Don’t look now, but prices are FALLING! Oil is down 17% in the last three months. The 10-year treasury rate has fallen 50 basis points in 20 days. The average stock in the S&P 500 is down 30% this year. GDP in the UK has fallen to zero and the country is now entering a recession. Quarterly reports from various consumer-related companies show that top-line sales are falling. Both PCE and CPI have been cut in half over the last year. In short, there are clear signs an economic slowdown is underway. Given global central bank tightening over the last two years, we are not surprised here at Warcap. But what has been confusing to the markets is how long consumer spending has endured, which can be attributed to the unprecedented growth in household net worth.
Between 2019 and 2022, household net worth in the United States surged $30 trillion, or 37%. The spike in housing prices accounted for about half of the surge as it rose $16 trillion. Consumers felt flushed and they went out and spent, which triggered inflation. The above-mentioned data shows that the trend has reversed and a tactical shift in investment strategy is necessary. Interest and dividend payments are vital during periods of price declines and we continue to allocate to assets that produce both margin and yield. Pay attention to the macro and allocate accordingly.
As always, I appreciate your continued trust and confidence.
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