Mid Year Economic Perspective

by Ron Bare

It’s hard to believe we are nearing the end of August 2021. As you all are very aware, the past year and a half have presented never before seen challenges and uncertainty. We recognize that often fear and anxiety are the results of this uncertainty. We thought it would be appropriate as we head into the fall to share some important, time tested principles, as well as a few key thoughts on our economy.

GENERAL PRINCIPLES

• As always, we recommend the best course of action is to be long-term, goal-focused, planning-driven investors. We’ve found that the best course for us is to formulate a financial plan—and to build portfolios—based not on a view of the economy or the markets, but on our most important lifetime financial goals.
• We believe in following a plan with discipline — as opposed to reacting to current events. This offers us the best chance for long-term investment success. Simply stated: unless our goals change, we see little reason to alter our financial plan. And if our portfolio is well-suited to that plan, we don’t often make significant changes to that, either.
• We do not believe the economy can be consistently forecast, nor the markets consistently timed. We are therefore convinced that the most reliable way to capture the long-term return of equities is to ride out their frequent but ultimately temporary declines.

PERSPECTIVE OF CURRENT SITUATION

• The economy continues to struggle with supply chain imbalances, as well as with a historic mismatch between the number of job openings available and continued high (though rapidly declining) unemployment. Financial journalists continue to speculate on when these blockages will clear, but for long-term investors like us, the key is our belief that they will, in the fullness of time.
• There is also the issue of the Biden administration’s drastic tax proposals with respect to capital gains and estates. The best that can be said on this subject is that, as the first half of the year ended, the momentum behind these initiatives seemed to be declining. But the political climate remains as detrimental to capital (and capitalists) as it’s been in quite a while.
• Nonetheless, for investors like us, the most important economic report of this whole six-month period is the fact that household net worth in this country spiked 3.8% in the first quarter of 2021—to $136.9 trillion—propelled by broad gains in the equity market and in home prices. Even more important, perhaps, is the fact that the ratio of household debt to assets continued to fall, and is now back down to about where it was 50 years ago.
• The consumer powers this economy, and the consumer has rarely carried more manageable debt levels relative to disposable income—and has simply never been holding more cash—than he/she does today. In June, the National Retail Foundation raised its outlook yet again; it now expects retail sales to grow 10.5% to 13.5% (that is, $4.44 trillion to $4.56 trillion) year over year. As a result, the retail giant Target raised its dividend by a whopping 32%.

As always, if your situation has changed, or if you would like to speak to one of our advisors, please give us a call. We thank you for your continued trust and confidence in the team at Bare Wealth Advisors and we look forward to speaking with you soon!