The Good, Bad, and the Ugly Continue in Markets

The last 18-month period has probably been the most difficult economic environment I have seen in my adult life – if nothing else for the length of time that market forces have been battling each other.  As mentioned in a prior note, you are forgiven if you’re feeling some volatility fatigue.  But don’t despair, good things are happening, and I think we’re closer to the end than the beginning of this unpleasantness.

My job is to help you stick to your financial plan and investment strategy through the inevitable ups and downs of markets.  And not just stick to it – but stick to it with confidence and optimism.  My job is always to tell you the pure, unvarnished truth as best I see it.  And right now, whether you’re an optimist or a pessimist, there is plenty of evidence to support your position.  It’s impossible to list every event currently impacting markets and securities prices, but I list below the larger ones that I see impacting markets.

Earnings – Good

But let’s begin with earnings.  Corporate America appears to be doing a terrific job under difficult circumstances.  Many experts have been calling for a plunge in earnings…and so far, it still has not materialized.  It might still arrive – but first quarter earnings are nearly done and have again soundly surprised to the upside.  According to LPL, 79% of companies beat their analyst estimates (compared to a one-year average of 73% and the five-year average of 77%).  For now, earnings are only down 2.3% compared to the first quarter of last year.  Going into earnings season, estimates were calling for a more than 7% decline.  This is undoubtedly good news.

The Fed Appears to Have Paused on Further Interest Rate Hikes – Good

It certainly seems that they are pausing based on Chairman Powell’s last press conference.  He held open the option to raise rates again if the data deteriorates around inflation.  But his comments that he sees a soft landing helped markets rally last week.  Monetary policy works with a 12 to 18-month lag, so the worst of the tightening is most likely yet to come – and it’s possible we could even see rate cuts before the year is done to reverse the tightening.  The money supply (M2) has been shrinking over the last year.  While I believe this to be positive, it could turn into a negative if the money supply contracts too much.  The Fed has an awful track record at bringing the economy in for a soft landing, but it remains a distinct possibility.

Inflation Trend – Good

Overall inflation is clearly trending down (in line with the lags in the overall money supply).  The question is whether we will reach the Fed’s 2% inflation goal prior to something larger than banks breaking.

Employment – Good

It’s tough to have a “hard landing” when employment remains strong.  I understand that employment is oftentimes one of the last data points to hold up prior to a recession.  But the labor market is not currently showing any material signs of weakness.

Stock Prices in 2023 – Good and Bad

While markets are generally neutral to positive so far this year, the winners have been limited to a relatively small group of stocks – mainly large growth stocks.  This is not the sort of price action you like to see if we are to begin a new bull market in stocks.

Bank Failures – Ugly

Now for the ugly.  It’s possible the Fed has “ring fenced” this problem, but it’s reasonable to be skeptical.  Our system is based on confidence and trust, and bank failures don’t inspire either.  I understand that the banks which recently failed faced unique circumstances.  But there is a lot of commercial real estate that needs refinancing over the next few years. presumably at higher rates.  And depositors might continue to pull funds from banks to invest in money-market funds, especially if more banks fail.  Lastly, short-term rates remain high relative to long-term rates.  That’s normally not a great lending environment for banks.  Now, the converse is that most people will keep their money in the bank despite meager interest being paid on their bank holdings, and banks are lending at considerably higher rates.  The prime rate is currently 8%.

This is one of those stories that seems impossible to predict how and when more pain will arise.  After Silicon Valley Bank collapsed, the Fed made $650 billion available for lending to banks.  The banks borrowed all of it, and things calmed down.  Without question, banks are holding various amounts of impaired collateral – how could they not given the violent move up in interest rates?  By borrowing funds, maybe they were simply protecting themselves against being the next victim of a bank run.  But the cynical answer is that they’re in more trouble than we realize.  The colossal oversight by regulators over Silicon Valley Bank’s failure hasn’t inspired much confidence.  And remember – bailouts (i.e., setting up credit lines for borrowing) add to the money supply.  More bailouts could mean longer-lasting inflation.  Fingers crossed, but this story might not be over.

U.S. Debt Ceiling – Ugly

If history is a guide, our political parties will compromise and resolve this issue.  But this is one of those situations that could go to Ugly on steroids quickly.  A debt default simply cannot happen.


