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Cadinha Blog


The Insurmountable Obstacle

The debate about our economy sliding into a recession seems to be coming to an end in favor of “no recession.” The recession that never was…could still become the recession that’s a little late. The recent rise in interest rates is telling us that the economic conclusion for this Federal Reserve interest rate cycle still hasn’t been determined. In other words, there is no plan.

Recent comments from the Fed Chairman tell us that he’s not ready to cut interest rates. In fact, he is prone to watching the economy, looking for a reason to cut rates. The ugly conclusion of all of this is that the Fed Chairman is not leading, but rather, is following the markets looking for inflation and economic signs from day to day.

We have concluded that watching the money supply will likely tell us where we are going. Over the last year (2023) the money supply of the United States actually declined by 3%. So far this year, the money supply has been flat…no growth. Accordingly, we are beginning to feel a credit squeeze with interest rates starting to go up again. Higher interest rates, in turn, adversely affect stock prices and give us the choppy, volatile market environment that we are now experiencing. This will probably be par for the course between now and the election.

We can expect the Biden Administration to try to spend more money during the pre-election months. Much spending is likely to become reality through new regulations imposed on our economy, one industry, one company at a time.

These regulations typically do not add productivity, but instead sap cash flow and earnings into the hands of government from businesses. This part of “Bidenomics” is cumulative and has suddenly become a significant hurdle for the market.

Take the new effort to impose a $20 per hour minimum wage. A minimum wage has always been an entry level wage for new entrants into our workforce or typically a wage paid for performing the most menial tasks. Certain industries employ minimum wage employees as the tasks to be performed are quite simple. The fast-food industry hires many such employees so a new minimum wage law will wreak havoc upon these businesses. What does such a law do to the profitability of the McDonald’s food chain? What does that do to the price of McDonald’s stock as a result? We can apply the same logic across our entire economy with varying degrees of effect. How about baggage handlers and the effect on airline stocks?

Different sets of regulations have been imposed on different economic sectors of our economy. Just think about the Petroleum industry, the Healthcare industry, and the Transportation industry. They each have their own regulations which offer a particular penalty on profits.

The “regulator of all regulators,” the Environmental Protection Agency reaches into every business and industry in our country. The aggregate cost of compliance with environmental dictates is climbing annually and is paid by the private sector of our economy.

When asked “what’s wrong with the market,” we believe the aggregate effect of all government regulation and intrusion is creating an outright struggle between private enterprise and government regulations. We believe we’re reaching the point where these differences are manifesting themselves through market volatility and emotion. It is near impossible to project trends and future objectives because of this struggle.

Looking ahead, the White House has proposed a list of tax increases that will usurp more of the profits coming from risk takers (investors) in our Free Enterprise economic system. Without change, we see more choking of our economy and other freedoms. We hope that the coming election gives us the much- needed change. Until then, we think markets will be subject to news announcements and the volatility that surrounds them. Stay tuned!

Once again, thank you for your continued loyalty…

About the Author

Harlan J. Cadinha
Founder, Chairman and Chief Strategist




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