Alone with My Thoughts – 6/25/24
We Need a Diet Shot for Governments Last Thursday, the Wall Street Journal reported that France was facing disciplinary action from the EU for running a high budget deficit. Not only are the French dealing with this deficit, they are also above the EU requirement of no more than 60% of debt above GDP. In the US interestingly, our debt is about 100% of GDP and just this past week our deficit is now projected to be about $2 trillion for the year. Good news, we are not a member of the EU, bad news, our interest on our debt is now almost $1 trillion dollars a year, or about the same as our entire defense budget (or for those keeping score, about 30% of our tax revenues so far this year). Mon Dieu!
Alone with My Thoughts – 5/14/24
The stock market can be so emotive. From the elation of riding the wave of the “next biggest thing” like AI to the despair of outdated technologies (think Kodak, VCR’s, and Blockbuster). As for amazement, consider that Sam Bankman-Fried is sitting in jail for the next 25 years as a result of his crypto financial fraud schemes. It has now just been reported by both the Wall Street Journal and Barron’s that his schemes owe investors $11 billion dollars and that after liquidation, the fund has about $15 billion dollars to pay off the aforementioned creditors. So…he gets 25 years and investors “gain” $4 billion on his strategy. Rarely, if ever in history, has financial fraud resulted in a windfall for investors. The feeling of perplexion comes to mind…
Leigh on The Local Show
Should I Roth Or Should I Go Now?
Should I Roth or should I go now? Wall Street is humming a variation to the iconic Clash hit from 1981, as the potential arises that tax law changes made in 2017 get set to expire at the end of 2025. The basic idea is this, should someone consider paying taxes now by converting qualified retirement assets into a Roth IRA, to save a significant sum of taxes over a long period of time. Advisors are having this conversation in offices across the US. In fact, Barron’s recently noted that Fidelity has seen a 44% increase in conversions year over year at just the end of the first quarter. We believe that the pace of conversions will continue to expand, and the following example could help explain why… For many retirees, the time frame between full retirement age (around 67 years old) until Required Distribution Age of 73, are years with potentially less tax burdens. At 73, the qualified and required distributions can loom large tax wise. That leaves the potential for converting assets before age 73 at least worth considering for many. Combining that with the new rule with respect to non-spouse beneficiary distribution requirements, there is an estate planning angle to this as well. It may not be a “train in vain” to explore the tax implications of converting assets to a Roth. As for markets during the first third of the year, Wall Street continues to ride the AI wave and generally strong economic data. After a blazing start in the first quarter, stocks have come back to earth recently, in part because of stubborn and sticky inflation. The inflation data is holding the Fed back from lowering rates as Wall Street has reversed course from a predicted seven rate cuts in 2024, to now possibly one or two later in the year. The yield on the two-year just traded above 5% again. We continue to favor companies that are profitable, carry low debt, and that have pricing power. These are the names that could potentially do well during an inflationary period. We are still recognizing good diversification opportunities in international markets. Finally, we have begun to move out the yield curve as rates have inched higher, but the threat of a massive rise in rates may be less probable. As for the upcoming election (and other geo-political events), the markets seem to be unfazed for now, drawing on experience that investing based on headlines can be an expensive political science course. We look forward to connecting with everyone personally throughout the year and we appreciate your confidence in our firm.
