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.
Still Alive and Well
On October 21st, the Wall Street Journal featured an article bemoaning, “Your Investment Strategy is Broken, the End of the 60-40 Strategy”, in reference to the time-honored allocation of 60-40, or 60% equites to 40% fixed income. Just about one week later, the WSJ’s sister publication, Barron’s, had a cover story “Time to Buy Bonds”, which would leave one to believe that the 60-40 strategy is about to begin a new fresh start. So, in which direction is an investor or money manager to lean… Let’s first take a trip down memory lane… Beginning in the late seventies, or about forty years ago, interest rates began falling from record highs after the Fed had raised rates to combat inflation amidst an energy crisis. The next thirty years witnessed an unprecedented bull run in both bonds and stocks, even with occasional disruptions, like the dotcom bubble in 2001 and the credit crisis of 2008. And it was in these crisis moments where the 60-40 shined brightest. In 2008 for example, a 60-40 mix outperformed a straight stock portfolio by 23%, offering investors not only income but also an easier path back to profitability. For the past 12 years though, as the tired bond bull was fed dose after dose of government intervention, interest rates were kept at or near zero percent. Stock prices and other risk assets were huge beneficiaries of this constant flow of easy money and then a pandemic ultimately paved the way for monetary craziness. We would suggest then that the 60-40 strategy first broke and then ended about ten years ago, and the anemic returns for bonds, (the US Aggregate bond index has returned on average less than 1% a year over the past ten years), were overshadowed by the heady gains in equities over the same time. Last week the 10-year Treasury hit 5% for the first time in about 16 years. Fixed income is now once again, a legitimate investment choice. After what looks to be the third down year in the bond market, which by some measures is the worst stretch since the 1700’s, bonds, or the 40%, look to be poised for a potential rebound as the risk reward picture becomes clearer. The attributes of having fixed income in a portfolio, income generation, lessening of overall account risk and volatility, and potential appreciation in times of economic stress may finally be back in play. Stocks for their part should continue to benefit from a relatively strong economy, full employment, high and sticky inflation, and innovation (think AI). Conversely, geopolitical events, high valuations, and extended credit are just a few of the dangers to the market lurking in the shadows. Our goal is to go into the corners and into the shadows to manage risk. We will also go to the bright spots of opportunity to help you achieve your financial goals. We appreciate your business and look forward to working with you in any way we can in the years ahead.
Alone With My Thoughts – 11/1/2023
The Mendoza line is baseball jargon from the seventies for the supposed threshold for offensive futility of hitting at an average of .200. Players can be above or below the Mendoza line (named for major leaguer Mario Mendoza, a lifetime .215 hitter). There are several Mendoza lines on Wall Street currently…lines that when crossed get everyone’s attention. For example, the Mendoza line for the ten-year treasury appears to be 5%, above that and money flows from stocks to bonds. Gasoline has a Mendoza line at $4 per gallon, above $4 and the economy begins to slow. Bitcoin has seen somewhat of a Mendoza line at $26,000 and has made a recent significant rally to $34,000 plus. For stock traders, the 200-day weekly average is at $3,945, which is a line we do not want to see crossed.
Alone With My Thoughts – 09/11/2023
Beware the Man Behind the Curtain The finance industry has always made investing seem complicated and mysterious to many of us. As a form of job security, the more dependent their clients are, the more “silver bullet” products and plans can be sold. But like the Wizard, once the curtain is pulled back, investment success can be relatively simple…spend less than you make, have a financial plan with the guidance of someone that understands your goals, and invest in great companies and mutual funds. The first step is to do the simple things that you can control and then ignore the man behind the curtain.
Alone With My Thoughts – 07/26/2023
Rags to Riches The world lost an iconic legend last week when Tony Bennett passed away at 96. Tony Bennett captivated the nation, most notably a young Frank Sinatra, who famously claimed in a Life magazine article that “for my money, Tony Bennett is the best singer in the business.” Speaking of money, Tony Bennett represented everything good about successful investing. He was innovative, with an incredible knack for re-creating himself time and time again. He thought long-term, achieving 19 Grammys, with 17 of them coming after he reached his 60’s. He was frugal, as he ands his manager son mapped his 200 appearances a year to perfection. From Ray Charles to Lady Gaga, he was diverse and willing to take a little risk. Cheers to a national treasure.
