(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort by way of greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities).
This article has been written in collaboration with Walt Hommerding senior vice president investment of Wells Fargo.
If the economy were a sick patient, I would say that the main symptom is that inflation is outfacing economic growth. This inflation fever looks likely to signal a mid-recession disease late this year and early next year unless conditions after the economy's current course. As in the past we expect it to prove difficult for the federal reserve (fed) physician to exactly prescribe the right interest rate dosage.
The interest rate perception should cool inflation but has the side effect of undermining borrowing spending and economic growth. And the interest rate side effects can take six to 20 months fully play out implying that an overdose is very possible. Certainly, this really tough medicine could do more harm than good, making economic and corporate earnings growth an unfortunate casualty of the treatment.
So, while the economic cycle runs faster and the interest rate increase run further, we believe the economy and capital markets will remain fragile.
Against this backdrop we are often asked when the next recession will come. We think the better question is: If there is a recession how long and deep might it be? The answer will depend on how fragile consumer and investor sentiment may be to simultaneous shocks in energy and food price inflation and to higher interest rates during the coming months. At this point, and considering the economy's current rate of slowing, we believe a mild recession seems more likely than not later this year and into early next year.
As with an illness the anticipation recession can focus so much on the risks that the anxiety becomes overwhelming. That’s a good reminder for investors when the trying times in capital markets this year as we try to make sound decisions and keep the anxiety at bay. It’s essential to keep perspective - to be neither an optimist nor a pessimist but a realist.
First we must remember that the past three years delivered exceptional market performance. Most of all we always face risk not strictly as an unknown but as something to measure and as part of a disciplined decision process to work out with an investment professional. In fact, investors weigh risk and reward, whether markets are up or down. Our strategies have asked which risks markers are playing us to take, and I am pleased to share their guidance with you.
These are the times that we must be realistic and have a positive outlook. We know the times are hard but this is the time when the boys are separated from the men. We need to do more research, more hard work once again with a positive mind positive thinking that the glass is half ful,l not half empty. I personally over the last six decades have gone through this more than once and each time the fact is this too shall pass. I have gone through not once but multiple times. This is a time to stay come, think rethink and make proper invoice decisions that don’t get blown away from the social media and other news. A good investor always does his research thoroughly. (Continued next week)
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
