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Market Update - August 2022

You may have seen headlines recently that July’s inflation was 0%, which may be misleading at first glance. What it really means is that inflation did not change from June 2022 to July 2022. The reality is that common goods and services that consumers purchase are (on average) 8.5% higher than they were 12 months ago, which is not a good thing.

While this headline is not bad news, it is far from what is needed to get inflation under control. We would need several months and potentially years of deflation to get prices back to pre-pandemic levels. Historically, higher interest rates and recessions are the main drivers of declining inflation.

All eyes are continued to be focused on the Federal Reserve and what their next policy move will be. Many view their actions as too little too late, resulting in the high inflation we have today. Those same people agree that they will also continue to raise interest rates for far too long, and that will result in a deeper crash than what is necessary to tame inflation.

The current question is whether they will ‘pivot’ their policy based on July's 0% inflation. Most are forecasting that they will continue to raise rates (expectations between .5% and .75%) at their next policy meeting on September 21st.

Nancy Pelosi’s trip to Taiwan sparked a strong response from China in the last few weeks. China considers Taiwan part of China under the ‘One China’ principle. In the not so distant past, this type of visit by a high level US government official would have only resulted in strong statements by Beijing opposing the visit.

China has been growing and modernizing their military over the last 5+ years, and they now present a very real match to the US military, especially in a conflict in their backyard. Many military analysts anticipate China to retake the island within the next few years. This timeline may speed up or slow down depending on how the US implements its foreign policy.

Below is a link to a facilitating discussion between experts in military policy that discusses the short and long term consequences of a US and China conflict in the years to come. This conflict also has very real investment ramifications, because Taiwan produces the majority of the world's high quality semi-conductors.

You will hear more from us about US & China relations in the months to come because we feel it will play a critical role in the global balance of power in the years ahead.

Citrus Wealth Management

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The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Blaine Shira and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions.

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