In last quarter’s edition of this newsletter, I discussed what I believed would be the two phases of recovery from the pandemic; the first being online shopping, social media, and Zoom calls, the second involved people doing things like travel, going out to eat, and anything out of doors. Last year, Americans drove more miles in their cars than they did in all of 2019 in their quest to get out of being locked down in their homes. In May I had to be in Denver for meetings and trying to get a rental car was almost impossible; I ended up with a car that was several years old and still paid hundreds of dollars more the I normally would have for a newer rental car in prior years. Hotel occupancy has rebounded, and airline travel is nearing pre-pandemic levels, though recently the Delta variant of Covid has slowed this some. The recent increase in Covid cases has not impacted American’s spending as retail sales continue to increase month over month. Consumers are flush with record levels of cash, and they are going to spend.
Equity markets have been very strong year to date as one might expect with this consumer propensity to spend. We have seen more volatility in the markets this quarter which is to be expected as we have not had a correction of 10% or more going all the way back to February-March of last year. If you remember, the average year in the US equity markets sees a 14% pullback at some point during the year. I’m not making any predictions here, but we have come a long way in the past 18 months. More volatility here would be expected with Washington’s proposals for tax increases, debt ceiling debates, discussions around when the Federal reserve will slow their purchases of US Treasury bonds and begin raising interest rates, the Communist government in China reigning in control of their largest companies, as well as the concern around inflation. These are just the top stories you will be hearing more about this quarter, but the media will always hype up reasons for “investors” to be nervous.
US household net-worth is nearing $150 trillion, an all-time high. This “wealth affect”, along with the amount of cash Americans are holding, should keep our economy expanding for the next several years. The Delta variant of Covid may actually help to dampen this demand a bit and extend this expansion well into next year. We have all heard the stories of worker shortages, ships anchored off US ports waiting to be unloaded, lack of truck drivers to move goods, and shortages of semi-conductor chips. All of these issues will be worked out over time as demand normalizes and businesses have time to adjust. We are seeing what happens when you shut-down the world and try to restart it with the flip of a switch - it just takes time. Not only are US consumers financially healthy, US businesses have refinanced their debt along with raising record amounts of cash. We are hearing companies announce record amounts of Capital Expenditures (CapEx) this year along with additional stock repurchase plans. Companies investing in their plants and equipment translates into more productivity going forward which we have not seen much of in recent years. Many of these announced investments have been here in the good ole US, as opposed to overseas investments. The disruptions in supply chain/manufacturing do to Covid will have a significant impact on where companies do business in the future. Business leaders are already looking at ways of diversifying manufacturing away from China. With 1.4 billion consumers, it’s almost as if we have forgotten that they are a communist country with a President that is currently reigning in freedoms.
We will keep you up to date on any tax changes and how they may impact your personal economy. We will also continue to offer Zoom meetings as an option for your semi-annual meeting. We have spruced up the office with new paint and carpet, so you are welcome to come by and see our new colors. We have not been able to complete the project yet, because like many Americans we are waiting on furniture.
Brett S. Carleton