Never Bet Against America
“Never Bet Against America”-Warren Buffet It may be the smell of barbecue, the sunshine on a lake, or watching Joey Chestnut win his 16th Nathan’s hot dog eating contest that makes us all a bit more patriotic. The fourth of July is a reminder of the freedoms we are lucky to have and provides a moment of reflection for investors as we have reached halftime for the global markets. The first half of 2023 was a pleasant surprise for many as global equity and bond markets rose across the board rebounding from a difficult 2022. Artificial Intelligence (AI) remains the focus for many market participants as the leaders continue to be tied to its growth prospects. The S&P 500, NASDAQ, and Dow Jones are up 16.9%, 32.3%, and 4.9% respectively year-to-date (YTD). The major contrast and performance dichotomy between the NASDAQ and Dow Jones can be partly attributed to the style tilts of the indices. The value tilt of the Dow Jones provided ballast for the index in 2022 as it outperformed on the downside, but the index trails this year due to its lower correlation to the AI trade. However, regardless of the US equity index, it’s been America’s ingenuity and strong labor market that continues to push equities higher and reminds investors to “Never Bet Against America” (Warren Buffet). As we look out into the quarters and years ahead, we may be in for a choppier equity market than the first half of 2023. The Federal Reserve continues to fight elevated inflation with higher interest rates putting pressure on the growth of the US economy. We believe interest rates may remain higher for longer, benefiting wealth distributors with higher yields and lower risk, but creating a challenge for housing and small business loans due to the rising costs to service debt. It is in moments like these where we need to continue to remind ourselves of our investing principles. Wall Investing Principles: 25 – Spend less than you make 72 – Start investing and be consistent 8 – Invest for the long-term 4 – Actively stick to your Plan We push our clients, family and friends, and our community to actively stick to their financial plan. We created our “Wall Principles” to make the complex simple and will provide more details around our wall principles in future blogs and commentary. We look forward to our next conversation to review your financial plan or possibly create one for your family, to see how our wall principle may help you build a strong financial foundation. We thank you for your continued support of our firm. As always, “you do the dreaming, we’ll do the math.”
Alone With My Thoughts – 06/26/2023
“We would be careful not to give in completely to FOMO (fear of missing out), as a skipped hike is not a pause, inflation still handcuffs the Fed…” Benjamin Bowler, BofA Securities. The FOMO is definitely out there, what with Morgan Stanley upgrading Nvidia, this past Friday no less, to overweight. Thanks for the update guys, the now trillion dollar chipmaker’s stock is up 193% year to date. And FOMO is finally reaching out to the broader market, with all 11 S&P 500 industry sectors up during the month of June. It may be ok to join the party now, who doesn’t like a good party, but again, they say nothing good happens after midnight…
Alone With My Thoughts – 06/01/2023
“When you come to a fork in the road, take it.” Yogi Berra. The stock market road typically has plenty of forks to take, but this year we have seen a road that gets narrower and narrower. For example, If not for the seven largest tech stocks, the S&P 500 would be negative for the year and not up over 9%. The AI inspired gold rush into tech has been pretty remarkable and continues with the recent push in Nvidia, now a Trillion dollar company. Narrow stock market leadership has not always bode well for diversified portfolios and we need to battle the FOMO of the artificial intelligence crowd. Sometimes it is good to stay in your own lane.
Alone With My Thoughts – 05/22/2023
Home buyers are feeling a bit like Hannibal Lecter, what with homeowners handcuffed to low mortgage rates. A recent Wall Street Journal article by Nicole Friedman, pointed out that the reluctance of these homeowners to sell differentiates the potential downturn in housing from other periods of rising interest rates. This idea of going from a historically low interest rate to a much higher one will most likely stunt the supply of homes for the near future. As of March 31, nearly two thirds of primary mortgages were at rates below 4%. For investors, the net effect could provide an opening for builders, an opportunity for home remodeling, and possibly dull the Fed’s attempt at to slow inflation. Moral to the story, interest rate moves, both up and down, are not without unintended consequences.