recession

It may not feel that way, but things are getting better behind the scenes. To use that overused proverb: “It is always darkest just before the dawn”. If we look at some of the indicators, we can see that mortgage payments are rising in the USA (see graph), which will translate into a cooling of the housing market, which forms a large part of the CPI basket. Another indicator is the fact that share prices have dropped a lot so that they now present much better value. Only 2% of the shares in the S&P500 index are trading above their 50-day moving average (see graph). The third indicator is the easing of the supply chain dilemma (see graph). If the supply of goods is restored, prices of those goods will come down. We can even see some respite in the prices of oil and gas.

The fact that the USA might go into a recession is also getting priced into the numbers; but we will have to wait and see what the impact of the higher interest rates will be on the next round of earnings announcements by companies next quarter. In South Africa we have been liberated from mask-wearing and public events may be filled to capacity again. Unfortunately, load shedding is back and having a job is a privilege, not a right, or so it seems.

Looking back over the past two years, we have to admit that we have endured some very uncomfortable situations. First we had a pandemic, which none of us had encountered before in our lifetimes. Then we had a crash in the equity and bond markets, which made us all feel financially insecure. It must also be said, however, that for most of us some good has come from these uncertainties, such as personal introspection. Many people have realised that life is not only work, and that we can indeed maintain a balance.

One thing we should all realise is that, perhaps unconsciously, we are very competitive and continuously compare ourselves to our neighbours. This is the proverbial complex of “keeping up with the Joneses”. This can lead to much unhappiness and self-doubt. Rather set your own goals and live your own life.

And that also applies to investments: comparing oneself to others may create very bad investment decisions because they may be investing into something with high returns but also high risk. By the time you jump in after them, the tide may have turned and you will share in the downside only.