Now that we are in our 2nd COVID-19 Winter, the world is currently experiencing the rampant dissemination of the Omicron variant mixed with the Delta variant and just plain old killer Coronavirus. Health experts are now saying this virus will never go away and new variants will come and go in the upcoming years. This of course isn’t the case in China, where there is a zero tolerance for even a single case. If you are found positive there, you are literally locked into your home and monitored by government personnel. It’s very scary for the residents, but alas, it’s not the U.S. situation, because we have our own predicament to deal with locally.
When this originally started in the late Winter of 2020, it had a major impact on the oil, hotel, airline and travel/entertainment industries. Today, and shockingly I might add, it is having a much smaller impact. In some cases, the market participants (stock symbols) are at pre-pandemic share prices. Although there is no modeling that can predict how the economy will respond to the ongoing “Pandemic” …suffice it to say there is a major consensus (among analysts) that we will eventually hit a deep economic correction and recession late this year. Even the most optimistic economic scenarios aren’t very promising, and with many people still unvaccinated, some clinical experts say this could be the deadliest phase of the pandemic yet. Although Omicron is less deadly (for the vaccinated) and there are fewer educational and business closures this time, the economy is possibly headed for something bad.
As I mentioned in my previous writing regarding the “Supply-Chain Debacle”, it will persist at least until the 4th quarter of this year. You may find most of what you are looking for on store shelves now, but you are probably going to pay a minimum of 10 percent more for it (compared to last year). The cargo ships are still sitting offshore for a “slip” to dock into, and the bulk freight is still sitting on docks for at least a couple weeks before a train, truck or flight can deliver the supplies to you locally. These field workers [of transportation industries] are yet another group that is experiencing a surge in positive cases, infections, and the inability to go to work.
Another virus-related impact we are aware of; is that dining out (restaurant food) is becoming less and less popular, and online shopping is becoming more and more popular. Bad news for restaurant stocks and good news for companies like Amazon. Regardless of what you buy, or where you buy it, inflation is clearly a problem in 2022. Current inflation has many causes, some of which are not necessarily related to supply and demand. For example, the early pandemic government-provided stimulus increased demand, which could not keep up with the bottlenecks related to supplies and distribution. Therefore, we can say that inflation is also a cause of fiscal and monetary policies as well. Even as The Fed1 is about to start hiking interest rates to fight inflation, we can see this too may have a serious effect of downward price pressure, small business closures, and lower demand in general. The only positive effect that I can see is that maybe the amount of savings you keep in the bank will go up.
Any smart economist will tell you that volatile prices (up or down) can have a negative impact on the economy, which will add to more investor worries about inflation, stagflation or even recession. When prices are unanticipated and mixed with the impact of COVID-19, people are unable to adjust their thinking regarding purchases. Buying large ticket items for example, are very hard to make for anyone, even corporations. Likewise, the underlying conditions of supply and demand complicate business planning and investment decisions. If upward prices reflect rising demand for goods and services, and employees believe prices will continue the trend, then there will be a demand for higher wages — which will force employers to raise prices and decrease R&D investments. On the consumer level, even lower ticket items at the grocery store are part of what drives the average person to “believe” we are in the midst of inflation. It is not what the economists are saying, it’s what the price tags on fresh produce and meats are saying. All of which leads both corporations and your neighbors to re-think going on vacation, buying a new car, or even going out to eat a gourmet meal at $50 to $70 per person.
At the beginning of December 2021, the CPI (a measurement of consumer prices) posted nearly a 6 percent year-over-year increase, the most in nearly 40 years2. Some economists however, mention prices can increase up to 10 percent (across the board) if supply chain disruptions continue. This would include a range of products from bottled water, to gasoline, to meat, and more. Particularly if supply issues, plus the Pandemic, persists through this new year. The Omicron variant and new variants will cause households to hunker down, hibernate until the Spring, and spend little…further exacerbating the potential for a huge recession.
In summary, be on the watch for a relentless pandemic, new viral variants, ongoing inflation, a potential deep recession, and even new pockets of extreme civil unrest this year. With the current economic environment, now may be an ideal time to consider having your retirement investment portfolio adjusted. I’ve been doing exactly this for small investors over the past 19 years. Contact me so we can discuss how to protect your money and investments moving forward.
Notes: 1) www.federalreserve.gov/monetarypolicy.htm 2) www.bls.gov/cpi/data.htm