By Morgan Christen
CFA, CFP, CDFA, CEO and CIO
Welcome
Over the last month I learned a few new phrases, one being “and Bob’s your uncle.” The phrase is commonly used in the UK and means “and there it is” or “and there you have it.”
So with that, I might say: 1971 was a pivotal year in the U.S., and Bob’s your uncle.
Let’s discuss the highlights of 1971…
The top single was “Joy to the World” by Three Dog Night along with Van Morrison’s “Domino,” the Rolling Stones’ “Brown Sugar” and Marvin Gayes “What’s Going On?” – the year music journalist David Hepworth called the best year in rock ‘n’ roll history. Cup O’ Noodles, launch of FedEx and McDonalds’ Quarter Pounder all mark 1971 as their birth year.
Culturally we had the ratification of the Twenty-Sixth Amendment, lowering the voting age from 21 to 18. Another big move was the U.S. currency being de-linked from the gold standard as President Nixon severed that connection. Since 1944, the dollar equaled 1/35th of an ounce of gold. We also saw the beginning of a massive surge in inflation.
Serving as Fed Chairman from 1970 to 1978 was Arthur F. Burns. Burns, history has shown, was overly influenced by political pressure during his time at the Fed. He was known as a person who despised inflation yet allowed easy access to credit per instructions from Nixon, solidifying his legacy as the Fed Chairman who allowed inflation to run rampant.
This led to Fed Chairman Paul Volcker’s appointment in 1979 to crush the surging inflation by slamming the brakes on the economy, pushing interest rates as high as 20%.
Flash forward to 2023. In his speech at Jackson Hole, WY, current Fed Chairman Jerome Powell was quoted as saying “although inflation has moved down from its peak – a welcome development – it remains too high. We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainable down toward our objective.”
Chairman Powell does not want to be the next Burns, so expect rates to be higher for longer. If you are a saver or have fixed rate debt, you are doing well in this environment. If you have variable debt or are looking for a home mortgage, you are not thrilled.
Looking forward
For now, it seems that we may have avoided a recession, as unemployment remains low and Americans are still spending. We have spent billions to see Taylor Swift as well as Barbie. By the way, the Barbie camper was released in 1971.
We are nine months into 2023 and traveling like never before, although less in the RV and more in airplanes. Retail and restaurant sales have also continued to climb and are not going back to the Fed 2% inflation target any time soon.
Will Powell succumb to political pressure and cut rates? It doesn’t appear he will. We will soon be entering the final quarter of the year with hopes that markets will bring joy to the world. And Bob’s your uncle.
We thank you for your continued support and look forward to speaking with you.
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