Volatile and Unpredictable

Hello from Sycamore,

As I write this post, the market is down ~10% from its recent high. The beginning of 2022 has been a bit volatile and unpredictable. When we read the news, we see headlines that stop us in our tracks: Inflation, War, Stagflation, Market Correction, Possible Recession.

Realistically, most news these days is created to grab our attention, pull us in. Reporting tends to be negative because negative news sells. It brings people back; it gets more people to click on the headlines. Media is a for-profit industry.

The volatility you are seeing is real. Inflation is normal. Market corrections are normal. Recessions are normal. We are not saying these feel good, or we need to be excited about them, but they are a normal course of business. The market has performed better than expected for the past 12 years – except for a flash recession in 2020. It is not surprising that as we enter the endemic phase of the pandemic and Russia invades Ukraine we might see some volatility.

Here are some facts:

  • Unemployment is down from its high of ~14.7% in 2020 and currently is at 3.8%.
  • Wages have been increasing more rapidly than prices. The average income for the bottom 50% of wage earners in the US were up over 11% in 2021.
  • In 1973 when Craig began in the industry the Dow Jones was just over 500 and today (3/9/22) it’s over 33,000.

From our research, the economy and corporate America appear to be in good shape. We still believe that the best course of action is to stay the course.

Thank you for your business and trust,

Sycamore Financial Group

***This article is distributed for general informational and educational purposes and is not intended to constitute legal, tax, accounting, or investment advice.***

By |2022-03-10T07:48:16-05:00March 10th, 2022|2022 Newsletters|0 Comments

Thoughts on the Economy

Hello from Sycamore,

COVID-19 has been a shock to our economy and our lives. As a result, the Federal Reserve Bank had to implement swift and significant monetary policy changes. During the onset of the pandemic (March/April 2020), there were worldwide shutdowns that caused many to lose their jobs, miss paychecks that were necessary to pay bills, and companies shuttered. The Fed knew that they needed to take an approach that would spur the economy as much as possible as the country started to reopen. They did this by reducing the reserve requirements for depository institutions, they bought bonds in the open market, and they reduced the interest rate to nearly zero. All these measures made the economy flush with cash, borrowing cheap, and saving not lucrative.

The extra cash that these changes have generated has spurred inflation, but inflation is not always a bad thing. The Federal Reserve has a long-term target inflation rate of 2%. The right amount of inflation in a stable economy can influence expansion. While ongoing inflation issues are certainly possible short-term, we think prolonged inflation or hyperinflation seems unlikely.

If inflation would persist, however, there are a few ways that the Fed can help slow economic activity. These are through changing reserve requirements at depository institutions, open market operations, and setting the discount rate.

  1. Reserve requirements refer to how much of a bank’s total deposits must be kept at the bank at the close of business every day. For example, if a bank has just $500 in deposits and the reserve requirements were 10% then they would only be able to loan out $450. Changing the requirement changes the money supply.
  2. Open market operations are when the Fed either buys or sells government securities in the open market. If they sell securities, they are removing money from the economy by exchanging securities for cash. If they buy securities, they are adding money to the economy by exchanging cash for securities.
  3. The discount rate is the rate that the Federal Reserve would pay to banks for depositing funds with the Fed overnight. This effectively sets a floor on the interest rate and the rate trickles down and influences other interest rates on loans such as car loans, personal loans, mortgages, business loans, etc.

All these measures can be used in different proportions to influence the economy and at various times or simultaneously.

Thank you for your business and trust,

Sycamore Financial Group

***This article is distributed for general informational and educational purposes and is not intended to constitute legal, tax, accounting, or investment advice.***

By |2022-02-14T23:48:50-05:00February 14th, 2022|2022 Newsletters|0 Comments
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