Even if we end up in recession, two things:  it doesn’t mean a market crash – arguably small and mid-sized companies have already priced in a recession.  They are trading at valuation levels well below large companies.  Second – and most importantly – we’ve done the proper financial planning:  therefore, we know we won’t need to liquidate stocks at losses to fund your goals.  Recession might still be on the way, but this is perhaps the most telegraphed recession in history, and that has given companies time to prepare.

Bottom Line:  Stay patient, stay disciplined, and stay invested.  Recession could lie ahead, but the longer we don’t retest the October 2022 lows in stock prices, I like our chances of crawling out of this mess sooner than later.

By |2023-05-11T17:53:58+00:00May 11th, 2023|Uncategorized|0 Comments

LPL Does Not Own a Bank – and What Happened at Silicon Valley Bank

After my last email on Silicon Valley Bank (SVB), I received several questions inquiring more specifically why SVB failed (and why are the other banks such a concern).

Before addressing that, I want to emphasize that unlike some other broker-dealers, LPL does not own a bank.  Any banking services offered through LPL are offered through contractual arrangements with outside banks.  Therefore, LPL does not have the same risk exposure that other banks and some broker-dealers are potentially facing.

The primary reason why SVB failed and why other banks are in the news is an old-fashioned, simple reason:  they borrowed short and loaned long.  This means they took depositor’s money (borrowed short) and bought long-term U.S. Government bonds (loaned money to the government…bonds are loans).

Unlike 2008, this situation did not involve toxic mortgage debt that was opaque at best.  It was simply a poor strategy of tying up capital in long-term assets when depositors could demand their money back at any time.

To be sure, all banks do this to some degree:  they take in depositor money and lend it out with the expectation of being repaid over time.  But based on what has been reported, this situation was extreme.  The bank simply took on too much risk.  The modern-day bank run can now take place online with a few clicks of the keyboard.  Throw in social media where news travels fast and the takedown of SVB was quick.

As for the bonds owned by SVB, investors generally receive a higher yield (interest payment) on a long-term bond, but these bonds are more sensitive to interest rates.  There is an inverse relationship between interest rates and bond prices: if rates go up, bond prices go down (all other things being equal).  Longer-term bonds (i.e., 10-30 years) are hit hardest.  Using simple bond math, the worst of the long-term bonds in SVB’s portfolio probably went down 25% to 45%.

Now, if SVB could have held the bonds to maturity (10-30 years), then the bond would be redeemed by the U.S. Treasury at its “par value” – no principal loss to the bank.  Or, if interest rates were to drop substantially, then the drop in rates could erase the loss.  But when depositors show up demanding cash, banks can’t wait.  SVB had to sell bonds at a loss to pay their depositors, and it became quickly and painfully obvious that they were in trouble.

Another problem for SVB was their niche customer base, which was early-stage venture capital customers.  Apparently, a flood of cash came into SVB during the 2020-2021 tech boom.  It was a perfect storm for SVB.

For now, it appears that the banking issues are contained.  The authorities have set up a couple of credit lines for other banks who might be facing trouble to borrow funds and pledge their securities as collateral.  Expect more headlines, but also expect a vigorous response should further trouble arise.

By |2023-03-30T16:00:55+00:00March 30th, 2023|Uncategorized|0 Comments

Volatility Fatigue…and Now a Bank Failure

The S&P 500 peaked almost 15 months ago and still remains nearly 20% below that peak. Moreover, the bear market in the more aggressive growth stocks began 25 months ago in February of 2021. Given those facts, you’re forgiven if you’re starting to feel some “volatility fatigue”.

And now the 16th largest bank in the country failed.

Where do things go from here? The honest answer is that it’s unknowable where they go in the short-term. But it’s good to see the authorities moving quickly to clean up the bank failure (though reasonable minds might disagree on the rather extraordinary move to guarantee all deposits. I am writing this on Sunday evening, March 12th.)

As we all know, the Federal Reserve has aggressively hiked the federal funds rate in a short period of time to fight an inflation that was caused by fiscal “stimulus” and loose Fed monetary policy. By moving aggressively, my fear has always been that they were going to “break something” significant which leads to an old-fashioned financial panic whereby trust evaporates and liquidity vanishes. Things change, but human nature doesn’t. While we are a long way from a financial panic, it’s worth paying attention to this bank failure.

