📈Santa Claus Rally

Jerome Powell and Santa Claus have never been seen in the same room. Just sayin'.

Dec 23, 2022

Ian’s up this week with a Christmas wishlist from Santa Powell.

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With the holidays approaching, I thought it would be a nice change of pace for me to stop ranting and highlight what we are looking forward to in the new year. This positive mindset actually makes a difference in the market, as we can see with something dubbed the Santa Claus Rally.

Merry Christmas indeed.

Given how most of 2022 has gone, this rally would be a welcome relief to investors. And that got us thinking about what we should put on our Christmas wish list for the Federal Reserve and Jerome Powell. He is the closest thing we have to a financial Santa after all.

Inflation has caused a lot of issues in 2022 as we have highlighted here, here and here. Which has caused Santa Powell to hike rates and try to slow down an overheating economy which, wouldn’t you know it, we also covered. But that was the past, and today we are looking into the future. So here is a wish list for the economy, for you, and for America.

These first 2 wishes are what we have been discussing for most of the year. The Fed and Powell have been trying to find a “soft landing” and the only real way for this to happen is for inflation to finally slow down.

This would have two very positive effects: first, slowing price increases of goods for everyday Americans, meaning things like groceries, healthcare, and other essentials stop skyrocketing in price; and secondly, it would allow Santa Powell to stop raising rates, which has been killing all our investments including stocks and real estate. The good news is we have started to see signs of inflation slowing after skyrocketing earlier this year.

If this trend continues, Powell and the Fed can stop hiking rates, or at least slow down the historical rate at which they are doing so. And based on projections by the Fed and the market they believe rates will top out early next year and plateau or decline as the year goes on.

So if we stay on our current path that takes care of wish list items #1 and #2. Which means we can move on to the job market.

Our strong job market and rising wages have been one of the blessings of Covid for younger workers. The concern is that the Fed’s rate hikes will eventually bleed into the job market. So far this has not happened and in an ideal world it would remain strong even as inflation dissipates.

Unemployment remains at 10 year lows despite everything that has happened over the last several years which is remarkable and a testament to this economy. If this can hold, all we have left is higher asset prices on our wish list.

Again the good news here is that if all the previous 3 wishes come true this one will most likely be a formality. Stocks have taken a beating due to rising rates and uncertainty about future demand. BUT if we all remain employed and rates stop rising, stocks should recover.

Sure the market is down, but it hasn’t been in free fall. It has shown some resilience despite record inflation and corresponding rate hikes. Housing prices have shown a similar pattern, they have remained resilient despite rising interest rates.

If we get items one through three on the wish list, I would expect these assets to rebound in 2023.

What’s the Upside?

The economy is a complex organism that the Fed and Powell have to try and wrangle. And while it has been a tough year for both the economy and the Fed, 2023 offers us a new opportunity.

Our wish list might not all be met, but it always helps to know what you are rooting for. Hopefully today helped you understand what we are cheering for in 2023.

For Your Weekend

Sorry for the inconsistency here. It’s been a busy last few weeks and we haven’t always had the bandwidth to scan the ~~four sources we look at~~ entirety of the internet for stuff worth your time. We’re back, though!

Watch

Who Killed Santa? A Murderville Murder Mystery (Netflix)

A very game Jason Bateman, Maya Rudolph, and reliably over-the-top Will Arnett anchor this laugh-out-loud funny pseudo-improv murder mystery. The setup is simple: A holiday-hating detective is forced to solve a murder — and save Christmas — with help from famous trainees - Bateman, Rudolph, a few other surprise guests -who must improv their way through the case.

The good cop/bad cop routine alone is worth the time to watch.

Read

Bishop Larry Cook came up with $3 million to purchase a gas station next to his church in north Minneapolis.

A Pastor Got Fed Up With a Crime Hotspot, So He Bought It by Joe Barrett ($ WSJ1)

Bishop Larry Cook was preparing for Bible study one summer night in 2021 when he confronted a group of young men selling fentanyl and other drugs in the alley between his church and a Marathon gas station on this city’s north side. “Y’all got to move on from back here, you need to do something else,” he told the men. “It got a little heated and they finally told me if I wanted to do something about it, I’d have to buy the gas station.” A little over a year later, he did just that.