In 2021, worldwide, the costs of the ten worst disasters caused by climate change totaled more than $170 billion. It was the fourth time in the last five years that we have suffered that level of damages. Scientists expect next year to be even worse.

 

Insurance companies, like Zurich-based Swiss Re, bear the brunt of the costs of extreme weather. During the last decade, losses have been rising 5-6 percent per year, according to Swiss Re's recent analysis. They expect at least one $10 billion catastrophe, such as severe flooding, a winter storm, or a massive wildfire will be part of the new normal in weather changes.   

 

What is worse, more than ever before, extreme weather events are striking densely populated areas. That is one reason why these disasters are so costly. As we continue to spew greenhouse gases into the air, as global temperatures continue to climb, scientists believe that future annual insurance losses will continue to far exceed the $100 billion mark.

 

Hurricane Ida, according to a U.K.-based, non-profit organization called Christian Aid, took first place in U.S. damages in 2021. The August storm made landfall in Louisiana as a Category 4, costing $65 billion in damages as it made its way across the Eastern part of the country. July's Western European floods came in second with a price tag of $43 billion. In February 2021, the winter storm that paralyzed Texas, damaging the state's electrical grid, racked up $23 billion in losses.  

 

While Louisiana was dealing with Hurricane Ida, China's Henan Province was hit by massive flooding, accounting for $17.6 billion in destruction. British Columbia saw record-setting rainfall in November 2021, which cost Canada $7.5 billion.

 

Some of the other disasters that didn't make the grade, but cost billions of dollars, nonetheless, were Cyclone Yaws in India and Bangladesh, Australian flooding in March that displaced 18,000 people and cost $2.1 billion in damages, the Parana River drought in Latin America, which impacted jobs and lives in Brazil, Argentina, and Paraguay. I could go on and on.

 

But by no means does this partial list of climate disasters accurately reflect the total cost of climate change in 2021. These damage assessments were completed, for example, prior to the Dec. 11, 2021, six-state trail of devastation caused by more than 40 tornadoes in the U.S. Costs of that catastrophe are estimated to total $3.7 billion. It will be months before we know the true costs of climate change in 2021.

 

Unfortunately, most experts tend to focus on the financial costs to wealthier countries, which typically have higher property values. It is also in developed nations that insurance companies conduct most of their business. Many of this year's worst weather events have occurred in poorer nations, which have contributed far less to climate change, but have suffered disproportionately more in lives lost and in suffering.   

 

In the beginning of 2021, 17 scientists in Australia, Mexico, and the U.S. co-authored a perspective paper in the journal "Frontiers in Conservation Science." They concluded that much of humankind was in a state of denial when it came to climate change. I happen to agree with that view. As we draw closer to a "collapse in civilization as we know it," governments and political parties all but sit on their hands as the world burns.

 

For example, President Biden's infrastructure bill earmarked $47 billion to help communities to prepare for a new age of climate catastrophes. That was far less than the $88 billion in costs of just two of the nation's extreme weather events this year. And yet members of both political parties fought tooth and nail to reduce that amount!

 

The worldwide pandemic is small potatoes, in my opinion, compared to the era of devastation that we are now entering. Get real, people. The loss of biodiversity, climate disruption, unbridled human consumption, and exploding population growth, if left unaddressed, will make the lives we live today ecologically unsustainable.

 

While we may all be shocked, (even worried for a day or two) by 40 tornadoes overnight in six states, imagine what will happen when downtown Manhattan, Chicago, or Boston experience similar events. Unfortunately, by then it will be too little too late.

 

The continuing volatility in the stock market is troubling. It is likely signaling difficult times ahead as early as January or February 2022. As such, it is time to consider risk management.

 

After over a decade of steadily rising equity prices with few interruptions, investors have been lulled into believing that investing in stocks is a riskless game of never-ending profitability. Newcomers to the stock market arena, like your typical Robinhood investor, have been using stocks to supplement, or even replace, earned income.  Unfortunately, I believe we are entering an environment where the investment themes are changing to our detriment.

 

The most important change I see has been the pivot in the Federal Reserve Bank's monetary policy from dovish to hawkish. The Fed's focus switch from full employment to combating inflation is expected to reduce liquidity in the markets. That decline in liquidity, which has been supporting the financial markets for years, is going to impact the equity markets negatively. I believe that process has already begun. 

 

Inflation, one of the worst economic aftershocks of the pandemic, is the second variable that I see impacting stocks and bonds. Do I expect a hyperinflationary environment in 2022? No, but I do believe inflation will remain persistent throughout most of the year before subsiding. A little inflation, experts say, is good for stocks. That's probably true, but we are beyond "a little" at this point. Inflation is impacting corporate earnings, reducing profit margins, and forcing many companies and small businesses to raise prices.

