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A bird in hand is worth two in the bush

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By Michael O’Connor

Inflation was already at its highest level in four decades before war broke out between two countries that are vital to the global supply chain.

This unrest has undoubtedly impacted any transient outlook for inflation over the short term, putting further pressure on the Fed to take immediate action to tackle inflation.

As hopes for a ceasefire fade and a war of attrition unfolds, these inflationary pressures look set to remain, increasing the likelihood of a policy misstep by the Fed.

While the probability of a recession has increased over Q1, the strength of the US household balance sheet and company profit margins make it difficult to be ultra-bearish.

If we do experience an economic contraction, it will occur in the face of the strongest job markets on record, the highest corporate earnings since the 1950s and the most robust consumer balance sheet in history.

Labour Market Strength

Despite the surge in unemployment following the pandemic, we are now essentially back to pre-pandemic unemployment levels.

More importantly, the pre-pandemic high for job openings in the US was 7.5 million. We're now sitting at more than 11 million job openings in the US.

US Unemployment Rate

US household net worth is now more than six times annual Gross Domestic Product (GDP), driven predominantly by rising asset prices, increased savings rates, federal support and wage growth. This household wealth can drive consumer demand and company profits into the future.

Corporate Earnings

S&P 500 earnings per share jumped 35% in 2021, making it the most profitable year for American corporations since 1950.

In every quarter of 2021, US corporations' overall profit margin remained above 13%; a level reached during only one previous quarter in the past 70 years.

While ultra-forgiving 2020 comparison stats lend themselves well to record-breaking year-over-year stats in 2021, the point remains - US companies boast resilient profit margins supported by a robust US consumer.

Where to Invest

Volatility is likely to remain as we enter into Q1 earnings season.

Netflix has already shown how unforgiving the market can be. Two disappointing earnings reports have resulted in two consecutive 20% declines as this previous market darling becomes the poster child of growth stock volatility.

Similar growth names are likely to come under continued pressure over the short term as interest rates rise, so don't attempt to catch the falling knife just yet.

'A bird in hand is worth two in the bush' explains the waning allure of growth stocks quite nicely. Simply put, as inflation eats into the value of money, investors look to companies with cash flow heavy balance sheets already in place instead of those promising these cash flows in the future.

Again, short-term equity exposure should be aimed toward companies that can pass on rising prices to consumers without disrupting their net margins. This trend has played out across higher inflationary periods in the past, namely the 1940s and the 1970s.

The Final Word

The market will remain choppy as investors digest the Russia/Ukraine war, high inflation, and a hawkish Fed but economic growth and earnings trends remain healthy. And if inflation can moderate over the year, assisted by higher base rates, it may allow the Fed to take its foot off the gas.

For the full market outlook, visit theislandinvestor.com.

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One way traffic system mooted for St Oliver’s National School

The Killarney Advertiser understands that a one-way traffic management system will be introduced at St Oliver’s National School. The plan remains subject to confirmation by Kerry County Council and other […]

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The Killarney Advertiser understands that a one-way traffic management system will be introduced at St Oliver’s National School.

The plan remains subject to confirmation by Kerry County Council and other statutory bodie. It is  understood that the system will be trialled at the beginning of the new school year in September.

The area is subject to serious traffic congestion during school drop-off and pick-up times every day.

Over 650 pupils and 80 staff attend the school every day. New housing developments in the area have added to traffic congestion.

Cllr Martin Grady has being pushing for enhanced road safety measures at the school since his co-option to the council in September 2023.

“The issue has worsened in recent years with Woodlawn, Rookery Road and Ballycasheen having more domestic property developments which brings with it more road activity,” Grady told the Killarney Advertiser.

“I’ve seen first-hand several accidents occur when dropping and collecting my children from the school. It needs a safe solution by means of a drop off- pick up point or a traffic management system put in place.

“It is unfair on all stakeholders involved. I will keep working on this until results are achieved in the interest of everyone’s safety. “

The lack of urban school bus services, not just at St Oliver’s but at all schools is adding to Killarney’s traffic woes.

“I would like to see school bus services return for all students, in both urban and rural schools, this service was a massive loss, it would greatly reduce the volume of traffic on our roads and mitigate the risk of accidents and near misses,” added Cllr Grady.

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Planning rules “nonsensical in a housing crisis” Cllr Healy-Rae

A planning rule which prevents people from building houses on their own land next to major roads is being challenged by Cllr Maura Healy Rae. The current planning policy states […]

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A planning rule which prevents people from building houses on their own land next to major roads is being challenged by Cllr Maura Healy Rae.

The current planning policy states that any application house along national primary and national secondary roadways exiting from existing entrances will not be considered.
Healy-Rae says this problem is particularly acute in the Killarney Municipal District given the amount of national roadway surrounding the area with the N22, N71 and N72.
“It is nonsensical that where an individual is living at home and using an existing entrance, can’t be considered to build their own house and use existing entrance they are already using,” she told the Killarney Advertiser.
“How Transport Infrastructure Ireland can quantify this as additional traffic is preposterous. Given we are in a housing crisis, given all the challenges surrounding planning, given exorbitant house prices and the lack of affordable housing, it is ludicrous that this is a reason people are being refused planning.”
She called on Kerry County Council to write to the TII, the Minister for Transport and the Minister for Local Government requesting that the current blanket policy be lifted.
“It [the policy] has directly resulted in numerous planning applications being refused and even considered at the pre-planning stage,” she added.
Kerry TD Danny Healy-Rae has also raised the issue in Dáil Éireann.

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