Physicians' Guide to Wealth

A guide for anyone pursuing financial independence

Q
Separating Global Economy

Apr 13, 2022

T

he world economy has always had a variance in the speed at which countries were growing or contracting in any given year. The growth of each country would be ahead or behind the global average based on their unique circumstances that would, including demand for their products or services, labor policies, government corruption, crime, weather, earthquakes, etc.
The Arab nations have thrived for decades based on the demand for their primary product of oil. Other nations benefit from their unique assets, which may include agriculture or cheap labor.
 
However, in 2020 government officials worldwide acted in unison in response to Covid-19 with very strict health policies and societal restrictions on their activities. All economies also, in unison, crashed as unemployment soared. The predictable financial tsunami of economic disruption materialized in late 2020 as countries tried to balance health policies with economics. The recovery became even more complicated in late 2020 and 2021 as politicians decided this was a good time to begin major social experiments of long-standing policies on crime, homelessness, education, and energy.
 
In the last several months of 2021, it appeared government officials around the world were on the same agenda of reducing their pandemic views of Covid-19 and relaxing restrictions on their citizens and business owners. However, entering 2022, this apparent census dissolved, and now health policies are widely divided as governments have responded with significantly different policies in response to Omicron and other variants.
 
On February 9, 2022, Sweden announced, effective April 1, the removal of all entry bans on foreign citizens allowing all travelers to enter without any negative test results, certificate of recovery, or proof of vaccination. China has taken a completely different tack and reinstated severe restrictions on its citizens, locking down the entire country of Hong Kong and requiring every citizen to be tested over a two-week period (imagine the lines at 6’ separation). The result is the global economy is separating as governments and businesses realize they can’t depend on their normal foreign providers and look to develop more local resources. China, Russia, and Korea have added more complications to global synergy with their acts of war that have divided countries into camps either for or against these actions.
 
 
The US looks very favorable to most other nations around the world. The US economy in many key indicators is back to or above the same level as in 2019 that including unemployment, corporate profit, consumer confidence, and wage growth. Our Federal Reserve is implementing mild pro-active policies against rising inflation with last month’s discount raise of 0.25% with strong investor support rallying the Dow Jones up 1320 points that day.
 
However, the US, with 50 states, has almost all the same variations represented around the world. Some states are still adhering to 2020 health-related restrictions (California, New York, Washington, Wisconsin), while others were the early adopters in 2021 of relaxing health-related bans on their citizens (Texas and Florida). The results are the same variations of economic growth as the states with greater restrictions are experiencing the greatest levels of unemployment, homelessness, population decline, and debt. Unfortunately, politicians in these same lagging states took this moment in time to implement controversy and unproven social experiments that resulted in more crime, homelessness, and discontent. The result is the continued widening of growth between states as the states recovering the slowest may continue to experience a diminished recovery for decades due to the devasting departure of businesses and residents to states with a more favorable culture for businesses and families. California, due to its population decline, lost for the first time in history two electoral votes while Texas gained two electoral votes.

What Does This Mean to Me?

Despite the differences in growth among the states, the US remains one of the most favorable economies to invest in. The combination of a stable world currency, economic growth, low unemployment, rising wage growth, and freedoms for people and businesses provides investors around the world the confidence to deposit funds into our financial institutions and the stock market. Without question, there are many challenges the US is facing that include significant government debt, rising inflation, changing energy policies, a heated housing market, and remaining impacts from Covid.
 
The major indices started 2022 with the start of a correction after nearly a two-year rally. The S&P 500 formed a double bottom on March 8th and 14th that remains the low for the year.
 
Since then, the index recovered 50% of the year-to-date decline rising above its 20 Day Moving Average (DMA), 50 DMA, and 200 DMA. Recent selling has brought the index back to all three DMA’s. We maintain our favorable rating on the US economy and stock market and believe the events occurring around the world will remain a favorable tailwind for the US.
 
Let us know if you have any questions about this Brief or your account. As we have mentioned in prior Briefs, to build wealth consistently, you need to buy low and sell high. Investing during periods like 2022 are buying opportunities that later become profits when situations are resolved and economies resume former days of growth.

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