Hello, and welcome to our market alert video for today, which is August 19, 2022. And if I look a little tan, it’s because I’ve been out in the sun, we went to my daughter’s wedding, it was a destination wedding. And so, I’m back in the saddle and loving it. And you know, it’s always interesting to me what you miss the most when you go on vacation from back home. For me, it’s working. You know, one of the things you’ve probably heard is that if you love what you do, then it’s not work. That’s it for me. I love what I do. So, I miss work. But I really think what’s interesting is my wife. So, my wife is the cat owner in our family. And I’m the dog owner. She has two cats; I have one dog. And of course, they’re both of ours, but mostly she’s the cats. And so, when I asked her, so we’ve been gone, you know, for a while here, what do you what do you think? What do you miss the most? And she said Noodle, which is our dog, which really surprised me because I thought she’d say, you know, one of our cats. So maybe I’m converting her because I like dogs more than cats. And maybe I can convert her to a dog lover? I don’t think so.
Anyway, the title of this market alert video is “Don’t fear the Fed at your own peril.” And one of the things that happened this week was they released what are called their minutes. So, what happens is they have all their meetings, somebody’s transcribing all the conversations, then they have their announcement, they make their decision, then they come out, make their announcement, and everybody latches on to that. And then after the announcement is made, then they release the minutes, and you can go in and see what they said behind the scenes. Well, once again, the market, investors seem to latch on one sentence out of I don’t know how many sentences there were in the minutes. And that sentence said that at some point, we are going to stop raising interest rates. Well, duh. I mean, I could have told you that without even reading the minutes, but the market took that as inflation must be under control, they’re going to stop raising interest rates, this is wonderful.
Let’s calm down a little once again. And let’s look at what’s really happening. You know, real estate right now, which is a big percentage of our economy, is collapsing. We’re seeing lending grinding to a halt, almost. And many of the lending companies who employ 10s, if not hundreds of 1,000s of people are going out of business. The forecast is that about half of them, according to Bloomberg are going to go bankrupt and go out of business. That’s a lot of jobs. Also, the construction business is practically stopped. And that’s also many, many businesses, many, many employees. So, we could see a large number of unemployed people happening in the real estate space, which has such a ripple effect throughout the economy, with the people that install carpets and new appliances. I mean, you go down the line of how that could affect everything. So that’s one area that could be significantly impaired. And that ripple effect we think will continue.
The other thing is, I watched a video over the weekend that was interesting from this gentleman that analyzes how inflation is calculated. And what he said is, is that we don’t calculate inflation today, the way we calculated inflation back in 1981. And, you know, there’s a lot of comparing going on with the inflation we had in ’81, what the Fed did, how that affected the economy, how it affects the stock market, and you know, inflation and all that kind of stuff. And we’re saying, you know, what are the comparisons? Well, back then they measured inflation, the housing component of inflation, they used home prices for that. Well, as we’ve seen in this period now, when inflation hits home, home prices go through the roof. And so, what happened was that people freaked out back then, because oh, my gosh, inflation is so high housing prices are skyrocketing. So, they said, well, we don’t want people to panic. We don’t want people to behave irrationally because they think inflation is so high. So, after that, they said we’re going to change how we measure the housing component. And they said, we’re going to use rent instead. Why? Well, because if you use rent, what happens is that if you just signed a one-year lease, then your rent payment isn’t going up for another year. So, the inflation of your rent price going up isn’t going to be calculated for you, because guess what, your rent isn’t going up for a year. Now in a year it will. But right now, it’s not. So, what it does is it smooths out the housing part of it, but at the beginning of the cycle, it under values it versus the way they measured it back in ‘81, which is on purpose. They don’t want inflation to look as bad as it is so as not to freak everybody out. And then everybody behaves irrationally. And it becomes as I said, the self-fulfilling prophecy.
So, if you were to apply measuring inflation the way they did back in ‘81 today, our inflation rate today would be closer to 12 to 14%, which is significantly higher than it was back in ‘81. And remember Paul Volcker back then raise interest rates to almost 19%, to combat that inflation. And this Federal Reserve is what? We’re not even at 3% yet interest rates. So, there’s a big disconnect there. So again, they are going to do what it takes to fight inflation. They’ve said it, and anybody who doesn’t fear the Fed, that doesn’t understand what they’re going to do and how they could put us in a very deep recession if that’s what it takes, you’re underestimating their willpower. They’re going to do it, in our view. So, what do you do about it? Well, as you know, we have our Invest and Protect Strategy. And we’ve been out of stocks and bonds for several months now. And the reason why, of course, is our sell signal or Invest and Protect Strategy said to sell stocks, but then also because if the Feds raising interest rates, why would you want to be in bonds? I mean, we’ve seen what’s happened to the bond market this year. So right now, we’re out of both of those. And we’re sitting comfortably in money markets and the Fed is raising interest rates, which causes what we earn on our money market to go up while we’re sitting out the storm.
Now, if you would like to find out more about our Invest and Protect Strategy and what you should do in our opinion, I would love it. If you would visit with one of our retirement planners, we’d love to sit down with you and build a retirement plan, build an Invest and Protect Strategy into your retirement plan, and do it for you at no charge or obligation. So, our website is rpoa.com. Go there, and hopefully we can help you share this video with as many friends and associates and family members as you’d like. And once again, thanks for watching this video.