A December That Will Be Painful To Remember

Bloomberg recently stated, “December usually bodes well for the S&P 500 index, with 1.2% average gains seen over the past 30 years and just 14 negative occurrences over the past 50 years.” This year, however, we have a very different set of circumstances. December 2022 is set to be a standout exception as one of the worst last months of the year for the U.S. benchmark index since 1957.

This is exemplified by the Bloomberg Indexes year-to-date. The DJIA is down -8.63%, the S&P 500 Index is down -19.33% and the tech-heavy NASDAQ is down by a whopping -32.90%. There are “bear claws” everywhere in sight. Many pension funds, mutual funds, exchange-traded funds and closed-end funds have just gotten whopped, along with the retirement accounts of seniors and retirees.

About the only thing worse in 2022 has been crypto currencies, which I do not invest in. To me, this market is little other than an unregulated gambling casino. The total loss for 2022 now stands at approximately $2 trillion. Here is the damage in this market for this year:

Terra: -100%
Solana: -93%
AMP: -93%
Cardano: -80%
Ether: -67%
Bitcoin: -63%
Dogecoin: -55%

You may say “Ouch” whenever you wish.

You might think that the bond markets would perform well in this environment. However, this is not the case. For 2022, the Bloomberg bond indexes have also been a travesty. Treasuries down -11.97%, IG Corporates down -15.15%, HY bonds down -10.35%, MBS down -11.09% and munis down -8.28%. The fixed-income markets can be added to the list of dismal performers.

Another area of concern is the real estate markets. Mortgage rates are down slightly from their earlier highs but are still hovering around 6.00%. Then, consider that the Dow Jones Equity REIT Index, DJDBK, is on pace to shed about 25% this year, according to FactSet. This puts it in between the S&P 500 and the NASDAQ as an indication of pain in this market.

Bank of America asks a very significant question. “The bigger issue, I think, is going to be how do the borrowers refinance,” said the head of CMBS research at BofA Global. “And that’s not just on office. It’s if you’re in a property where now valuations are lower, your rate is significantly higher, how are you going to refinance successfully?”

You may look at all of this and wonder how it all came about. In my opinion, there are two drivers here. The first is the government that is borrowing and borrowing and borrowing. During the last decade, the borrowing costs were relatively cheap, as the Fed kept interest rates quite low. This, however, is no longer the case as the Fed ratchets up interest rates with wild abandon in their continuing battle with inflation.

Our current national debt now stands at $31.3 trillion, while America’s GDP languishes at approximately $23 trillion. This is not a recipe that bodes well for the United States. In fact, U.S. government estimates peg the current interest payment at $399 billion and rising to $1.19 trillion by 2032. These are just the interest payments. Refinancing is going to become a major issue, in my estimation. The Treasury Department also just reported out that our interest payments for October and November 2022 were 87% higher than what was paid out for the same two months last year. I hate to say it, but along with everything else, we might be in for some kind of national debt crisis. The only piece of good news there is that it would make the Fed, in my estimation, change course – and quickly. It wouldn’t be a pivot but a mad dash in the opposite direction.

“The four most dangerous words in investing are: This time it’s different.”

– Sir John Templeton

The world changes. The markets change. Choose the appropriate strategy and then hang on tight for the ride.

Original Source: Author

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.