For those who read these emails, you know that my message is one of relentless, sincere, and passionate optimism on our investment markets. I remain committed to that message as the only sane and responsible way to interpret our system. The modern capitalist system offers individual investors a tremendous opportunity to build large amounts of wealth if they simply play by some basic rules. Over a lifetime, work hard, save, invest in stocks for long-term goals, and don’t let fear infect your investment decisions. That’s the basic formula.

While I remain in the optimist camp, I have an adult memory that tells me additional caution is warranted going forward. Consequently, your volatility fatigue may worsen before it gets better. Prepare yourself. As the cliché goes, it’s darkest before the dawn.

It’s natural to feel intense emotions, but we cannot – we must not – let fear cause us to make mistakes by selling near market bottoms. Fear will lie to you: it’s different this time, don’t be dumb, protect yourself, sell now and buy later when it’s lower, the “smart money” is selling…and on and on Fear will lie to you.

These are the times when investors are tempted to commit large, life-altering, irrevocable mistakes. That is reason #1 why you’ve hired me.

Remember, we’ve done the proper planning to insulate us from short-term volatility by building cash and fixed income (bonds) into your asset mix. In fact, we routinely build in seven years of protection from stock price declines…seven years! We can weather this storm.

Markets will do what markets do, and we must have faith that the recovery will come sooner or later. In the meantime, the relentlessly efficient machine called Mr. Capitalism has now been summoned. As he always does, he must begin eliminating weak market participants. Eventually, cheap money always leads to excessive risk-taking and funds dumb ideas, and they must go. We’re hearing that the Silicon Valley Bank management took excessive risk and made dumb decisions, so they must go.[1] Others will surely follow.

Reasons for Optimism

The only definitive signal firmly indicating recession is the “inverted” yield curve (short-term interest rates are higher than long-term rates), and that’s not always predictive. In contrast, the money supply has leveled out and even contracted some in the last year – this will continue to reduce inflationary pressures. For now, credit spreads remain narrow[2]- and credit spreads are an outstanding indicator of recessions. The “stress index” put out by the Federal Reserve remains low.[3] Corporate profits, while showing some weakness, are mostly hanging in there, and estimates for the back half of this year into next look encouraging. And the January data generally surprised to the upside. The recession might be coming, but these data points don’t suggest it. And even if the recession eventually arrives, corporations and the consumer have had plenty of time to prepare.

The one good thing that will most likely come out of the bank failure – and this should be supportive of stock prices – is a Fed that slows down the monetary medicine and takes a more patient approach. I understand why they moved aggressively – they had no choice. But monetary policy takes a good 12 to 18 months to work its way into the system. The first interest rate hike in this cycle was March 17, 2022, and it was only .25% – so we’re just now tip toeing into 12 months. We probably have not seen the last of headline failures like Silicon Valley Bank.

Even if we are heading into a recession, please keep in mind that stock prices typically bottom well in advance of the economy hitting bottom. The consensus view seems to be that stock prices bottomed in October. Let’s hope so, but let’s acknowledge that our patience and volatility fatigue could be further tested, especially if we hit new lows.

Is the Long-Term Bull Market Still in Place?

For a market that has digested a tremendous amount of bad news, it certainly feels like stocks want to rally on minimal good news. I’ve been surprised at how little it has taken to spark markets to the upside at times. Here is my thought: I certainly cannot prove this to anyone, but the underlying market psychology seems to be one of optimism rather than pessimism. Even the bond market is pricing inflation at only 2.34% over the next five years.[4]

This is NOT a market forecast of any sort – but I wonder if we remain somewhere in the middle of a long-term “secular” bull market that has many more years to run. That could mean that we are currently in a shorter-term “cyclical” bear market. These secular, long-term markets play out over many years, usually decades, and are thought to be rooted in psychology. For a discussion on this, please see my blog post in 2021 or more recent articles here.[5]


For those of you who are still working and saving a portion of your income, revel in the glory of purchasing stock at lower prices. For those who have stopped working, revel in the glory of reinvesting your dividends at lower prices. And for those of you living off dividend income, the current environment is the primary reason why we implemented that strategy.

