Today we’re going to talk briefly about some of the bright spots on the horizon for 2023, recap some of the highlights of last year, and finally talk about the new Secure Act and all the goodies that are embedded in that law. So as we know, 2022 was one of the worst year for portfolios, in fact since 1937 by some measures. And that’s because not only was it a bear market in stocks, but also bonds were down 17%. In fact, it was the worst performance in the history of the Morningstar Core Bond Index. That’s pretty bad.  Some of the accompanying charts show the pain quite graphically. We have, however, seen the pendulum swing from growth to value. My Partner, Sarah, wrote a white paper titled “The History and Future of Value Investing”.  You’ll find the link to the document HERE. Whether or not the value…

  Since the Great Depression in 1926, we haven’t seen such awful returns for balanced investors. 12 month returns this year, for people who are 100% in stocks, were actually better than those who are 50/50, 60/40. The bonds are the problem. Diversified portfolios have had a stunningly difficult year. Stocks didn’t have a great year, but bonds really failed to cushion the blow. We’re very fortunate with our portfolios that we reduced the duration, the weighted average maturity of the bond portfolios, so our clients haven’t suffered anything like the average for a 60/40 investor. But despite that, it’s been a bad year, and we know why: the era of cheap money is over. It’s been going on for over a decade. Alan Greenspan, Ben Bernanke, all of these people, if ever the market turned down, print a little more money. Interest rates were low; we could get away…

  Bonds. Let’s talk bonds. Interest rates are climbing, and that translates to bondholder losses. You’ve seen them on your statement, but we are getting increased yields. So, what’s the bottom line? Inflation has caused interest rates to climb. The fed’s fighting it relentlessly, and when interest rates climb, bond yields are expected to go up with them. And when bond yields are expected to go up, fixed income bonds lose value. This is textbook material. Interest rates go up, bonds lose value. So, with interest rates, there’s been an interesting phenomenon. Long term bond rates are not going up as much as we would expect, same with intermediate, given the severity of the hikes. What this means is that the losses actually could be worse, and they’re not. It also means that the market feels these rates are coming back down, and that inflation is going to be under…

After the depleting drop off of the last few weeks, this morning we’ve enjoyed a little bit of a rally in the markets. Of course, the famous question is, is this really just a dead cat bounce? Well, markets price in the future, so have they done pricing it in? Really, nobody knows. So let’s switch the conversation from returns to risk. Today’s world is very much one of risk selection rather than risk avoidance. What do I mean by that? Well, let’s explain by differentiating the different asset classes that are out there and discuss the risk associated with each and every one of them. Your typical risk-free asset is cash. When we talk about putting cash under the mattress, we’re thinking, “Okay, that’s safe.” Of course, if you took $100 in 1920, threw it under a mattress, today, I don’t know what it’s worth, 10, 20 bucks? It…

  What a great day to rebalance. The market's down. It's 1:00 PM. It's down 3% for the S&P 500. Why did the market react as it did? So consumer price point numbers came out for August, and prices were up 8.3% year over year. It's actually a slight deceleration from the month previously due to a 10% drop in gas prices. However, what the market really cares about is core inflation. And core inflation came in at 6.32% versus about 6.1 for estimates, and I think it was 5.8% the month before. So core inflation is still gaining steam. That means it's pretty much guaranteed that at the next Federal Open Market Committee, there's going to be another 75 basis point rate hike. When there's a 75 basis point rate hike, interest rates go up across the board. Treasuries are already going up in anticipation, and when yields go...

  Last week, it was announced that we’re actually in a recession. Is it a technical recession? Just how bad is it? There’s a lot of different definitions of recession and the most technical one is “two successive quarters with negative GDP”. That’s the technical definition that has been met. However, most definitions include some combination of the following: high interest rates and/or high inflation, along with a drop in GDP and a significant rise in unemployment. We haven’t really run into high interest rates (by historical standards) yet. Without a doubt, in the short term we have high inflation. What we’re hoping is that the Fed’s on this, and this is a speed bump. To be determined of course. Much more important, unemployment at the end of the last quarter was 3.6%. Now in February 2020, we had historically low unemployment. It was 3.5%. So for most people, this…

  The latest Consumer Price Inflation Index suggests 9.1% inflation. How bad is that and what, if anything, can we do about it? The Consumer Price Index is 9.1%, that’s record-setting. We haven’t seen anything like that in 40 years. It was a 40-year peak in May for inflation, but it’s actually two numbers. You’ve got the CPI and you’ve got the core, and the core number actually dropped from 6% to 5.9%. This is very important because we’ve stripped out energy and food. Now you’re saying, “Yeah, but I’m putting a lot of gas in my car. I’m spending a lot of money.” You’ve probably noticed gas prices have slightly eased off. The reason they strip these out is because when it comes to food and it comes to gas, those are very reactive to changes in prices. High prices crush demand, so they’re not as accurate. Much more…

  We just had a 3/4% rate hike, the biggest hike in 28 years. Will taming inflation ensure a recession? Right now there’s a multi-front war going on against inflation. Finally, after a lot of planning and discussion and debate, the troops have finally been engaged in battle. First and foremost, of course we know about the 75 basis point hike. The Fed funds rate is 1.5%. That’s just a fancy name for the short-term safe money interest rate and it is the basis on which all other interest rates are built upon. We’re however only halfway to the goal of 3% and we were as low as zero after the pandemic. In fact, by 2023, it’s going to go up to 3.75%. So, this party’s not over yet. This is affecting interest rates all along the yield curve, which is the fancy way of saying mortgage rates are going…

  Inflation, just how bad is it? It seems that just about every headline in every media outlet is talking about inflation and there’s as many opinions about inflation as there are headlines. So, I thought I’d go through a quick summary of the various components of inflation with the idea of maybe improving our general understanding. We have this headline number of inflation. The most recent headline was *8.3%, which was slightly lower than the month before, but inflation is made up of bits. We’ve got fuel, we’ve got food, we’ve got housing, we’ve got pretty much everything else. We’ve got core inflation, which includes housing and everything else and we’ve got the fuel and food inflation. So this gets a little fun. Oil, as we know is $120 a barrel, a little bit over. The average price of a gallon of gasoline throughout the country is $5. Historically,…

  Well, here we go again. Morningstar market index, it’s down a year to date -17.7%. Are we in yet another bear market? With the S&P 500 down over 16% and other indices looking even worse, what does this mean? Well, there’s a lot of pressure on all markets. Interest rate hikes are necessary to fight inflation. Inflation is at 8%, maybe higher. We have what’s called an inverted yield curve. It’s a strong leading indicator of recession. There’s a war in the Ukraine and it’s having severe impacts on the energy markets, which is further feeding inflation. And then we have corona lockdowns in China, which may not seem to be relevant, but they’re having a significant impact on supply chains over and above the regular transit challenges that exist. The probability of a recession in the next six to 18 months is extremely high. The Fed will do…