. She continues to experience strong art show volume and robust online sales.

The economy is resilient. If it falters and recession sets in before the election, the American people might take President Biden for a one-way walk. If Trump is elected, he’s all but signaled he wants lower interest rates and plans to take Fed Chairman Powell for a one-way walk. One thing always worth remembering, the stock market's long-term trend is one-way, UP!

Jared

Planning Pays Dividends

* Expansion statistics from Kiplinger ‘What is a recession? 10 Facts You Need to Know”.

** GDP numbers are from Henrik Zeberg reports

Truflation graph is from Truflation.com home page on 7/2/2024

Credit card loan delinquencies graphic is from “Game of Trades”.

All other YCharts graphs are created by me, Jared Kline.

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