In closing, it’s worth recalling a Warren Buffet quote: “The stock market is a device for transferring money from the impatient to the patient.”

As always, stay patient, stay disciplined, and stay invested. Please do not hesitate to reach out if you would like to talk through any concerns, big or small. With sincere and deep gratitude, it is a continuing pleasure to serve you.

[1] Without getting too wonky, apparently their loan portfolio was concentrated in venture-capital firms, and they did not properly match up the timeline of their assets with their liabilities…violating the basics of banking.
[2] For a discussion on credit spreads, see
[3] FRED St. Louis, 03/03/2023
[4] FRED St. Louis, 03/10/2023
[5] Markets Insider, 10/17/2022

By |2023-03-14T18:10:46+00:00March 14th, 2023|Uncategorized|0 Comments

Always Stick to Principles, Especially During Tough Times

As we all know, 2022 was a tough one for investors. Both stocks and bonds declined significantly. In fact, it was the worst year ever recorded for bonds. When times get tough, the statistics tell us investors are prone to making more mistakes due to emotions. It’s therefore helpful to remember what guides us in our financial planning and investing decisions to stay patient and disciplined. Here are the general principles you and I are following:

Why We Follow Principles

  • We do not believe the economy can be forecast with much precision. Covid was the ultimate example of this. Even the Federal Reserve, with over 400 Ph.D. economists on staff, was embarrassingly mistaken on its forecast of “transitory” inflation.
  • Likewise, investment markets cannot be consistently timed. We’re therefore convinced that the most reliable way to capture the long-term return of stocks (over 10% annually) is to ride out their periodic declines. In inflation-adjusted terms, stocks have outperformed bonds and cash by a wide margin – the math is powerful over time.
  • Stock ownership is the only asset class that truly captures the upside of human ingenuity and creativity. We know that the engine of wealth building in stocks is the compounding effect. We must never unnecessarily interrupt the compounding.
  • Individual investors historically have underperformed their own investments because they oftentimes buy and sell based on emotions. As my long-term mentor, Nick Murray, says, “Stocks are returned to their rightful owners during bear markets.” Never forget: for every pessimist/seller, there is an optimist/buyer for that stock trading hands.
  • We believe in continuously acting on a rational plan versus reacting to current events. Reacting most likely means that our emotions are involved. Unless our goals have changed, there is generally little reason to make significant changes to our investments.
  • The historical data underscore my conviction that the essential challenge to long-term successful investing is not intellectual, but temperamental. It is how one reacts, or chooses not to react, to stock market declines.

How We Do It

  • Planning. You and I are long-term, goal-focused, planning-driven investors. The best method to stay focused is to formulate a detailed financial plan and to build diversified investment portfolios that match the goals set forth in our plans. We do not develop portfolios based on headlines, what’s “hot”, market movements, or some pundit’s view of the economy. This helps us understand that short-term price movements in markets are irrelevant to our long-term goals.
  • Diversify. We diversify by investing in a variety of stocks that include small and mid-sized companies, foreign companies, bonds, real estate, and commodities. Though diversification was challenged last year, it’s generally effective because it helps us stay invested by smoothing out the highs and the lows of investment markets.
  • Cash and bonds for short-term goals. We always make sure that we have enough cash (and bonds) for near-term expenses not covered by other (retirement) income. This helps us ride out the periodic stock market declines.

