What I Care About This Week | 2023 Apr 3

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by Franklin J. Parker, CFA

The Summary

  • Markets ran higher last week, with tech stocks leading the charge. Some analysts have pushed back suggesting that the recent rally is unsustainable. With earnings declining and the Fed continuing to hike rates in the face of a slowing economy, it is my view that there is more downside than upside risk in play. That said, it is not uncommon for markets to hit new highs just before a recession takes hold (that happened in 2007, just before the great financial crisis).

  • Manufacturing fell to new lows last week. This week is important because we get data on employment. The unemployment rate is expected to hold steady at 3.6% with about 215,000 jobs created last month. Obviously, a big deviation from these figures would push markets to update expectations for the Fed, as well as the economic outlook. Again, it is my view that a recession is not far away, though the macro-economic signals I watch have yet to flash “the recession is imminent” signals. Though this week’s data will update our recession dashboard.

The Details

I am surprised just how often I advise people to spend money.

Typically it is folks entering or nearing retirement and this usually comes after a financial assessment. It makes some sense: many people have spent a lifetime disciplining themselves to save or to build a business, which is wonderful — it gives choice and comfort through their most vulnerable years.

There does come a time, however, when it is okay to enjoy the fruits of that discipline and sacrifice. That enjoyment will look different to everyone, of course, and that is perfectly okay. Some people like to travel, some like to enjoy good food, and still others like to give. Often people enjoy all of these things and more.

The point is that finding what it is you enjoy, and then making a conscious effort to appropriately proportion that into your life, is a very important and often under-discussed aspect of your lifestyle. More often than I would expect, people withhold permission from themselves for such things. Naturally, I am not advocating unnecessary largesse. However, after a full financial workup, if we find that you have the resources to do so, don’t be surprised if I tell you “its okay to spend some more.”

And, as I often point out, if you don’t enjoy it, then your heirs certainly will!

Chart of the Week

The thing that sunk Silicon Valley Bank and Signature Bank were unreported investment losses (I covered the reasons for this in more depth in a previous update). This week’s chart looks at the health of US, EU, and UK banks after adjusting for these unrealized investment losses. Bubbles that are below the dotted line are banks that are in worse shape than their balance sheet would suggest.

In general, we can see that EU and UK banks are in much better shape than US banks, and there are still some banks that may have inadequate capital ratios should the investment losses need to be realized. As I have mentioned before, banks in crisis mode may not fail, but are unlikely to be doing much lending. That credit crunch is likely to lead to less business expansion, and, in turn, a recession.

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