Is your glass half empty or half full? From where do you receive news? What do you read? Whose opinions do you agree with or disagree? How does all of this impact your daily activities, mental, emotional, and physical health? Do you really make up your own mind or are you influenced by others? While many of us may take pride in feeling as if we are independent thinkers, it is quite possible the opposite could be the truth.
Social psychologist Robert Cialdini is a pioneer in the science of persuasion. His 1984 book, Influence is a classic and he has just finished a new and expanded version. The book outlines the seven psychological levers that bewitch our rational mind and lead us to buy, behave and believe without a second thought as to why we are acting the way we are. (1)
To give you a taste of what the book discusses, consider:
“Social Proof” is following the crowd when making a decision on how to act, what to wear, or what to buy. The more people we see acting a certain way, the more justified we feel in doing the same thing they are doing. Can you think of a couple of examples? Now ask yourself how much serious thought you gave to your decision or were you merely following the crowd?
“Authority” means saying yes to others perceived to know more about a certain topic so you take their advice. While this may not be a bad idea if, as an example, your medical doctor is giving you an opinion for treatment. However, if Elon Musk is talking about buying Bitcoin or Dogecoin, you may want to ponder if there is perhaps a hidden agenda to the message.
“Scarcity” or the perception of scarcity now or in the future causes you to want more of something. Remember the buying patterns in the stores about thirteen months ago? Bare shelves of toilet paper, cleaning supplies, yeast and coffee. Was there truly a shortage of toilet paper and coffee? Or were people just afraid there could possibly, maybe, someday be a shortage, so they stocked up on a six-year supply of Charmin.
Consider the news of the day as compared with actual recent events as well as perceived, potential events discussed by various persons and news outlets.
One year ago, Covid-19 was feared as a modern-day Black Plague and bringing with it global economic devastation. Yes, the deaths of over 3.5 million people globally and 582,292 in the U.S. (as of May 29) are indeed tragic. Yes, many people are and will be suffering (including a member of my family) from the longer-term affects of Covid. Yes, this past week the world experienced it’s most deadly day since the pandemic began according to the resource provided below. (2,3)
As of Friday, May 28, the U.S. has given roughly 283,181,265 vaccine doses and globally, roughly 1.84 B shots have been given. But this is only half the shots in the arm that America needs for herd immunity. We have a long way to go. All those unvaccinated people still run a huge risk of becoming very ill, perhaps die or have lingering complications. Globally, many, many underdeveloped nations have less than three percent of their populations vaccinated. Although I am optimistic, we have a long way to go to get beyond this pandemic. (2,3)
Manufacturing in the U.S. is up 23% from the level in April 2020….but April 2020 was down 19% from April 2019. So yes, Covid was disastrous for the economy but manufacturing is recovering. (4)
During 2020, Covid caused 114 M jobs to be lost. In April 2021, 260,000 jobs were added. Unemployment is now at 6.1%. But we still have 9.8 M people without jobs. Many jobs were lost due to Covid and many have been restored and it appears that many businesses want to hire qualified people if they can find them. (5,6)
Personal spending is up 4.7% from February. (7) Mortgage balances are up due to the housing boom, home equity lines-of-credit are down by $14B; credit card balances are down $157B from the end of 2019. While auto loans and student debt are up, overall, Americans have $49B less debt than at the end of 2019. (8)
TSA screened 1,605,810 passengers on May 29, 2021. This compares with only 268,867 on the same day one year ago. This is a 493% increase from the down days of Covid. However, we are still well below the 2,117,180 passengers on May 29, 2019. (9)
One of the more popular “concerns of the moment” is inflation or more accurately the concerns about future inflation. Depending upon the measure observed, inflation over the past year ranges from 4.2% to 3.1%. (10) The current fiscal policy of the Federal Reserve and monetary policy of Congress are providing liquidity to the financial markets and money into the pockets of consumers with the intention of stimulating the economy. In my opinion, this has been successful based upon statistics in the previous paragraphs.
Energy prices are up 25% over the past year. But don’t forget that Russia and Saudi Arabia were trying to out produce each other early in 2020 and oil prices fell to below $20 per barrel by April 2020 plus the impact of Covid and reduced demand, now oil is back to a more normal $66 per barrel. Construction materials like lumber and copper are doubled in price over the last year. Why? Lumber mills, mines and delivery systems were either shut down or reduced due to Covid and it takes time to ramp the production up to meet current demands. Prices of both new and used cars are up 21% over 2020 due to plant closing, lack of materials and other supply chain issues. It is possible supply will eventually catch up with demand. (11,12)
Inflation over the past dozen years has rarely edged past 2%. One way to evaluate the risk that inflation poses both in the short- and longer-terms, in my opinion, is to look to the bond market. Bond investors are lenders that want to not only get their investment back one day but also wish to receive a positive return on that investment. Today, an investor / lender that loans money to someone to buy a house is going to receive a return on their money of 3.5% or less over the next thirty years. If that bond investor thinks inflation is going to go over 3.5% over the next thirty years, is he going to make that loan? I think not. The yield on the ten-year Treasury bond is 1.58% on May 28, 2021. Again, a very low rate. The bond market is not, in my opinion, concerned about inflation. (13, 14)
Making major investment decisions or changes to your investment policy statement should, in my opinion, not be made based upon the current bad news / perceived bad news / or what might be bad news if this…this… or this happens. Take as an example the last two presidential elections. Prior to the elections, I spoke to many individuals that predicted disaster to the stock market if one political party or the other was elected. Look at what happened. President Trump, the Republican, is elected and six months later the S&P 500 is up 16%. President Biden, the Democrat, is elected and in six months, the S&P 500 is up 20%. This not just a coincidence. Study the history. (15)
The Standard and Poor's 500, or simply the S&P 500, is a free-float weighted measurement stock market index of 500 of the largest companies listed on stock exchanges in the United States.
Remain focused on history….not headlines. In 1960 the S&P 500 was at 58. On Friday, May 28 it closed at 4,204 --- 70 times higher. The dividend on those 500 companies was $1.98. Today that dividend rate is near $60 --- 30 times higher. In 1960, the CPI was just under 30. Today it is 267 --- nine times higher. The “after-inflation” annualized return with dividends reinvested of the S&P 500 has been 6.57%. (16, 17)
The historical numbers tell me that stocks have been an efficient and effective way to not only hedge against inflation but to increase your purchasing power. I cannot guarantee this nor imply this will be your experience. I can merely suggest that you study history and not headlines.
Make a plan. Plot your course. Map out your future. Articulate your priorities. Then make decisions based upon history…not headlines. Work your plan carefully. Know when you will need cash to spend, how much, and from where the cash will come. Think with your head… not your gut. Be wary of the influencers –headlines or well-meaning friends and family-- that will attempt to divert you from your plan.
Your finances are personal and planning for them should also be personal. Wollman Wealth Designs, Inc is a financial planning / investment advisory firm in Escondido, CA partnering with families, individuals and trusts in San Diego and around the country. Call or email us with questions or to schedule an introductory phone call or meeting.
The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
Securities and advisory services are offered through Cetera Advisor Networks LLC (doing insurance business in CA as CFGAN Insurance Agency LLC), member FINRA/SIPC, a broker-dealer and registered investment adviser. Cetera is under separate ownership from any other name entity. CA Insurance License #0604093