--- title: October 2022 Macro Commentary description: The road to redemption will take many years, and investors must have advisors that know how to protect them, not comfort them. image: https://blog.foliobeyond.com/hubfs/Image%20of%20businessman%20examining%20objects%20with%20magnifier.jpeg --- [![FolioBeyond-logo-sm](https://blog.foliobeyond.com/hs-fs/hubfs/FolioBeyond-logo-sm.png?width=180&height=68&name=FolioBeyond-logo-sm.png "FolioBeyond-logo-sm")](https://blog.foliobeyond.com) Open main menu Close main menu - [Home](https://www.etfs.foliobeyond.com/) - Our ETFS Open the submenu - [RISR](https://www.etfs.foliobeyond.com/risr) - [Glossary](https://www.etfs.foliobeyond.com/glossary) - [News](https://www.etfs.foliobeyond.com/news) - [Blog](https://blog.foliobeyond.com/) - [Contact](https://www.etfs.foliobeyond.com/contact) [Inflation](https://blog.foliobeyond.com/tag/inflation) [Commentary](https://blog.foliobeyond.com/tag/commentary) [Rising Interest Rates](https://blog.foliobeyond.com/tag/rising-interest-rates) # October 2022 Macro Commentary [George Lucaci](https://blog.foliobeyond.com/author/george-lucaci) [Share this blog post on Twitter](https://twitter.com/intent/tweet?text=I+found+this+interesting+blog+post&url=https://blog.foliobeyond.com/october-2022-macro-commentary) [Share this blog post on Facebook](http://www.facebook.com/share.php?u=https://blog.foliobeyond.com/october-2022-macro-commentary) [Share this blog post on LinkedIn](http://www.linkedin.com/shareArticle?mini=true&url=https://blog.foliobeyond.com/october-2022-macro-commentary) ![October 2022 Macro Commentary](https://blog.foliobeyond.com/hubfs/Image%20of%20businessman%20examining%20objects%20with%20magnifier.jpeg) **INFLATION BLUES**   **![Image of businessman examining objects with magnifier](https://blog.foliobeyond.com/hs-fs/hubfs/Image%20of%20businessman%20examining%20objects%20with%20magnifier.jpeg?width=1000&name=Image%20of%20businessman%20examining%20objects%20with%20magnifier.jpeg)** On Friday, 10/7, the Labor Department reported that employers added 263,000 jobs in September on a seasonally adjusted basis. That was down from 315,000 in August. The unemployment rate fell to 3.5 percent from 3.7 percent a month earlier. Em­ploy­ers added 315,000 jobs in Au­gust and 526,000 jobs in July. More importantly, we have fully re­cov­ered all of the jobs lost dur­ing the open­ing months of the COVID-19 pan­demic. This tight labor market indicates that there is still a great deal of room for the Fed to feel comfortable raising rates.    Recently on CNBC, Harvard Professor Kenneth Rogoff (credited with describing highly relevant aspects of the [2008 financial institution near-meltdown](https://en.m.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008)) says we need at least a 4.5% Fed funds rate to tame inflation. Then there's Paul Krugman from Princeton, an intellectual gadfly promoting (through his NYT graph-filled Op-Ed pieces) sketchy advice. His latest 10/5 quip "… it's hard to see anything that will cause the natural rate to rise once the inflation spike is over. So, the era of low-interest rates probably isn't over after all." It's not a spike, Paul, it's endemic, and the 15-year bacchanal of low-interest rates is over.    Finally, the savvy BB King (RIP) lets us know how he feels with his ***Inflation Blues** *ballad of 1983. It applies to working families today.    *"Hey, Mr. President* *All your members of Congress too* *You got me frustrated* *And I don't know what to do* *I'm trying to make a living* *I can't save a cent* *It takes all of my money* *To eat and pay my rent…*   He had it right. Food and housing are not going down. In addition, the OPEC+ cartel led by Saudi Arabia and Russia [agreed to lower production targets](https://www.ft.com/content/9ff534c5-3b99-40d0-84f2-19b88743190e) by 2mn barrels daily, or roughly 2 percent of global oil consumption. So much for the Biden -MBS fist bump. Brent crude quickly reached $98.45 a barrel. Please don't count on gas prices mitigating CPI in the coming months, as we could easily approach $5/gal this winter.   The reality is that what happens outside our borders will affect our economy. Global warming, i.e., man-made global warming, does not respect borders, and the largest land war since WW2 has strong inflationary repercussions. Neither is going away.    History shows that inflation takes an average of 10 years to return to 2% once it breaks above 5%, according to Thanos Vamvakidis1, a strategist for BofA Securities in the U.K. That's based on decades worth of data across advanced countries - something that no CNBC pundit has even attempted to do.   What else are we missing? According to Treasury Department data, the nation's total public debt outstanding closed at $31.1 trillion last week2. With "persistently rising" debt, investors could "lose confidence in the federal government's ability to pay off its debt, which could result in interest rates or [inflation](https://www.foxbusiness.com/category/inflation) suddenly rising," according to the CBO.    