Category: Financial Planning

Markets & Taming Inflation

Believe it or not, the following is taken from October 2022 (with a couple of updates). Inflation almost always takes longer to tame than we think.

A question that may be on a number of people’s minds is: How long will it take to tame inflation? Unfortunately, there is very little telling how long it will take the US Federal Reserve, or any other entity or force, to tame inflation, especially in the short-term. Part of the reason is because inflation is always part of a complicated economy – with diverse people, businesses and governmental/fiscal forces in action. Timing (and hard-landing/soft-landing) predictions about inflation are nearly impossible.

Video: TGIF – Markets & Taming Inflation

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US Debt Ceiling

Currently the limit on the amount the US government can borrow is a mind-boggling $31.4 trillion. This limit was reached this past January and since then the US Treasury has been using “extraordinary measures” to continue to pay government bills. Funds from these measures, such as using available tax revenue or borrowing from the retirement accounts of federal workers (not allowed by private employers), are said to become exhausted by about June 1st or so.

The government borrows (or issues debt) because it spends more than it takes in via tax revenue. These borrowed funds are used to pay government workers, but for numerous other critical reasons including:

  • continuous payments to Social Security recipients
  • reimbursement to doctors for Medicare
  • salaries for US Military and military contractors
  • payments on existing US Treasury debt

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I-Bond Update

For a bond that must be held for a minimum of five (5) years for full interest to be received and can only be bought in amounts of $10,000 per year, I get a lot of questions.

To put the situation in perspective, for clients and friends with high levels of income, in the hundreds of thousands and much more, and high tax rates – marginal rates of over 32% – the interest at stake with an I-Bond is currently $600 to $800 per year and that is before taxes! That level of net interest may pay a portion of one car lease payment per year or weekend gas for a boat (in 5 years). BUT nevertheless, I get questions.

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Crypto Quarterly – 1Q 2023

It turns out that summarizing the current status of cryptocurrency following the past several months is much more complicated than it looks. If one event were highlighted, it would be the November 2022 fall of FTX and arrest of its founder who was “popularly” referred to by his three initials, SBF.

As early as February 2022 during the “Crypto Bowl”, or Superbowl LVI, there were clues of cryptocurrency irrational exuberance. Since then, major cracks have revealed themselves in the crypto industry and beyond.

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Crypto Quarterly 1Q ’23 – Stay Tuned

TGIF 2 Minutes – Crypto Quarterly for 1st Quarter 2023 will take a bit longer than previous editions. For perspective, consider several details from the December 2022 edition which concluded that cryptocurrency is not dead but on serious life support:

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Failure of a Bank

Quick trivia: Who is famous for the saying, “It’s only when the tide goes out that you learn who’s been swimming naked”?? Ironically just last week Warren Buffett’s 58th annual “Letter to Shareholders” was reviewed by TGIF 2 Minutes, and, yes, Warren E. Buffett first famously uttered these words back in 1992.

The timing of his utterance was, as CEO of the insurance conglomerate Berkshire Hathaway, just following Hurricane Andrew when the inadequacies of the insurance industry were negatively exposed. Buffett was describing “the rosy appearances that can mask financial recklessness until the good times end.”*

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Warren Buffett Wisdom 2023

Warren Buffett, the world’s 4th or 5th richest person, famously writes a Letter to Shareholders each year published around the end of February and featured in May at his annual meeting for shareholders on a farm in Omaha, Nebraska. His company, Berkshire Hathaway, has an amazing long-term record of rewarding long-term shareholders. Buffett is now 92½ years old and nearing his 60th annual go-around with the meeting and shareholder letter.

The letter has a mild cult following and is read by seasoned, experienced investors; younger, newer investors; company CEOs; and anyone who has a few extra minutes for down-to-earth reflections from a billionaire. This year’s letter was far shorter than past years – and thus to the point. Here are a few of the highlights:

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Save, Spend, Review… Repeat

More and more lately, perhaps as a result of the post-pandemic world, I am being asked for basic financial advice – from both young people AND those in the over-55 crowd. By the way, the over-55 crowd who ask this question are typically wealthy with comfortable lifestyles. The basic financial advice they seek includes the question, “Are we OK financially?”

A handful of smart people ask for further definition of “OK” and then ask the same question, “Well then, are we OK financially?” The answer comes down to super-basic elements, and thus today’s short edition of TGIF 2 Minutes.

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Challenge: Teaching Inflation to Kids (& Adults)

“Mommy, Why are you buying our food at Walmart?”

…”Daddy, Why are we not eating my favorite fancy meals and brands of food?”

It is not quite Chef Boyardee and Ramen Noodles yet, but there is data reporting higher-end households shopping at lower-priced food stores (i.e. Walmart).* There is a lesson for kids and adults here. First a few more details.

Inflation is no joke; and can be the great equalizer. For even the highest-earning households, nearly everything is more expensive. Namely, food. In addition, during the pandemic households became accustomed to ordering out for food and meals, taking delivery, and cooking at home less. For those households who chose to cook at home more often, the ingredients were and are now often delivered or shopped for by a “shopper” and picked up curbside at the grocery store or delivered to the doorstep. Food and service costs have skyrocketed (partly the result of further increases in wages for basic hourly workers).

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Murphy’s Law, YOLO, & Cash

From the Archives of TGIF 2 Minutes – with an update on cash.

One of the most critical factors of long-term personal financial success is…. guess:

  1. A) The markets
  2. B) Spending
  3. C) Interest rates
  4. D) Stock selection
  5. E) Income level

And the answer is… SPENDING. This fact is why a truly competent financial planner will spend the most time on discussing spending, both today and future projected. Spending can also be expressed as “lifestyle” or “the basics of food, shelter, and transportation plus lifestyle”.

However, the inevitable will happen. And YOLO (“You Only Live Once”) will creep in.

The most basic factor that can soften a huge spending blow is CASH savings

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