 

That leads me to believe that in the first half of 2022, a lower level of corporate earnings will not be able to justify the present price levels of the stock market. As earnings and guidance weaken somewhat, so will the stock market. That is not a good environment for further market gains.

 

The economy will also suffer. Consumers, thanks to continued price increases, may reach a point where they curtail some of their purchases. They may focus on buying things they need, like consumer staples, as opposed to things they want. That will slow the economy. As a result, we could live through a few months that could best be described as "stagflation." That means a slowing economy and rising inflation.

 

I think that this stagflation, if it were to occur, would be a transitory event. By the second half of the year, we could see inflation begin to moderate (as supply shortages are resolved) and the economy grow, even if it is at a slower rate. If all the above were to occur, it would put the Fed between a rock and a hard place. They may be forced to choose between protecting Main Street from the crippling effect of further rises in inflation. But if they do raise interest rates, as they intend to, they risk precipitating a serious decline in the stock market.

 

What therefore should an investor do as we enter the New Year? In the very short term, nothing. We may still enjoy a somewhat abbreviated Santa Rally next week. I expect a possible pullback on Monday into Tuesday and then up again for a day or two. No different than what we have been dealing with for the last few weeks. Overall, therefore, I see a bigger chance that the markets will gain a little more between Christmas and New Year.

 

I expect that positive momentum to last through the first half of January 2022, but beyond that I am expecting trouble. A double-digit decline in the stock market (20 percent-plus) sometime in the first quarter would not surprise me. It could happen as early as the third week in January and last through February or beyond.

 

At the very least, investors should reduce risk. And there is no guarantee that "buying the dip" will work this time around. And even if it does, the equity rewards may lie elsewhere. International markets, for example, or commodities, or both may hold better promise than stocks in the U.S.

 

For those who have been managing money on their own, I advise you to seek out a professional investment manager and do it quickly. The coming environment will demand experience, knowledge, and a cool hand. If you need advice on how or whom, give me a call or send me an email.

 

In the meantime, have a happy holiday season and enjoy the last move higher in the stock markets.

 

Individual investors have had a decade or more of gains, compliments of a stock market that has gone up with few interruptions. But as we enter a new era of tighter monetary policy, the road ahead may be a bit rockier than most investors expect. As such, it might be time to enlist a little professional help to preserve those profits.

 

There is a saying on Wall Street that just about anyone can make money in a bull market. That may be a bit harsh. I don’t want to denigrate the efforts of so many who work hard at managing their own retirement portfolios. Some work diligently at following the markets and have made it a full-time occupation. Most others "dabble" with the aid of newsletters and columns like this one. That may have worked well up until now, but I fear we are entering a new stage of the market where a weekly column like mine just won’t be enough to protect your investments.

 

I recognize that if you are like me, you hate to spend money on something you can do yourself, especially if you have been making money by buying dips and staying invested. If this bullish trend continues, why would you even consider paying fees to a money manager?  

 

For the same reason you don't fix your own computer, washer/dryer, or put on your own new roof. Notice in each case I used an example where something broke down or malfunctioned. That has not happened yet in the stock market. Afterall, we are only a percentage point or two away from all-time highs. But what would happen if the stock market suffered a 20 percent decline? Well, just buy the dip, you might say, right?

 

What would happen if you were right, but after the sell-off, dip buying worked, just not in the case of U.S. equites? Let's say international securities bounced back, but U.S. equities did not. Are you prepared to navigate changes like this?

 

And do you have the time to do that? Up until recently, your portfolio was probably on auto-drive. A daily check on the markets, maybe a brief read of the occasional research note was sufficient to keep you on the straight and narrow. But the fact is that more than 75 percent of individuals investors, according to Fidelity studies, do not have the time, knowledge or experience to be confident in their investment choices.

 

I will be the first one to tell you that reading my weekly columns is not going to cut it. Sure, I have a good track record in calling the turns in the markets and possible investment choices over the years. But what I don't know are your backgrounds, your investing plans, nor your risk tolerance, tax status, spending behavior, retirement issues, or your estate and long-term care plans. That is why my advice will always remain generic. In down markets you need a lot more than that.

 

Now many investment advisors simply manage money, and don't get involved with financial planning. I believe that is a big mistake. Most investors, regardless of age, should seek an investment advisor that does both. How else can a professional craft an investment portfolio with the right risk profile that considers all your life factors. Many of those details are as important (or even more important) than how much money you win or lose over a day or month within the vagaries of the market.

