VIDEO: Reader Letters, Answered
Welcome to my latest Mind Over Markets video presentation. The article below is a condensed transcript; the video contains charts and additional details.
Your emails help me calibrate editorial coverage to your real-world needs. I prefer getting your inquiries via our official address for letters to the editor: firstname.lastname@example.org. I try to answer all emails in a timely fashion.
Let’s dive into the figurative “mailbag” to see what’s on your minds. I’ve cherrypicked the emails that are most indicative of reader concerns and sentiment.
Inflation and fiscal policy…
“Fed Chief Jerome Powell held a press conference this week, during which he elaborated on the Fed’s decision to hike rates by 25 basis points. Isn’t government spending a big problem in the fight against inflation?” — Derek M.
Despite the myths you might be hearing, fiscal policy is playing a scant role behind inflationary pressures. Jerome Powell was asked that very question by a reporter at his Wednesday press conference, and I think Powell’s response nailed it:
“You have to look at the impulse from spending, because spending was, of course, tremendously high during the pandemic, and then as the pandemic programs rolled off, spending actually came down. So the sort of fiscal impulse is actually not what’s driving inflation right now. It was at the beginning, perhaps, part of what was driving inflation, but that’s not really the story now.”
The banking crisis…
“Should I be afraid of another 2008? The collapse of Silicon Valley Bank and the Credit Suisse/UBS merger have got me spooked.” — Emily S.
I’m confident that 2023 won’t be another 2008. The banking crisis has triggered volatility in equity markets, but investors are starting to regain their composure, as policymakers take decisive action. Central bankers around the world have implemented several programs and backstops to bolster cash flow for banks.
Worries linger over regional banks, but the big banks, especially those based in the U.S., remain on solid ground.
In 2018, the U.S. Congress enacted legislation that significantly loosened Dodd-Frank capital requirements on smaller institutions; we’re now suffering the consequences. But generally, the U.S. banking system is well-capitalized and able to withstand the latest pressures.
Rather than contagion, I predict a wave of mergers and acquisitions, as the big healthy banks pick up beleaguered regional players at bargain prices.
Best sectors for a recession…
“It’s increasingly likely that instead of a soft landing, we’ll soon get a recession. Which sectors are the most appealing under that scenario?” — Lucas J.
Three sectors have historically performed well during a recession: utilities, health care, and consumer staples. These sectors provide essential services that typically weather an economic downturn.
If the business cycle right now adheres to its customary pattern, these sectors are likely to outperform the broader markets.
The green rush…
“I keep hearing a lot of excitement about marijuana equities, but they haven’t performed very well. Are they overrated?” — Matt G.
It’s true, marijuana-related stocks underperformed in 2022 and as a whole, they’re not living up to their potential in 2023. But it’s my contention that pot stocks are struggling because of the broader market’s woes.
We’re in the midst of a persistent bear market, with rising interest rates and other headwinds such as overseas war and stubborn inflation. The overall stock market’s weakness has dragged down the marijuana sector.
But keep this in mind: the legalization of marijuana is a social, political, and financial revolution. Growing demand for cannabis represents a global megatrend that’s unstoppable. When we’ve put Fed tightening and this bear market behind us, the right pot stocks will explode on the upside.
Now’s the time to buy cannabis equities that are on the bargain shelf; investor patience will be rewarded.
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You can reap exponential profits in the psychotropics revolution, but you need to pick the right investments. My book is your definitive guide.
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John Persinos is the editorial director of Investing Daily.
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