What to do in ‘22…
Well, no one is sorry to see 2021 go, other than your stockbroker. But then again, how many business owners actually have a stock portfolio? Most of you invest everything into your business. By the way, that will give you your highest return, and you alone manage the risk.
At the end of this report is a summary of how you or your employees can secure FEMA funding for COVID funerals; this can really help some folks out.
So, what is going to happen in 2022? According to the Bureau of Labor Statistics, there are 13,080 economics professors in the United States. The odd part is, you can line them all up, arm in arm, and you still wouldn’t reach a conclusion. But, I’ll give it a go, primarily because I am not an economics professor.
Here are my thoughts:
It would be very difficult for the stock market to keep going as strong as it did in 2021 with a 25% increase, so no repeat there.
There won’t be a down market – there is still too much pent up liquidity to prevent that, but it’s going to be pretty flat.
However, interest rates will affect the market performance both from a company’s operational results as well as investors’ options for alternative investments – see the next bullet point.
Interest rates will increase by 0.75%. No magic there; that’s what the Fed told us in the last several weeks.
But here are the potential consequences:
Back in 2018, you could get a 1 year bank insured certificate of deposit (CD) that would yield over 2.25%
That same CD now is at 0.70%.
When CD’s go up, they start becoming more attractive investments and investors will – for example - sell their Apple stock with a 0.49% dividend yield and put it into a CD that is insured against loss and earning 2%.
What will it take for some investors to keep their funds in Apple? A higher dividend payout by Apple.
It’s unlikely that Apple will do that so how else does the dividend yield go up? The price of the stock would have to come down (I’m not saying it will, so hold your horses. I own Apple stock and I’m not in it for the dividend, believe me).
Yes, one can argue that Apple is almost risk-free (until China decides to involve itself in Apple’s factory), so before everyone has a hissy fit about me using Apple as an example, you can insert many other stocks in place of Apple and the principal is the same: as risk free money – bank CDs – pay more, money will leave the stock market because the payback for the risk taken becomes less compared to risk-free investments.
Remember, stocks are not risk free, they just seemed that way in 2021.
A bank CD is risk-free up to $250,000.
The supply chain thing will work itself out; that’s the nature of the market. Like a river you can dam it up, but sooner or later, it will find a work-around in spite of covid, Washington or the world’s best efforts.
A bigger issue is the shifting of the supply chain, even a little bit, in China.
When the GDP of the United States grows at a decreasing rate or actually shrinks, people are usually put out of work.
If that happens in China, Chairman Xi can only prop it up for so long before companies cut costs.
China is currently at 4.9% year over year GDP growth which is a strong number; but Xi is used to 6% to 8% growth.
China is more and more a consumer economy so if income/wages drop, they buy less of the world’s stuff, which, oddly enough, is made in China.
Dictators tend to panic at things they can’t control; so yes, China is the wild card.
Employment
California increasing it’s minimum wage to $15/hour this year for employers with 25 or more employees is a nothing burger.
Those folks are probably already making $18/hour. Or they could be if they wanted to give Amazon or the night shift at Taco Bell a shot.
A bigger issue is the aging of the US worker, but that is a long term issue and not really applicable to just 2022. However, in 2021, many folks just left the workforce and retired or started their own business.
Inflation
This is the tough one, but I think it drops towards the end of the year.
Supply chain issues will resolve themselves
Excess liquidity will decrease
A slowdown in the stock market will make consumers feel less “wealthy” than they did in 2021 and they will spend less, decreasing demand which in turn, lowers prices.
Washington will not intentionally lower the cost of gas, so that will play into it. If energy costs go up high enough…
Increasing interest rates will only slightly decrease borrowing. I say slightly because a 0.75% increase in an already low interest rate environment is still pretty darn low.
So what to do?
To me, the biggest issue in 2022 is the increase in energy and corresponding manufacturing/distribution costs.
The best business advice I ever heard was in 2010 from, oddly enough, an economist. He was ruminating about the great recession in a room of 500+ business owners. People were asking if this recession could happen again and what should they do about it? His response:
Yes, it can happen again (of course).
Then he said, that as a business owner, just ask yourself, “what would I do differently?”, answer your own question, and then implement the plan when conditions call for it.
To that end, if prices continue to increase, what would you do? You have two choices: absorb them or increase your prices to your customers.
Set a benchmark for each product or service that you offer and when those benchmarks are hit, you implement the plan that you have carefully thought through before.
This way, it’s not a panicked decision. It’s all about planning.
Getting serious now: Funerals are expensive.
Particularly if you have had multiple family members die from covid.
FEMA – Federal Emergency Management Agency – has funds available to pay for funerals for people that directly or indirectly died from COVID-19.
Up to $9000 per service.
Cap of $35,500 for the family for each fiscal year.
You need to produce a death certificate that shows the cause or related cause of death was covid.
You need to produce invoices/receipts to document the funds spent.
The date of death must be January 20, 2020 or later.
If you have had employees or family members of employees pass away from covid, this help is immense. Please use this information and pass it on to whoever may benefit.
Here is the link: https://www.fema.gov/disaster/coronavirus/economic/funeral-assistance
All the best for 2022!
