Reality Bites

Today’s TGIF 2 Minutes was delayed to reflect a speech given earlier today in Jackson Hole, WY by US Federal Reserve Chair, Jerome Powell.

Earlier today (Friday) US Federal Reserve Chairman Jerome Powell spoke in a widely anticipated speech at an annual meeting of the Kansas City Federal Reserve Bank. The market and investing worlds were looking for guidance from the Fed Chair regarding interest rates and future inflation. Part of the reason for the speech being so closely watched goes back to a former Fed Chair. For those old enough to remember, in December 1996 Alan Greenspan made a now famous speech that rocked the markets when he coined the term, “irrational exuberance.” Then Fed Chairman Greenspan commented,

  • “How do we know when irrational exuberance has unduly escalated asset values…?” Greenspan went on, “We should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy.”*

And down the markets went for a time. 

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Financial Satisfaction in Crazy Times

These are crazy times, almost chaotic. Chaos is defined as complete disorder and confusion – and parts of the world and our lives may be nearing that point, or at least feel that way. How does an investor get financial satisfaction in times like these? Carefully and patiently.

“Carefully” can equate to:

  • having a plan that addresses saving, spending, taxes, & investments
  • being able to monitor and adjust the plan, perhaps with an adviser
  • then continually executing the plan.

The “patiently” part can be more difficult and is just as critical.

Storms are temporary and the worst of chaos and volatility will pass – be prepared for an unknown timeframe.

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War, Invasion & Investing

Clearly, war and invasions have far more repercussions than merely financial. But somewhat luckily, the financial toll in most cases, for us as Americans (exception September 11th), has been what hits closest to home. And unluckily financially speaking, the biggest savers and investors are then most affected by the financial toll of war and invasions around the world.

Currently, the world – most notably the Ukraine, Eastern Europe and Russia – is experiencing the effects of an invasion that (God help us) may or may not turn into a larger situation. Specifically, the financial effects of the Ukraine invasion by Russia are being felt far beyond Europe and Russia. US and worldwide stock markets are down both from late 2021 highs and most notably in late February.

World events over the past 50+ years, and the accompanying market reactions that took place over the short-term and longer-term.

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The Greatest Chart Ever

In times of stock market weakness, similar to year-to-date in 2022, it is human to experience fear. Part of staying on course with a savings and investment plan takes into consideration that fear is part of life.

Most recently, a number of investors may be expecting – and would be wise to expect – a market pullback due to more than a decade of steady market gains. However, this realization does not necessarily lessen or eliminate fear. Here is where the “Greatest Chart Ever” offers needed perspective.* Over a period of more than 40 years of intra-year stock market performance, the chart illustrates valid reasons NOT to allow short-term market moves (monthly, quarterly – even yearly) to lead to poor investment decisions. Why? Please read on.

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Markets Prefer Certainty

Amidst the continuous stream of news and recent market fluctuations, a dash of certainty was injected into stocks and bonds with this week’s Federal Reserve meeting. If only for a day.

Several factors are at work –

  • interest rates, per the US Fed
  • future government spending policy
  • rates of employment
  • market valuations

among other factors.

A dash of certainty was injected into stocks and bonds with this week’s Federal Reserve meeting. If only for a day.

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Investing in the Next Facebook?

How many people caught the news last week that Facebook officially changed its corporate name to… Meta? And changed its stock ticker symbol to MVRS? Presumably, MVRS is short for “metaverse.” What is the metaverse and is it the next “hot” investment? (In other news, Facebook is looking to distance itself far, far away from discoveries that the company knew full well for over a decade the damage its central social media platform would inflict and has inflicted on people of all ages, especially children. But that is not the topic of today’s TGIF 2 Minutes.)

Regarding Meta, CEO Mark Zuckerberg says succinctly, “the metaverse will be the successor to the mobile internet.” Gaming and alternate reality seem to be at the forefront of the concept with bitcoin and cryptocurrency central as well. The whole thing sounds huge.

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A Couple of Quick Notes

This note would be even better in a short video…so stay tuned for that version next week! In the meantime, a couple of quick written notes:

This week the “Energy Information Administration,” an actual division of the US government, warned that nearly HALF of US households who heat their homes with natural gas will pay 30% MORE this year, yes 30%, versus last year.* AND that if winter is 10% colder, then bills will go up 50%! If winter is 10% warmer, then bills are still projected to go up 22%. Can’t wait for that cold weather!

Nearly HALF of US households who heat their homes with natural gas will pay 30% MORE this year.

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Reacting Can Hurt Performance

As they say, “a picture is worth 1,000 words.”* Please do whatever you need to do with your phone or laptop to make sure the graphic below is visible. And make sure to ZOOM IN or turn the phone sideways (or ask me to send you the PowerPoint or PDF version of this slide).

With that said, the title of the slide is: Reacting Can Hurt Performance. And here is a question,

Who is NOT scared these days or after this week?

Savings and investing decisions need to have been made before today. Reacting can significantly hurt performance.

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Risk Off & Risk On

NERD ALERT: This edition of TGIF 2 Minutes will get a big “wonky” but still worth the read. A good number of people reading are familiar with the terms, “risk off” and “risk on,” terms that are used frequently in financial media and by financial industry traders and risk managers.

Even for a business owner or anyone familiar with risk, the term “risk on” or “risk off” may make sense. But for those still wanting clarification on how these terms relate to personal savings and investments – specifically the stock and bond markets – here are a few details.

First, the reason it made sense to highlight this topic is that just this week the US Fed said,“[The US] economy has made progress toward its goals, teeing up bond taper.” *

Think of “risk ON” as increasing risk and being comfortable with taking on more risk; whereas “risk OFF” would be decreasing risk due to factors that make risk uncomfortable.

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A Quick 2Q Wrap-Up

Just like that it is July 2021! That means both the 2nd Quarter and 1st Half of the year have come to a close. Here are a couple of quick notes about the quarter including a few things that changed and did not change on the year.

Stock and bond markets along with portfolio performance continued to be strong. It seems there is less caution in the air with an economy continuing to come out of the pandemic. Although the expression “the most unloved bull market” is still on peoples’ minds. Reason being that worries abound as the US Fed and Treasury continue to pump record amounts of money into the US economy. And there are plans for the stimulus to continue. This state of affairs risks inflation among other economic maladies.

Stock and bond markets along with portfolio performance continued to be strong in 2Q.

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