New Year, New Weather
Every New Year begins with resolutions, future predictions and forecasts, and a clean slate. As investors, we try to be aware of the daily gyrations of both the economy and the markets, as well as long-term trends. By comparison, a good meteorologist reports on the weather today and for the next five days. A great meteorologist is looking not only at what is currently happening, but also studying major potential trends, like climate change, and making decisions based on a long-term view. To be a great investor then, we believe that you need to combine the fundamental analysis of all current and historical data, with the curiosity and experience to make enduring, multi-year decisions, with a grounded anticipation of the future. Thanks to our friends at Wealthmanagement.com, we need to be cautious with what the financial media offers in the way of predictions. Based on a study by CXO Advisory Group, the so-called gurus were no better than a flip of the coin, they were worse. From 2005 to 2012, they reviewed 6,584 forecasts from 68 “experts” only to find that on average they were accurate less than 47% of the time. Only 5 of the 68 had an accuracy score above 60%. And no, Jim Cramer was not one of the five (he came in at 47%). Our key takeaways are these…First, any market related predictions for the short term are purely for entertainment purposes only. Secondly, we need to make calculated forecasts for our long-term investments, but we also need to build portfolios using concepts like diversity, income investments, risk management, etc. so that we can survive the short-term periods of market volatility that the breathless “talking heads” cannot seemingly get right. With that said, here is some of our insight as we head directly into 2024. Stocks managed to rebound quite nicely in 2023 and in mid-January 2024, the S&P 500 was able to regain all-time highs from 2 years ago. Even with relatively high US stock valuations, we believe that the economy is strong, strong enough to have a soft landing from recent rate hikes, and that the path of least resistance for equities may be higher for now. During the last quarter of 2023, the 10-year bond (risk free rate of return) had a dramatic fall in rate from a bit over 5% to 3.8%. As we closed out the year, the Fed appeared to be done lifting rates for the time being. While there will most likely be some rate cut by the Fed in 2024, we think just the “idea” of Fed cuts, will give some ballast to both bonds and stocks this year. As for volatility, world events and the upcoming election will most likely cause some market reactions. We again remind investors that Wall Street sometimes reacts counter to what the endless headlines might suggest. We look forward to working with everyone again this year and for many years to come. Our goal is to become a trusted financial planning and asset management partner that not only guides you, but also helps to manage against those things we cannot control. “Climate is what we expect, weather is what we get” Mark Twain. Thank you for your continued confidence in our firm.
Alone with My Thoughts – 2/15/24
Super Planning The recently played Super Bowl will go down as one of the most exciting finishes ever, as the KC Chiefs pulled out an overtime victory. Andy Reid, the future Hall of Fame coach of the Chiefs, did what he does best, and what the greatest coaches do best, and that was to make adjustments at halftime. Many people will consider getting a financial plan, to help map out their financial future. Instead of a financial plan, we try to look at it as financial planning, meaning that life will throw us many changes, curve balls, and situations that may require halftime adjustments. Speaking of Super Bowls, “Just because you made a good plan, doesn’t mean that’s what’s going to happen.” Taylor Swift
Alone with My Thoughts – 2/1/24
A record high in the S&P 500 was made on January 2, 2022 and now, just over two years later, we are making record highs on a daily basis. Here are three takeaways…One, the S&P has now made up for the viscous declines of 2022. Secondly, an interesting stat that comes from Ned Davis Research (thanks to our friends at Riverfront and JPMorgan) shows that making new highs after at least a one year time period, have historically resulted in positive performance over the next 3, 6, and 12 month periods. Finally, with the expectation of future rate cuts from the Fed in 2024, has there been other times when the Fed cut rates while stocks were making new all-time highs? 2024 is off and running.
Alone with My Thoughts – 1/25/24
A common investment theme around here is that “savings and innovation equal economic opportunity”. The 2023 market certainly benefited from that view even though an MIT study had previously indicated that innovations are less likely to trigger economic growth because the big ideas are harder to find. With two letters, AI, innovative new technology arguably single handily carried the market through the first three quarters of last year. After pausing in October, the rest of the year was led by medical innovations, most notably in weight loss and to a lesser extent Alzheimer’s. As we look to 2024 and beyond, the future remains bright for innovative solutions to the world’s most vexing issues. Hopefully, potential gains on Wall Street may follow.
Alone with My Thoughts – 12/26/23
We don’t know what AI is going to unleash in the future but in 2023 it saved the day. After a disastrous prior year, when the Fed began their interest rate hikes to the sea, excitement on Wall Street over AI has lifted tech stocks and the major averages. At the end of October though, the “magnificent seven” accounted for most or all of the gains for stocks. Then in early December, the Fed finally abruptly pivoted, rates went from 5% to less than 4%, and the markets broadly took off across the board. Instead of a Santa Claus rally, we can call this the Santa Claus Pivot. Enjoy the holiday season!
Alone With My Thoughts – 11/14/2023
Next time you are shopping for a birthday card, look at the lowest level of the rack. There you will find birthday cards for 100-year-olds. Think about it, birthday cards commemorating that huge milestone. In fact, ages 85 and older is considered the fastest growing segment of the US population by percentage, and those over 65 should double in number in less than 20 years. For investors, the idea of retiring and going completely into bonds is probably a risky strategy, when confronted with inflation. Stocks and growth assets may then be a bigger part of portfolios for a much longer period of time. Speaking of time, the best time to invest is today, releasing the exponential compounding to do its thing. Thanks to First Trust for the birthday wishes, even if they are jumping the gun.