 

Another important reason to consider a financial advisor is in order to keep your emotions in check. Personally, I expect a serious correction in the stock market in January-February 2022. If so, some investors could lose most of the profits they made in 2021. How much pain can you absorb? Does your present portfolio reflect the proper risk you are willing to take, or has it become more aggressive over time? If you are like most people, you have no idea. But I will bet your risk taking is higher than it should be.

 

History says that individual investors tend to hold on, suffer through the pain of a declining market only to sell at the bottom of a big decline. Don't allow yourself to be one of those casualties. The time to act, reduce the risk in your portfolio, and prepare for this pain trade is now. A professional portfolio manager can help you do that and be there for you when you are convinced the world is coming to an end.

 

The purpose of this column is to scare you into getting off your butt. Most people won't make a move until they absolutely must. Sure, I could give you all those boring, financial arguments that you read (and ignore) all the time. Fear is a great motivator, however. Pick up the phone and set up an appointment now, don't wait until it is too late. If you don't know who to contact, call, or email me. Given my background, plus 40 years of investment experience, I will work with you to determine someone appropriate given your circumstances.  

 

As most investors expected, the Federal Open Market Committee announced the start of their tapering effort but doubled the pace of the monthly taper to $30 billion a month until March 2022 when the effort will conclude. In addition, FOMC members see three, 25-basis-point increases in the Fed Funds interest rate next year, and more in 2023.

 

Faced with the end of a decades-long era of loose monetary policy, historical behavior would indicate interest rates up, equities down. That still seems a good bet despite the market's immediate reaction to the Fed announcement.

 

Some participants may still be scratching their heads after Wednesday's (Dec. 16) Federal Reserve Bank meeting this week. Normally, an announcement that monetary policy has pivoted to tightening and will likely continue over the next several years would send stocks lower. The opposite happened. Stocks went up. The S&P 500 Index jumped more than 1.5 percent, while the NSDAQ climbed 2.28 percent. The dollar declined, the VIX (the fear Index) dropped below 20 and commodities rallied.

 

There may be two reasons why the initial reaction to the announcement was contrary to expectations. During Monday, Tuesday, and most of Wednesday, the stock market dropped continuously with the S&P 500 declining by about 100 points. The tech-heavy NASDAQ did even worse. In my opinion, investors went overboard in discounting the Fed's negative news (which was largely already known by the markets). It was a classic "sell the rumor" market play. Jerome Powell and his band of monetary men failed to deliver anything more negative than what was expected, so the signal flipped to "buy the news."

 

The second explanation might be that despite the Fed's intention to raise interest rates next year, some on Wall Street doubt that will occur, or if it does, at a slower rate than the Fed has telegraphed. Why would that be the case?

 

There is a growing belief among some in the financial markets (including myself) that the first, and possibly second, quarter of 2022 may not be as strong as many expect. A combination of continued supply chain bottlenecks, higher inflation, and a winter surge in the infection rates of the coronavirus mutations (Delta and Omicron) could combine to slow economic growth.

 

If so, the Fed may not be willing to add to a slowdown by raising interest rates. It may also call into question how strong corporate earnings and guidance might be. And even of the Fed did try and raise interest rates with that background, the stock market would swoon. That would make the Fed quickly rethink further hikes in my opinion.

 

You might ask how the Fed's pivot to tightening might impact your investments in the stock market? My initial response is not encouraging. The market's upward response to the FOMC was all about the absence of additional negatives. There was nothing in the statement that was positive for equities. If you have been managing your portfolios on your own, I would advise you to hire good investment adviser — pronto.

 

The market action during the past few weeks is troubling. Professional investors are deleveraging. They are getting out of high-priced stocks with little or no earnings. Underneath the averages, many stocks are getting clobbered. Defensive stocks such as consumer durables, Real Estate Investment Trusts (REITS), telecom, and health care stocks are getting a bid, while all but the top five or six tech stocks (the FANG stocks) are being sold.

 

As I said last week, equity strategists are all over the place in their 2022 predictions. What that tells me is that they don't know what is in store for the markets in 2022. As for me, if I just look out to the end of the year (2021), I see continued volatility. Sure, next week we could see the markets bounce, but I have my doubts that we will see a normal end-of-the year Santa Rally.

 

The VIX still hovers above 20, which means volatility will remain high. Day to day, rotation between sectors seems to be increasing without rhyme or reason. The rally after the Fed announcement on Wednesday was sold down on Thursday with the technology sector erasing all its' gains. The smart money seems to be gravitating towards defensives, or if they are inflation bulls, moving into commodities.

 

I would be especially cautious as we move into the new year. It would come as no surprise to me if we were to see a substantial pullback. One larger than any we have experienced in 2021. It's time to get an investment adviser.