Recently, Bloomberg reported that House prices in July and August posted their most significant monthly declines in more than a decade amid sky-high mortgage rates. Prices remain much higher than in 2019, having increased a whopping 45%. As mortgage rates continue to increase along with inflation, more people are being pushed out of the housing market, spelling bad news for sellers. Still, even a 20% drop in real estate will in no way retrace prices in any meaningful way to make homes more affordable for most American families. In addition, there is no relief in the rental markets in any of the 100 largest markets. How often have we heard a homeowner say: "I can't afford to buy my house today."   How about autos? Another large consumer purchase. OEMs and dealers have less incentive to take steps to bring down costs because demand is still vastly greater than supply, and given that the average age of an American car on the road is 13.1 years, that demand will only increase.   Consumers are still sitting on a mountain of [excess savings](https://www.tker.co/p/excess-savings-consumption-inflation) — the extra cash consumers have piled up since February 2020. In fact, according to Wells Fargo, consumers have accumulated as much as $2.1 trillion in excess savings during this period. That's a lot of extra spending power in an economy with a $25 trillion annual [GDP](https://www.bea.gov/sites/default/files/2022-09/gdp2q22_3rd.pdf).    For most of this year, the financial markets have been indicating that inflation will revert to pre-pandemic norms and that the Fed will pivot in 2023. Those who thought they had their finger on the pulse of the market suffered significant losses this year.   Yet by simply looking back to 1973 (history is hard to escape), financial markets research firm Bianco Research notes the Fed had never stopped hiking before interest rates surpassed the [Consumer Price Index (CPI)](https://www.americancentury.com/glossary/#Consumer_Price_Index). The chart below highlights this data. If our CNBC and Bloomberg pundits were to do just an iota of research, they wouldn't be giving such bad advice. Sadly, the retail investor and an overwhelming number of RIA's keep tuning in.    ![](https://blog.foliobeyond.com/hubfs/undefined-Oct-14-2022-03-43-54-48-AM.png) *Source: Bianco Research*     The earlier policy errors of the Fed - pumping trillions of dollars into the hand of U.S. consumers, thus laying the groundwork for long term inflation, and then refusing to quickly act when it became abundantly clear that this was the case - will continue to drive global pain and suffering for the foreseeable future.   We have a long way to go to compensate for our past fiscal and monetary indulgences. The road to redemption will take many years, and investors must have advisors that know how to protect them, not comfort them.    George Lucaci Global Head of Distribution [www.foliobeyond.com](http://www.foliobeyond.com) [etfs.foliobeyond.com](http://etfs.foliobeyond.com/)  908 723 3372 cell  [https://calendly.com/glucaci](https://calendly.com/glucaci) ---   --- Footnotes: [1 *Fed's tough task: History shows inflation takes an average of 10 years to return to 2%.*](https://www.marketwatch.com/story/feds-tough-task-history-shows-inflation-takes-average-of-10-years-to-return-to-2-11663777173) *2* [*Jennifer A. B. on LinkedIn: U.S. national debt nears $31T: What it means ....*](https://www.linkedin.com/posts/jenniferbouton_us-national-debt-nears-31t-what-it-means-activity-6975433183890702336-ScK1?utm_source=share&utm_medium=member_desktop)   Investors should consider the investment objectives, risks, charges and expenses carefully before investing. For a prospectus or summary prospectus with this and other information about the Fund, please call (866) 497-4963 or visit our website at www.etfs.foliobeyond.com. Read the prospectus or summary prospectus carefully before investing. Investments involve risk. Principal loss is possible. Unlike mutual funds, ETFs may trade at a premium or discount to their net asset value. The fund is new and has limited operating history to judge fund risks. The value of MBS IOs is more volatile than other types of mortgage related securities. They are very sensitive not only to declining interest rates, but also to the rate of prepayments. MBS IOs involve the risk that borrowers may default on their mortgage obligations or the guarantees underlying the mortgage-backed securities will default or otherwise fail and that, during periods of falling interest rates, mortgage-backed securities will be called or prepaid, which may result in the Fund having to reinvest proceeds in other investments at a lower interest rate. The Fund’s derivative investments have risks, including the imperfect correlation between the value of such instruments and the underlying assets or index; the loss of principal, including the potential loss of amounts greater than the initial amount invested in the derivative instrument. The value of the Fund’s investments in fixed income securities (not including MBS IOs) will fluctuate with changes in interest rates. Typically, a rise in interest rates causes a decline in the value of fixed income securities owned indirectly by the Fund. Please see the prospectus for a complete description of principal risks. Diversification does not eliminate the risk of experiencing investment losses. ***Distributed by Foreside Fund Services, LLC.