Bob’s Journal for 9/29/22

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The Forces Behind the Dollar’s Surge

High inflation in the United States often leads to a decline in the dollar. That isn’t the case in 2022.

Currencies usually make small moves against each other. But so far in 2022, the dollar is up 19.66% against a basket of other currencies.

The dollar appreciated 5.29% in the last four weeks and 22.29% over 12 months. One factor is the energy crisis.

The United States hasn’t been affected as much by the current energy crisis because it became a net energy exporter over the last decade or so. The rest of the developed world, however, has been hit harder by supply shortages and rising energy prices.

That’s a major reason for sharp declines in the euro, pound and yen. Energy exporting countries have done well, as shown by appreciation in the Australian and Canadian dollars.

Monetary policy is another factor. The Federal Reserve has been tightening policy in the United States more than other central banks have done. Rising interest rates make the dollar more attractive than many other currencies.

Economic growth in the United States also supports the dollar. Global investors remain attracted to U.S. assets despite price declines in 2022, because the U.S. economy still is stronger than many others.

This combination of factors supports the dollar against many other currencies. The dollar’s strength also is a reason gold has languished in 2022 despite high inflation.

How Inflation Affects Stock Prices

Many investors want to know if stocks serve as an inflation hedge.

The economy and stock markets aren’t that straightforward. Some companies and stocks tend to do well when inflation is persistently high. Others don’t.

Some companies have consistent or sticky demand because their output is essential. Many infrastructure companies, such as utilities, are in this category. Companies that manufacture or sell consumer staples, such as basic food products, also have stable demand and pricing power.

Other companies have pricing power because demand for their services or products is stable. Their customers are likely to continue buying regardless of price increases. They’ll reduce spending on other items when money is tight.

Another type of company that does well during inflationary times is one that has the flexibility to maintain profit margins by reducing costs when inflation is high.

In a typical period of high inflation, companies that do well tend to be those that provide business services, some types of financial services (such as payment processors), bulk retailers and warehouse stores, dollar stores, some industrial and commodity companies and consumer staples providers.

Underperformers usually are airlines, automobile manufacturers and retailers, technology manufacturers and durable goods manufacturers.

Some companies have inconsistent performance during inflationary periods.

Sellers of discretionary and luxury goods are a prime example. When the wealthy maintain their purchasing power, they’re likely to continue purchasing these goods despite rising prices. But in some inflationary periods even the wealthy feel the pinch of higher prices and skip or defer purchases of nonessentials.

Restaurants, travel companies and other leisure companies also fall into this category. Sometimes people will continue treating themselves to these nonessentials when prices are rising and cut back on other areas. Other times, people will reduce their leisure consumption.

Part D Prescription Drug Premiums Are Declining

In 2023 the average premium for a prescription drug policy under Part D of Medicare will decline.

The Centers for Medicare and Medicaid Services (CMS) announced that the average basic monthly premium will decline by about 1.8% to $31.50 from $32.08 in 2022.

That doesn’t mean the premium for your policy will decline. Each policy is different; premiums are set by the insurers that issue the policies. Some premiums will rise, though the average is declining. Review the statement of plan changes for 2023 that you should have received in the mail in September. If you didn’t receive it, call the insurer or check its website.

Also, review other changes in the policy. Some insurers reduce premiums by increasing copayments, coinsurance and deductibles.

Other insurers change the classification of some medications. A medication that was in Tier 1 (the lowest-cost category) in 2022 might be in a higher tier in 2023.

Open Enrollment for Part D and other parts of Medicare is from Oct. 15 through Dec. 7. Any changes you make during this period will take effect January 1, 2023.

Be sure to review changes in your Part D policy (or your Medicare Advantage plan prescription drug benefits) soon. If the changes will increase your out-of-pocket cost substantially or you aren’t happy with your policy, contact a local insurance agent and review alternatives in your local market.

The Data

Existing home sales declined 0.4% in August from July’s level and were 19.9% lower than 12 months earlier. The number of sales of existing homes in August was the lowest since May 2020.

