📰 Sunday Edition 41: Rates, The Dollar, Housing, Fundoo Professor, and Cigars
Hey, Mike here! Welcome to Sunday Edition Each week I dive into the markets, the economy, and investing.
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Table of contents
Quote of the week
Whether you’re mending a chair, sewing a dress, or sharpening a kitchen knife, he writes that there is “an ugly way of doing it” and “a high-quality, beautiful way of doing it."
William Green, Richer, Wiser, Happier
I like this way of thinking, of bringing a craftsman mentality to everything we do.
Markets
I think it's important to keep showing the long term market trends when we are constantly bombarded with negativity and fear in the media.
Sectors
Financials and health care take the cake this week with 1.7% gain while communication services sector declines 2.1%. Information technology still reigns supreme on the 5-year basis with a 20.3% CAGR.
Monetary Policy
The federal funds effective rate is still at 5.33%. This will definitely change, but blathering on about what might happen is a fools errand. Will rates come down? Almost definitely. When? Nobody knows.
What's important is understanding these charts in relation to each other. These higher rates set by the FOMC make money supply a little tighter across the economy. Let's take a look.
Economy
Core PCE is still trending down. It's great to see inflation cooling like this.
Core PCE is the FOMC preferred metric for gauging inflation. The below chart shows that prices are still increasing, but at a much slower rate than 2022 and 2023.
Prices are still high for a lot of products and services, but they are not likely to go up a lot more moving forward.
The Dollar
One beneficial thing about decreasing inflation is an increase in the dollar strength. A value of 100 signifies a good relative strength for the dollar. Right now the dollar relative strength is well above 115. This is a stark contrast to what media keeps telling us about the devaluation of the dollar.
Housing Market
Existing home sales are also declining, thanks to decreasing inflation, higher rates, and limited supply. While this is neither good nor bad, it's simply another data point in our lens of the world. The data only goes back to mid 2023, but it still shows a good history and trend of what's happening.
Internet Finds
I came up with this idea then a simple search found that Sanjay Bakshi already wrote about it. Returns Per Unit of Stress – Fundoo Professor
Once you start incorporating return per unit of stress in your investment thinking, the trade-offs become obvious. You would start settling for investment situations which offer a satisfactory return per unit of risk and stress over those which offer high returns per unit of financial risk but low returns per unit of stress. You will slow down and start appreciating the slow process of long-term, stress-free compounding as opposed to nerve-wracking, adrenalin laden high frequency operations in the stock market.
Sanjay Bakshi
I love this because it encapsulates so much of what I love about investing. Chasing returns is worth nothing if you don't have health, so why drive health into the ground to chase a higher return? Health is the real wealth, so trading health for money is moving backward so fast. It's the worst trade any of us can make. Time is all we really have, and money can't buy any of it back. That's why I choose to use money to buy freedom—the end goal. Money is just a tool. Don't let it wreck you.
Mike's Corner
Investing During Elections
The election is everywhere. If you're like me—focused on generating financial freedom—then you don't care. This chart is for those of you who insist on investing based on who gets elected.
TLDR: The election, and most politics, is noise. This doesn't mean "don't vote" but it means you can vote and not let it detract from your daily lives.
Cigars
I love cigars. I have one a week on the back deck and take the time to read, engage on twitter, or just sit and think. It's a great time to reflect and do nothing.
Lately I've been fond of the Undercrown marduro double corona from Drew Estate. If you like cigars or have a favorite, let me know.
Portfolio
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The post 📰 Sunday Edition 41: Rates, The Dollar, Housing, Fundoo Professor, and Cigars appeared first on Walsh Investment Strategy.