Chris Schiefer

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Economy Staying Strong

Investment Advisor Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Legacy Capital Advisors, LLC are not affiliated.
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What Real People Think About Artificial Intelligence

Checking in with Chris$$$$$ It’s beginning to look like fall is upon us...Don’t you just love the seasons! The Federal Reserve took the month of September off from their constant protracted rate hike campaign. The economy is showing signs of weakening, and the inflation rate has come down to the lowest level in the last two years. And, they are likely to not raise rates at their regularly scheduled meeting in November. This should be it for this rate tightening cycle. It really is no wonder why the inflation data has been lagging this year. The fiscal stimulus placed into the system over the last year of 1.7 trillion dollars continues to increase our output, GDP, and deficit. The outlook for inflation is very positive as this week's Consumer Price Index was below 4% even with higher gasoline prices. This should ease in the coming months as the winter driving season and winter blend formulation will lead to lower pump prices. Did this really happen in 90 days.... Robotics will be the Chat GPT of 2024 as a new learning model was developed by Google that allows a robot to learn everything that is known by other robots and use that information for a problem it has never faced before. In this situation, the robot places a strawberry in a container, not knowing which container to place it in, just knowing that there are other strawberries in the container. This is the beginning of true machine learning, and it will be interesting and a little scary where that will take us in 2024. This is the simplest of tasks, but the dexterity needed to pick and place strawberries in what Al developers have benchmarked their technology to. This all happened in the last 90 days Stock and Bond Markets in the third quarter.... The stock and bond markets were seasonally weaker in the third quarter as interest rates on the 10-year treasury moved up almost 1% to 4.63%. This continues to put pressure on equities as they trade in future income stream valuations, which are reduced by a discount factor for higher interest rates. The bond market had again a poor showing as rising interest rates decreased the value of current bond holdings, and thus this stable asset category is seeing unusually high volatility. Nearshoring and Reshoring, Specifically, Apple, and many other companies are working around the clock to change and increase their sources of products from around the world. Currently, Apple obtains over 80% of its products in China, but it is moving very quickly to add production facilities in India, Malaysia, Vietnam, and Mexico. With its proximity to the United States, Mexico stands to be one of the largest beneficiaries of this relatively new trend. The energy tax credit for electric vehicles is driving a flow of this movement, and innovation as companies want to be able to meet the requirements to obtain the $7,500 tax credit. The Government is looking at issuing checks to dealers at the time of sale instead of as a credit on a person's tax return. Healthcare.... This is just to big to not pass along.... The companies, Novo Nordisk and Eli Lilly, have developed diabetes drugs that have a secondary purpose, which is extreme weight loss. This is so big that companies such as Mondeléz, McDonalds, Pepsi, and other food makers are feeling the effects on their stock prices. The third benefit of these drugs that was revealed last week is that for the millions of people who suffer from kidney disease, these drugs are apparently helping their disease to the point of reversing its effects. Who other than the drug companies are a huge beneficiary of this? Clothing manufacturers, such as Levi Strauss, as people have lost 60 to 80 pounds and need an entirely new wardrobe. More to come on these as new studies and data is released, but it has received fast track review by the Food and Drug Administration. Where do we go from here... The Federal Reserve will begin to see that continuing to raise interest rates will be a huge problem for the deficit and the National Debt. The amount that the Government will have to pay in bond interest will soon be greater than the budget for the Defense Department. Expect interest rates to begin to come down to the 4.25% level from the current 5.25%, by the end of next year as inflationary pressures subside and employment numbers continue to slightly increase. We have already seen the number of jobs posted and hours worked decline in the last several months. I am not an alarmist, but the situation in the Middle East is definitely a concern. This is a hotbed of thousands of years of dislike, and it could result in a much bigger and more costly conflict. As of today, with the United States deploying two aircraft carriers to the region along with their hundreds of support vessels, it bears watching closely. Disinflation which has been a part of our life for the past 40 years, is behind us, as demographic changes, higher corporate tax rates, and increased labor costs creep into everything we will be buying in the near future. What does 2024 look like? Well, now some good news.... Lower interest rates will be very supportive of most asset categories. Bonds will take this news very positively and we will see the long bond stabilize and short-term interest rates decline for a much more normal yield curve. This will put a floor under higher multiple-growth stocks, and if history is any guide, small-cap growth will lead us back from the bottom where they have currently been. In the coming earnings season, we will still see huge profits from the "Magnificent Seven" or eight or nine.... Apple, Google, Meta, Microsoft, Adobe, Nvidia, Amazon, Tesla, Oracle, Salesforce, Mongo DB, Palo Alto Networks, Lululemon, and CrowdStrike, to name just a few. These companies do not need or use very little debt, so the level of interest rates has very little effect on them. You can point a finger at several things that should provide for a better equity market next year. Lower Inflation — should be between 2 and 3% by year-end. Lower Interest Rates — may be as low as below 4% if the employment numbers continue to weaken further. Disruption and Innovation — this will drive productivity and again reduce the cost of capital. History — The last two large rate hike cycles were followed by significant moves in the bond and stock markets. Cash on the sidelines — there is currently $5.4 TRILLION in money market funds potentially waiting to move back into the market with almost $13 trillion available in the total short-term money markets. Housing - Single family homes continue to defy history and are moving up in price in many markets. There is a continued drought of new listings as anyone who has a sub 3% mortgage doesn't want to move unless they absolutely have to. According to the President of the National Realtors Association last week, they are only seeing listings by people relocating for a job change, or people downsizing. The 30-year mortgage retreated slightly last week to 7.63% from over 8% two weeks prior. The venture capital investors continue to acquire new properties putting additional pressure on the market, with many houses again selling for over the asking price. Autos - If you are in the market for a new vehicle, it would be a good idea to review Cox Automotive's latest readings on the vehicles on the “days on lot report”. This highlights certain vehicles that are selling very slowly, and as such you have a much better chance of obtaining a lower cost or rebate. Vehicles in this category are Jeep, Lincoln, Ram, Dodge, and Buick. At the other end of the spectrum are vehicles from Toyota, Honda, Subaru, Mazda, and Kia. Having said that, I recently saw where a Toyota Tundra was listed under MSRP for the first time in two years as supply chains are beginning to be restored. The UAW strike will make Ford Heavy Duty Pickups very hard to get and very expensive relative to their peers. Hopefully, this strike will end soon, as the Canadian UAW has already partially settled. Solar-powered vehicles, which make up a very small percentage of the market currently are expected to be 1.7 billion in the year 2030. Many government vehicles in sunny parts of the country will be able to run on solar exclusively. And now... ARE WE READY FOR THE JETSON'S? Joby Aircraft launched last week with their first deliveries scheduled for the end of the year to the Navy, but personal use will follow next year. I bet you can hear the Jetson's theme song... playing in your head
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