 

Workers in America are rethinking who they are and what they want. For the first time in decades, the stars have aligned to give the labor movement a much-needed lift. Will this prove to be a flash in the pan or something more lasting?

 

The share of American workers who claim union membership has been declining for years. There is a myriad of reasons for this decades-long decline. U.S. legislation and the court system has created enormous challenges to forming unions. The transfer of jobs to low-paying countries overseas has also devastated union membership. Labor membership can also be expensive with high monthly dues. In the past thirty years of declining real wages, most workers were grateful to just keep their jobs.  Paying union dues when they had a family to feed was not a high priority.

 

At the same time, the decline of those willing to obtain skills through education or apprenticeship in the U.S. has contributed to a rise in unskilled, service industry jobs. Unfortunately, these jobs suffer from high turnover and minimum wages, and were not a target market of the existing labor union movement.

 

Everything changed with the arrival of COVID-19. The pandemic ushered in massive unemployment, huge safety risks for employed workers in essential sectors, and a wholesale movement towards work-at-home solutions. It was a tiring time for the American worker. And from the ashes a new attitude towards labor was born.

 

Workers employed in "essential industries" who showed up to keep the country running were no longer taken for granted. Nurses, truck drivers, food industry workers and more became the new American heroes. Local media outlets, politicians, and even the White House honored and featured ordinary laborers, who made extraordinary efforts in our time of crisis.      

 

But the pandemic was also the match that forced many Americans to rethink their relationship to work overall. We are, for example, one of the few nations where health care benefits are dependent on your employment. As health care risks and unemployment skyrocketed simultaneously, holes in our private health insurance became readily apparent.

 

"Life is too short" became more than just a quaint slogan. Many Americans, obsessive belief that "work first, ahead of everything else" as life's pre-eminent goal, might need to be re-examined. For others, long-buried work issues such as safety, benefits, wages, and more rose to the surface. Burnt-out workers simply decided to resign or retire rather than remain at their jobs. Others are taking a more aggressive approach to the workplace.

 

Unionization, for many, has been perceived as a viable instrument for change. In 2020, union membership ticked up to 11 percent; about half that gain came from the public sector. It is early days, but through November 2021, union actions have increased. The Department of Labor reports 13 labor strikes so far this year, but they only include strikes that include 1,000 workers or more. As such, they did not report, for example, a seven-month strike here in Massachusetts of 700 nurses at Saint Vincent Hospital in Worcester. Under the surface, labor experts say that well over 225 strikes is a more accurate number if you include smaller company workforce actions.

 

The nation's attention, however, has been focused on several high-profile union actions. Some big companies like Amazon, Starbucks, John Deere and Kellogg's, have been targets of the labor movement.

 

Amazon, the country's number two employer, fought a massive campaign to defeat union organization in Bessemer, Ala., this year. The vote to organize was defeated — a major blow to unions nationwide. But soon after, the National Labor Relations Board determined that the company improperly pressured warehouse staff not to join the union. That was no surprise to union organizers. It is a part of an ongoing trend dating back to the 1970s where companies have engaged in unfair labor practices that were largely supported by labor laws favoring employers over workers. However, times are changing

 

Thanks to the pandemic-induced change in attitude towards workers, positive union sentiment, for example, is at a generational high in the U.S., with 68 percent of Americans supporting unions, according to new data from a Gallup poll. The Biden administration is also supportive of unions as are many in the progressive wing of the Democrat Party. The PRO Act, currently being debated in the U.S. Senate, for example, would make it easier for employees to unionize and establish tougher penalties for employers who illegally attempt to stop their efforts. It would also allow gig workers and contractors to organize alongside traditional employees.  

 

These trends, together with the present labor shortage, has strengthened the hand of labor unions going forward. Amazon workers are slated to vote again in Alabama. Kellogg's workers, on strike since Oct. 5, 2021, are still holding out for better wages after rejecting a five-year, 3 percent offer from the company. In November 2021, John Deere's 10,100 production and maintenance workers won their strike with management and signed a new six-year agreement.  

 

Only last week, workers in Buffalo, N.Y., a city with a pro-union history, voted to form a union at Starbucks. It was one of three Starbucks locations in the city that held a vote (the second branch ended in a tie, while the last voted to reject unionization). The workers in the winning branch want better wages, benefits, and working conditions.

 

Observers are watching these actions carefully, given that there are 8,000 corporate Starbuck locations across the U.S. It is the first successful attempt to unionize an unskilled labor force in the leisure and hospitality sectors. As such, a better, union-negotiated contract could spur more unionization efforts across the country.  Whether these union efforts end with a bang or a whimper, bringing the American worker's condition to the forefront of the American agenda, is an absolute positive in my book.