Pending home sales, which usually forecast existing home sales in a couple of months, declined 0.2% in August, following a 0.6% drop in July. Over the past 12 months, pending homes sales are down 24.2%.

The Kansas City Fed Manufacturing Index for September increased to positive 2 from negative 9 in August. The survey of manufacturers generally found that activity was sluggish, but employment increased, and businesses reported being moderately optimistic about the coming months.

The Dallas Fed Manufacturing Survey had mixed results. The general business activity index derived from the survey declined again to negative 17.2 in September from negative 12.9 in August.

But the production index, which measures manufacturing activity in Texas, increased to 9.3 in September from 1.3 in August.

New orders declined for the fourth consecutive month, but the growth rate of orders dipped less than the previous month. Shipments and capacity utilization improved.

The Richmond Fed Manufacturing Index improved to 0 in September after falling to negative 8 in August. Durable goods orders declined 0.2% in August, and July’s report was revised down to a 0.1% dip in orders.

But core capital goods orders, considered a good indication of business investment, increased 1.3% in August. July’s core capital goods orders were revised higher to a 0.7% increase from June.

Home prices declined 0.8% in July, according to the S&P Corelogic Case-Shiller Home Price Index. That follows a 0.4% increase in July.

Over 12 months, the index increased 16.1%, down from 18.6% in June.

That’s the third consecutive month that the 12-month increase was lower than in the previous month. The July number also is the lowest 12-month increase since April 2021.

The National Composite Index that is issued with the Home Price Index had a 12-month increase of 15.8% in July and 18.1% in June. The gap between those two numbers is the largest monthly deceleration in the history of the index.

The FHFA House Price Index had similar results. It had a 0.6% decline in July, compared to a 0.1% increase in June. Over 12 months, the FHFA index increased 13.9% as of July, down from 16.3% as of June.

New home sales were 28.8% higher in August than in July, the highest monthly increase since June 2020 and the highest number of sales in five months.

The median sales prices of a new home reached $436,800. That’s an 8% increase over 12 months and the smallest 12-month jump since November 2020.

Consumer Confidence, as measured by The Conference Board, increased to 108.0 in September from 103.2 in August. August’s level was almost six points higher than in July.

New unemployment claims increased by 5,000 to 213,000 in the latest week. Continuing claims declined a little to 1.379 million from 1.401 million. Continuing claims lag one week behind new claims.

The Markets

The S&P 500 lost 5.39% for the week ended with Tuesday’s close. The Dow Jones Industrial Average fell 5.12%. The Russell 2000 decreased 7.00%. The All-Country World Index (excluding U.S. stocks) declined 6.46%. Emerging market equities retreated 5.84%.

Long-term treasuries lost 4.99% for the week. Investment-grade bonds fell 4.49%. Treasury Inflation-Protected Securities (TIPS) declined 3.46%. High-yield bonds decreased 3.51%.

On the currency front, the U.S. dollar rose 3.90%.

Energy-based commodities lost 5.31%. Broader-based commodities fell 6.54%. Gold declined 2.31%.

Bob’s News & Updates

My next book will be “Retirement Watch: The Essential Guide to Retiring in the 2020s.” The official publication date is Jan. 3, 2023. You can make a pre-publication order or learn more about the book by clicking here and here, respectively.

My latest book is “Where’s My Money: Secrets to Getting the Most out of Your Social Security.” It’s received mostly five-star reviews on Amazon for telling you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on Amazon.com or Regnery.com.

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.

A recent five-star review of my book, “The New Rules of Retirement” on Amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my Amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.

P.S. Orlando Money Show, Oct. 30-Nov. 1, Omni Hotel ChampionsGate, Florida: Join Steve Forbes, Ed Yardeni, Mark Skousen, Bryan Perry, Bruce Johnstone, Terry Savage, Keith Fitz-Gerald and me. For more information, go to: Carlson.MoneyShow.com. Use code 05774.