Letter to Stakeholders, June 2022
You can read or LISTEN (below):
Wednesday, June 8, 2:36 pm EST. Nothing much has changed. Fortunately or unfortunately our economy – in the short term - is in the same place it was last month: doubt. There is no shortage of possible scenarios for short-term economic shock (or recession): food inflation, high gas prices, global recession, unyielding COVID-19 infection rates and of course, World War III. To remain an informed stakeholder of your community you pay attention. As a responsible investor with a long-term strategy, you can ask yourself: are the journalists, the politicians or even the TV financial/economic analysts measuring the right things?
How Not to Compare
Many TV analysts like to compare 2022 corporate earnings reports and other economic indicators to 2019. The thinking goes that comparing current numbers to the year before the onset of COVID-19 will eliminate the distortions caused by the pandemic. It will not. Whether it’s the supply and demand of oil, the “Great Resignation,” or the demand for products and services, 2022 is nearly incomparable. In fact, a more relatable year might be post-pandemic 1920. Unfortunately, outside of the irony of the Polish-Soviet War of 1920, there isn’t much that historically – far less economically – that equates 2022 to 1920 either. 102 years of the financialization of the economy will distort any proper analysis. So how do we compare whether we are better off today than we were yesterday? Or maybe a better question is “Are we headed in the right direction?” Typically, this is done by looking every 3 months (i.e. “quarter” of a year) at whether our national economy has grown or declined. The measurement that is observed is called the Gross Domestic Product or GDP. In the first 3 months of 2022 GDP measured (down) negative 1.5%. At the end of this month (June), GDP will be measured again and if it is negative, then by textbook definition our country will be in “recession.” But is measuring GDP an accurate indicator of the direction of your economic wellbeing?
As of May, there are nearly twice as many open jobs then there are available workers according to the research arm of the U.S. Department of Labor (the Bureau of Labor Statistics). Inflation is historically high but hasn’t grown as much as it has in the past few months. Unlike news/TV analysts, the Federal Open Market Committee (FOMC) of the Federal Reserve actually have the power to implement policies for protecting jobs and prices. One of the ways they control the money supply is by raising the interest rates that banks charge themselves. The FOMC is likely to raise rates next week. This is actually a vote of confidence that the U.S. economy is growing too fast rather than contracting (recession). Increasing the cost of borrowing doesn’t seem to make living any easier but short-term pain is exactly what our king-size economy needs to “stabilize.” Perhaps the most dangerous comparison of today is to the 1970s: a period of rising prices, rising unemployment and higher interest rates. The World Bank’s Global Economic Prospects Report seems to indicate that Russia’s invasion of Ukraine has had (and may have) the greatest effect on global growth of GDP. But is GDP really the best measure?
How to Compare
Is it possible to create “better policies for better lives” as is the new tagline for the 60 year old Organization for Economic C0-Operation and Development (OECD)? This is the question that the OECD has been asking since its early beginnings when it began as the Organisation for European Economic Cooperation (OEEC). The OEEC was part of a collective effort administering American and Canadian aid to rebuild Europe after World War II (US Marshall Plan). Over the past 60 years, the OECD, the World Bank and the International Monetary Fund (IMF) have begun to wonder how to use other economic indicators – in addition to GDP – to measure a country’s wellness. The GDP measure – and its cousin, the Gross National Product (GNP) – were created by American Economist and statistician, Simon Kuznets. In 1971 he received the Nobel Memorial Prize in Economic Sciences for his work in calculating and comparing the wealth of sovereign nations. As reported in a 2020 article in Scientific American, Kuznets warned that GDP should not be considered “a metric for social or even economic well-being,” as it measures all goods and services including “armaments” and the unhealthy fruits of “financial speculation.” Kuznets spent much of his later career describing the relationship between economic growth and inequality. The author of the Scientific American article goes on to write that GDP measures market activity but not quite social wellbeing. It may be why GDP could be positive or negative and your finances may reflect that relationship, or it may not. Kuznets may not have realized that he was an early SRI/ESG guy.
This month’s Stakeholder Spotlight will focus squarely on Joseph Stiglitz, the author of GDP is the Wrong Tool for Measuring What Matters. It speaks to the difference between the financialized economy and the “real economy” where you and I and our neighbors live.
Please share your thoughts,
Jason J. Howell, CFP®, CPWA®, CSRIC®
Jason Howell Company is an independent, family wealth management firm run by two owners who believe you should feel good about money.
Jason J. Howell, CFP®, CPWA®, CSRIC® and Douglas W. Tees, MBA, CFP® are each married to patient wives and are dedicated to their kids. Jason and Doug have built a firm with a great reputation. The firm is based in Northern Virginia but serves clients (virtually) all throughout the United States.
Our firm owners believe that dual-income parents with high achieving kids want to feel good about their financial success. They just need to know how. You have a plan for your life and causes you believe in. We fit that plan to your finances so you can feel confident, excited, generous, hopeful and good about your money.
Our process begins with our responsible Investment Strategy and by equipping our clients with three (3) tools for creating wealth that's well, useful:
- Your Personal ROADMAP (PR) which identifies 40 to 60 recommendations to improve your financial plan (the "what")
- Your Implementation Guide (IG) which priorities (by month) when you ought to implement those recommendations (the "when")
- Your Family Constitution (FC) which clarifies how those recommendations connect to your values (the "why")
We call this process Family Governance. It goes beyond traditional financial planning by adding a "values" component. Whose values? Your values.
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