Two consecutive weeks, the first never reached 80, while the second bottomed at 81.

“Wearable technology” like my Garmin Fenix 6, measures and scores my sleep. And those lines in the chart represent my daily sleep scores for two consecutive weeks.

What was the one thing I did differently to improve my sleep scores so dramatically?
I cut my caffeine intake in half. Caffeine is a stimulant, and the sleep scores indicate that I’ve been living on too much of it.

Coincidentally, we’ve all been living on increased dosages of stimulants for the past two years, as the world grapples with the impact of the Corona Virus. But it’s time to withdraw the stimulus, as the economy is clearly on solid footing and the worst of the pandemic most likely behind us.

I say that on a national scale, not a personal level. Each one of us is traveling through this mess at our own pace and I know that the situation has permanently upended many lives. My heart breaks for those lost, and those who’ve lost.

But the economics are clear. It is time for the FED to turn its attention to inflation, as it appears that for the most part, people who want to work can find jobs. And doing that requires them to reduce the amount of monetary stimulus they put into the economy, which they’re apparently doing.

But like going decaf “cold turkey,” the markets don’t like the notion of reduced stimulus and we can expect it to give us a bit of a headache as we adjust. But stimulus withdrawal is only one of the headaches facing our economy.

The backlog of container ships off the coast of Southern California is now over 100 ships, according to the Wall Street Journal. While that’s due in large part to a lack of workers (mostly truckers) and trailers, those shortages are symptoms of the underlying change in our economic structure. Don’t take these changes lightly.

The American economy is about 70% consumption of goods and services, and since the pandemic there’s been a massive shift of those consumption dollars from experiential spending to material accumulation. Instead of dining out, traveling, cruising, or attending events, we’re remodeling, RVing, driving, or riding new bikes, motorcycles, or Pelotons.

I know that many people have resumed leisure travel and social gatherings. However, many businesses restrict in-person meetings and air travel, and it only takes a small percentage of the population to eschew these pursuits in favor of buying things to create massive supply chain disruptions.
Will it ever change back to pre-pandemic normal?

Probably, but in my opinion, it’ll take a lot longer than many think.

Will they find the drivers to clear the backlog of containers in the Pacific?

Probably, but not before other ports around the country pick up some of the slack as companies like Costco, Home Depot, and Amazon charter the smaller ships that can get into those harbors. In perspective, Los Angeles and Long Beach harbors can handle ships with 24,000 containers, while many harbors are equipped for ships big enough to handle as few as 1,000 of the boxes. Those ships can navigate the Panama Canal, while the big ships are too big to squeeze through those narrow waters.

Like the pinched supply lines, labor costs are one of the important factors that impact inflation. When workers are needed, businesses raise wages to attract them, putting more money in their hands which they can then use to buy the things they want or need. When there’s a ready pool of workers, as in times of high unemployment, we don’t have that upward pressure on wages, removing one of the inflationary levers.

There is a pandemic nuance to the employment numbers, however, which is important to understand. Millions of workers permanently exited the workforce in the past two years. Many of the baby boomers simply retired, and at their ages that’s a normal process. But it appears that those retirements got accelerated by the virus.

People caring for others, especially those caring for children, found the pressure of working from home with kids running around wasn’t working and simply exited the workforce. So, the domestic workforce is a bit smaller than pre-pandemic.

And due to travel restrictions and international shipping problems, there is a big “on-shoring” movement in process. That’s companies building domestic production capabilities in response to the supply chain issues. It’s particularly evident in microprocessor chip manufacturing as many companies are building plants to supply their specific needs. Most notable are the automobile companies, but personally, the MDF crown molding we want is on one of those ships in the Pacific Ocean, so we’ve contracted a local mill to make it out of poplar so we can finish our home improvement project.
How could these problems impact corporate earnings?

Investors buy mostly for the promise of future profits and there is uncertainty about how the changes in stimulus, inflation, and employment could impact them. Uncertainty generally leads to market volatility and in my opinion, that’s the cause of the downturn we’ve seen since the beginning of 2022.

The major indexes dropped more than 10% from their recent highs[ The S&P 500 peaked at 4818.62 on 1/4/2022. It hit and intraday low of 4292.46 on 1/28/2022, a drop of 10.92%, before rallying to close at 4431.85. The Dow hit an intraday peak at 36,952.65 on 1/5/2022. It reached a subsequent low of 33,150.33 on 1/24/2022, a drop of 10.29%. All data from finance.yahoo.com. ].

On average, the markets see a 10% to 20% drop of this nature every 11 months, according to LPL Financial’s Ryan Detrick. (I’ve verified that using data from Yahoo.Finance.com.) It could take a few months to recover but remember that the problems emanate from future earnings uncertainty.

And it is my opinion that time is likely to heal these problems and the respective uncertainty abates, only to make way for new challenges. In the meantime, investors are encouraged to make sure they understand what they own and reach out to us to find out why.

Over coffee, we can discuss your goals and actions so that together we can confidently discover and pursue your dreams.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The S&P 500 peaked at 4818.62 on 1/4/2022. It hit and intraday low of 4292.46 on 1/28/2022, a drop of 10.92%, before rallying to close at 4431.85. The Dow hit an intraday peak at 36,952.65 on 1/5/2022. It reached a subsequent low of 33,150.33 on 1/24/2022, a drop of 10.29%. All data from finance.yahoo.com.

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