Advisors: The vital message you must give your clients today
Ric Edelman: It's Thursday, January 5th. Welcome to my podcast. Inflation hit a four decade high in 2022. I am very disappointed. You know exactly what happened. The price of wheat in France was up 30%. In Hungary, the cost of bread is up 77%. In Croatia, Estonia, Latvia, Lithuania, Poland and Slovakia, bread prices are up over 30%. In Germany, bread prices are up 18%. Overall, the cost of food in the European Union is up 16%. It's up 14% in Great Britain. Energy prices are up even more - 40%. We're seeing this all over the place. Nestle raised prices 10% in just the third quarter of last year. The Department of Energy here at home says heating costs might jump 30% this winter.
And David Solomon, the CEO of Goldman Sachs, says there's a good chance there's going to be a recession in 2023. Jamie Dimon, the CEO of JPMorgan Chase, says the same thing. And Jeff Bezos, he also says the US is headed for a recession. And Elon Musk says we're headed for a recession too.
They're not the only ones who are saying this. Bloomberg's economists say that the chance of a recession is 100%. That's not a chance. That's a guarantee. And the Fed has released a survey of economists nationwide, and they put the probability of a recession this year at 63%. Only 49% said that in July. From 49% to 63%? This is the first time since 2020 that more than half of economists say a recession is in our future. U.S. business owners are saying the same thing. In a separate survey by the Fed, business owners say that they expect economic conditions to get worse because of high inflation and rising interest rates.
And it's not just an American thing. This is a global thing. The IMF, the International Monetary Fund, has issued its forecast of the global economy for 2023, and they call it very painful. 2023 will be the worst year for the global economy since 2001, according to the IMF. And their chief economist says 2023 will be the darkest hour for the global economy. And the country that is going to suffer the deepest recession of any country in the world this year? Russia. Like any of us give a shit.
There are dozens of stocks that have had the terrible year in 2022. In fact, dozens had the worst year in more than a decade. Disney had its worst year since 1974. Intuit had its worst year since 1996. Costco, Starbucks, Pfizer - they had their worst year last year since 2008. Nike had its worst year since 1997. Tesla and Facebook, they had their worst years ever.
In fact, some companies didn't even have a bad year. They had a bad day. FedEx stock fell 21% in a single day. Tesla ended the year down 65%. Signature Bank and Meta Platforms - thee parent of Facebook down 64%. PayPal was down 62%. Stanley Black Decker, Carnival Cruise Lines, Warner Brothers, they all fell 60% in price last year. Caesars and Lincoln National were down 55%.
And it's not just the stock market that had a terrible 2022. So did the bond market. U.S. Treasuries, supposedly the safest investment in the world, lost money last year. The Bloomberg US Treasury index fell 12.5%, the worst loss in the 40-year history of that index.
And by the way, that was two years in a row of losses in Treasuries. But you don't have all of your money in stocks. You don't have all of your money in bonds. You have a diversified portfolio, the classic 60/40 - 60% in stocks, 40% in bonds. A 60/40 portfolio, according to Bloomberg last year, fell 20% in value. That's as bad as it was in 2008.
And so what are people feeling today about 2023, given how horrible it was in 2022? Well, Bank of America just released its monthly survey of fund managers around the world. And according to the bank, the sentiment going into the new year screams capitulation. Investors have more of their money in cash than at any time since 2001. 49% have less stocks than at any time in the past 22 years, and 83% expect global profits to drop this year. And the investment that investors say is going to make the most money this year? Cash.
Now, what does all this mean when we add it all up? Does it mean that with the horrible year of 2022, with everybody crying and screaming and calling for recession in 2023, does that mean that you should have all of your money in cash, that you should sell your stocks, sell your bonds, get out of those mutual funds and ETFs and run to the safe haven of cash?
No, no, no. You're missing the point. This is one of the most important messages that I can provide you going into the brand-new year. Everything that I have just cited, all the statistics, all the data everywhere from the IMF to Bank of America's survey of economists and money managers, everything everybody's talking about pertains to the economy. Replay this podcast, listen carefully to what I was describing. Everybody's talking about the economic environment. Nowhere has there been conversation about the stock market.
The Stock Market Is Not the Economy
There's a huge difference between the economy and the stock market. We have to remember that the stock market is a leading economic indicator. Remember, there are three kinds of indicators: leading, lagging and coincident. A lagging indicator tells you what already happened. A coincident indicator tells you what's happening now and a leading indicator tells you what's going to happen.
The stock market behaves first. The stock market anticipates what's coming next in the economy. The stock market fell in 2022 before the economy went into recession. And because the stock market fell before the recession, it will recover before the recession is over. The stock market is telling us what's going to happen, not what already did happen. We need to keep that fundamental point in mind.
2023 very likely is not the year to flee from stocks. 2023 is likely the year to be invested in stocks. Oh, I'm not suggesting that the market's going to necessarily do great in the first half of the year, but I fully expect that by the end of the year, stock prices will be higher than where they are today. That's what you need to keep in mind. And if you're like most clients, if you're like most investors, this year isn't really all the year that matters. What really matters is 10 years from now, 20 years from now. And I think we can all agree that prices will be much higher in the distant future than they are today. So let's not get overly pessimistic. Let's not get too focused on today's news. Let's make sure we're not investing in the future by looking behind us. You don't drive your car by focusing on the rearview mirror. You focus on what's in front of you, not what's behind you. If you're an investor, don't get caught up in all the conversation about recession.
And if you're an investment advisor, make sure you're helping your clients stay focused on what matters most. And that is the recognition that conversation about the economy is not the same as conversation about the stock market. If anything, stock prices are a bargain today compared to one year ago.
You've got to ask yourself, are you a buyer or are you a holder or are you a seller? If you're a buyer or a holder, you should be thrilled at prices today compared to a year ago. And if you're a seller, that means you're probably doing something wrong with your financial planning because you shouldn't have to sell investments while prices are down. That speaks to the need for ample cash reserves, and it speaks to the need for an effective financial plan.
Investment advisers should be able to use the economic environment to your advantage in serving your client, and individual investors need to make sure you understand the proper parameters that you're dealing with. So there you have it. Stocks are a leading economic indicator. They go down in anticipation of recession and they rise in anticipation of economic recovery.