*** ## Related Articles [![](https://blog.foliobeyond.com/hubfs/GTT%20Social%20Posts%20Page%205%20(1)-1.png)](https://blog.foliobeyond.com/risr-commentary-for-january-2023) [Commentary](https://blog.foliobeyond.com/tag/commentary) [Performance](https://blog.foliobeyond.com/tag/performance) ### [Irrational Exuberance Redux, the Fed, and a Look at 2023](https://blog.foliobeyond.com/risr-commentary-for-january-2023) #### **Irrational Exuberance Redux, the Fed, and a Look at 2023.** Our central bank's 12- year inflationary credit expansion, accompanied by artificially low-interest rates, with... [George Lucaci](https://blog.foliobeyond.com/author/george-lucaci) [Read More](https://blog.foliobeyond.com/risr-commentary-for-january-2023) [![FolioBeyond-RISR-Rising-Rates](https://blog.foliobeyond.com/hubfs/Business%20person%20holding%20a%20hot%20glowing%20upright%20arrow%20concept%20on%20background.jpeg)](https://blog.foliobeyond.com/risr-commentary-april-2022-0) [Commentary](https://blog.foliobeyond.com/tag/commentary) [Rising Interest Rates](https://blog.foliobeyond.com/tag/rising-interest-rates) [Performance](https://blog.foliobeyond.com/tag/performance) ### [How much higher can interest rates go? A lot higher.](https://blog.foliobeyond.com/risr-commentary-april-2022-0) There has recently been a lot of talk in the market, on financial news and elsewhere that basically takes the following form: *Yes, the Fed has to raise short-term...* [George Lucaci](https://blog.foliobeyond.com/author/george-lucaci) [Read More](https://blog.foliobeyond.com/risr-commentary-april-2022-0) ![FolioBeyond-logo-sm](https://blog.foliobeyond.com/hs-fs/hubfs/FolioBeyond-logo-sm.png?width=200&height=75&name=FolioBeyond-logo-sm.png "FolioBeyond-logo-sm") ### Contact (866)497-4963 risr@foliobeyond.com - Menu Item One - Menu Item Two - Menu Item Three ## Subscribe Sign up with your email address to receive news and updates. --- Important Information Before investing you should carefully consider the Fund's investment objectives, risks, charges and expenses. This and other information is in the prospectus. A prospectus may be obtained by clicking [here](https://www.etfs.foliobeyond.com/s/RISR-Prospectus.pdf). Please read the prospectus carefully before you invest. For standardized performance, please click [here](https://www.etfs.foliobeyond.com/risr). The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold or redeemed, may be worth more or less than their original cost and current performance may be lower or higher than the performance quoted. Performance current to the most recent month-end can be obtained by calling (866) 497-4963. ***Fund Risks:*** An investment in the Fund is subject to numerous risks including the possible loss of principal. There can be no assurance that the Fund will achieve its investment objective.  Equity securities, such as common stocks, are subject to market, economic and business risks that may cause their prices to fluctuate. As with all ETFs, Fund shares may be bought and sold in the secondary market at market prices. The market price normally should approximate the Fund’s net asset value per share (NAV), but the market price sometimes may be higher or lower than the NAV. The Fund is new with a limited operating history. There are a limited number of financial institutions authorized to buy and sell shares directly with the Fund, and there may be a limited number of other liquidity providers in the marketplace. There is no assurance that Fund shares will trade at any volume, or at all, on any stock exchange. Low trading activity may result in shares trading at a material discount to NAV. Please see the [prospectus](https://www.etfs.foliobeyond.com/s/RISR-Prospectus.pdf) and [summary prospectus](https://www.etfs.foliobeyond.com/s/RISR-SummaryProspectus.pdf) for a complete description of principal risks. The value of MBS IOs is more volatile than other types of mortgage-related securities. They are very sensitive not only to declining interest rates, but also to the rate of prepayments. MBS IOs involve the risk that borrowers may default on their mortgage obligations or the guarantees underlying the mortgage-backed securities will default or otherwise fail and that, during periods of falling interest rates, mortgage-backed securities will be called or prepaid, which may result in the Fund having to reinvest proceeds in other investments at a lower interest rate. The Fund's derivative investments have risks, including the imperfect correlation between the value of such instruments and the underlying assets or index; the loss of principal, including the potential loss of amounts greater than the initial amount invested in the derivative instrument. The value of the Fund's investments in fixed income securities (not including MBS IOs) will fluctuate with changes in interest rates. Typically, a rise in interest rates causes a decline in the value of fixed income securities owned indirectly by the Fund. Distributed by Foreside Fund Services, LLC.