September 11th seems to sneak up on me each year. This year was worse as the country is still dealing with the Corona pandemic and the overall heightened state of affairs. With kids going back to school, Labor Day and the start of the NFL season, it feels like I wake up and realize 9-11 is either the next day or very close by. I wasn’t around when Pearl Harbor was bombed but I know everyone from that generation remembers exactly where they were when it happened. My generation has the same memories of 9-11.

I vividly remember watching TV in my bathroom having just returned from a trip the night before. Glad we got back before everything ground to a halt.

Anyway, I was shaving when news broke that a plane had hit the WTC. I kept saying that it had to be false because there was no plane on the ground. I kept thinking that it had to be a small private plane. I never even considered it being a full-scale commercial airliner – that was just unthinkable. But then, the news came of a second plane, and a strike on the second tower. The unthinkable became the undeniable; the United States was under attack.  Video of the planes hitting the towers quickly dominated the television channels. As we watched and tried to accept what was unbelievable none of it made any sense. This clearly was not a military attack but the scale of it did not line up with our ideas of terrorism either.

I think back to how the day started. It could not have been more routine: Pat & I were getting ready to go about all the normal things of any normal day. I was getting ready to head to the office and we vividly remember exchanging AOL emails on what we thought was just a little “accident”. The stock market index futures were selling off after the news broke. I thought, “what a great buying opportunity”! I mean, why would people sell stocks because a plane had accidentally flown into one of the towers.

Then the second plane hit and people immediately had footage. I remember standing in my office in disbelief. Speechless. Shock. I had friends in the WTC.

As the day continued to unfold, people in my office park kept coming in to my office as we were the only ones with TV. I think everyone felt comforted to be surrounded by others. “I can’t believe this” became the refrain of the day. Over and over and over. 20 years later, we are still sad and we are still angry.

Ron’s Market Minute – What Doesn’t Keep the Fed up at Night?

A popular subject among our clients these days is inflation. Folks are showing some concern about how likely it may be to become a serious issue. Obviously, there are reasons for being concerned. The official inflation data is running at an alarmingly high rate. However, most economists think that what we are seeing has more to do with the knock-on effects of Covid-19 rather than true changes in the values of money vis-à-vis goods/services.

Covid-19 has had a huge impact on the workforce worldwide. Many people stopped working, others changed how – and from where – they work. Supply chains have been knocked for a loop causing temporary shortages of all kinds. Scarcity creates value so stuff that is in short supply can get expensive in a hurry. A trip to the supermarket, a car dealership or just perusing the prices of residential real estate are all guaranteed to raise your blood pressure. It may be a good time to take a look at what is (likely) truly going on. Let’s start with those amazing house price gains.

First a bit of trivia. How much have home prices gone up over the past year? In case you missed the headlines recently, the S&P/Case Shiller index is a reasonably reliable indicator of the yearly increase in housing costs. And their current number is now…………. a STAGGERING 19.1% increase over the past year.

This is the largest increase in the series’ history (which only goes back to 1987). The Conference board reported that consumers currently envision inflation running at 6.8% twelve months from now. These scorching numbers are allegedly sending warning signs because shelter costs make up a large portion of most inflation gauges – about a third of the headline consumer price index, and a bit more than that for the core reading. And inflation EXPECTATIONS are considered to be a key indicator of how high potential price pressures will be. 

We have an issue with that though. Home prices are not included in the current CPI measurement as homes are technically an investment, not a capital good. The BLS accounts for home prices and costs through ‘owners’ equivalent rent’, a hypothetical number that a homeowner would need to pay to rent their own home. The usefulness of that concept is questionable in our view, as it isn’t a real cost that anyone pays. Also, surveys of consumers’ inflation expectations are very changeable: they reflect how homeowners feel at the time they are asked and THOSE feelings can and do change very rapidly. 

We’d also like to point out that this is one of those concepts that we talk about at our office fairly often. Many economists believe that the current inflation is most likely transitory, in other words, temporary. In the office we do not always agree, but as I’m writing this, I’ll say that I agree. My belief is that as the base effects and supply shortages fade away over time, inflation likely normalizes like other economic data in the post-reopening. More importantly for you (and us) is that markets are also signaling that today’s inflationary pressures are likely temporary. 

When in doubt, trusting the market seems like a wise thing to do. Of course, we mean to use moderation in putting up that trust. But relatively speaking you can trust the markets more than you can trust the media who comment on the markets.

Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
10000 N. 31st Avenue, Suite C-262
Phoenix, AZ 85051
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk


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