Week of 12/7/2022

2022 is in the homestretch. Now is the time to handle any remaining charitable contributions, required retirement account distributions, and other tax and calendar-related adjustments. From our standpoint, this means some tax-loss harvesting where appropriate, so some of you will see investment activity reflecting that. Please also plan to adjust your contributions to your 401k and other retirement accounts, as higher withdrawal limits come into effect in January.

This tweet’s chart is a great way to see the economic distortion caused by Covid-19 and the response to it. Goods spending continues to be above the pre-pandemic trendline, and service spending is below that same trend. Goods spending has leveled off during 2022. An interesting opinion piece about administrative bloat, from an undergraduate writer at the Harvard Crimson. A French speleologist lived in a cave for 6-months to determine the effect on the body’s natural clock when not exposed to sun, clocks, or calendars. He found that sleep cycles would adjust to 36 hours of continuous activity followed by 12 to 14 hours of sleep. If you have a few moments, visit DALL-E. It is an AI system that quickly creates images based on your verbal descriptions. Below are images that we created using the system, the first ones inspired by the mascot of our favorite college football team. For the top left we wrote, “Anthropomorphic Cougar Playing Football.” We made additional changes several times, until the last image (bottom right), which was created with the descriptor, “A photo of an anthropomorphic, brown-furred cougar wearing a royal blue football jersey, playing American football on the field of a crowded stadium, digital art.” For the second set of images, we uploaded the photo on the left, erased the hair and shirt, and added the descriptor “festive Christmas outfit.”

Q: The job numbers were really good last week. Does this mean that the Fed is going to keep raising rates aggressively? A: Headlines would make you think that the job market is on a tear, but there are signs of slowing and this is a good thing. It is strange to see a weaker job market as positive, but it is a sign that aggressive Fed policy is having an impact. JP Morgan’s David Kelly has some excellent commentary on employment, which you can read here. For the quick version, his conclusions: The job market is actually cooling down. Wage growth isn’t pushing inflation higher. Demographics rather than attitudes are responsible for weak labor supply. Employment is a lagging economic indicator while stocks and bonds are leading indicators – so don’t wait for a labor market “all clear” to position assets for a slower-growing, less inflationary economy. More detail is available in the complete article. Regarding the Fed, they will continue to respond to inflation, but have signaled a willingness to raise rates more modestly.

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