Current Observations

  • Inflation peaked over the summer months and is now retreating in key areas. The money supply (called M2) exploded in 2020-21 when the government injected funds into a shut-down economy. Combined with supply-chain and other issues caused from Covid, this led to significant inflation (too many dollars chasing too few goods and services). But M2 has actually been shrinking since last spring – this is unusual but a necessary development if we are to get inflation under control.[1] The Fed was late, but at least they’re committed to arresting inflation. And this they must do, for inflation is an economic cancer that affects all of society and distorts how capital is invested. The impact of M2 takes about a year, so naturally we are now seeing inflation retreat – just as it took about a year from the M2 explosion to see inflation.
  • We’re all at least vaguely aware of the basic economics principle that prices are determined by supply and demand. To force down demand, the Federal Reserve has raised interest rates aggressively and relentlessly for nearly a year. We all think twice about financing the purchase of a new car or home when interest rates are higher. However, supply is different. The Federal Reserve cannot create more energy, more food, or anything else that is in short supply. In fact, the Fed should be careful on raising rates too high because that will eventually reduce supply. If you’re running a business, you’ll be reluctant to borrow money to create that supply.
  • The financial media is screaming recession for 2023 every chance they get as predicted by the “inverted yield curve” – this means that short-term interest rates are higher than long-term interest rates. Well, this could happen. If it does, so be it. I’m pretty sure an inverted curve has predicted eight of the last five recessions – or something like that. So we’ll just have to see how it plays out. In the meantime, I don’t see any reason to make wholesale changes to investment portfolios.
  • Inflation for goods has eased significantly. But inflation remains stubbornly high for services due to the tight labor market. Significant numbers of workers have not come back to the labor force post-Covid – and perhaps they never will. In the meantime, businesses must find ways with technology to improve productivity to get more production from their work forces. I remain optimistic that robotics, automation, artificial intelligence, and other technologies will play a key role here.
  • Earnings during 2022 mostly held up for the S&P 500 companies – and this ultimately drives stocks prices. When we receive the 4th quarter numbers, earnings should be up around 4% overall versus 2021. Clearly some sectors performed better than others, but the overall earnings picture for 2022 was an upside surprise considering the inflationary pressures. More importantly, earnings estimates for 2023 are expected to be positive again (though analysts believe earnings will contract slightly in the first half 2023).[2]
  • We now have a divided Congress. As an investor, I hope you regard this a firm positive. We tend to get more sensible legislation when both political parties work together. Markets like certainty, and it now appears that tax increases will not be enacted the next two years. Yes, some tax damage was done the last two years, but it could have been worse.[3]

Looking Ahead to 2023

If you’ve stuck with me to this point, I hope it’s clear that patience and discipline through planning is the key to long-term success – not the events that rock markets periodically. As I like to say – and, well, I stole this from somewhere – bad news happens fast while good news happens slow. And the media will make darn sure you get every bit of the bad news.

Regardless of what happens to financial markets in 2023, it will most likely have no impact on whether you reach your goals as long as we’ve done the proper planning and we stick to the plan. Regardless, such developments are not within our control. We can control how hard we work, how much we save, and how much we spend. Beyond that – and the planning – events are outside of our control.

But setting all that aside, here is how I think about things from a larger perspective: as long as we can freely own property, as long as the business community can write and enforce contracts in our court systems, as long as we remain relatively free from government intervention, and as long as people and businesses are rewarded for implementing great ideas to make our lives better, then I remain confident that our investments will carry us to
our goals.[4] So stated by your humble Optimist!

Thank you for your continued trust and confidence. It is a privilege and a genuine pleasure to serve you. As always, I welcome your comments, questions, and concerns if you would like to speak. We wish you and your family a Happy New Year!

[1] “FRED St. Louis Federal, December 5, 2022.
[2] Yardeni, January 9, 2023.
[3] Wallstreet Journal, January 3, 2023.
[4] I highly recommend the book Leave Me Alone and I’ll Make You Rich, by Deirdre Nansen McCloskey and Art Carden.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Marshall Investment Management, LLC, a registered investment advisor. Marshall Investment Management, LLC and Kirsch Wealth Advisors are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The information contained in this email message is being transmitted to and is intended for the use of only the individual(s) to whom it is addressed. If the reader of this message is not the intended recipient, you are hereby advised that any dissemination, distribution or copying of this message is strictly prohibited. If you have received this message in error, please immediately delete.

By |2023-01-16T05:55:27+00:00January 16th, 2023|Uncategorized|0 Comments

Your 2022/2023 Year-End Guide

To ease some of the burdens of the upcoming tax season, this helpful guide will help you become familiar with important dates, deadlines, challenges, and opportunities that may come up toward the end of the year.

Of course, if you have additional questions about anything included in this guide, please call (303)647-1220.

We look forward to working with you this tax season!

Download Your Guide Here

By |2022-11-08T20:27:26+00:00November 8th, 2022|Uncategorized|0 Comments

The Jury is Still Out on Mr. Market

As we’ve been discussing in this blog since the Spring, the Federal Reserve’s hiking of interest rates will result in one of three outcomes: a recession (perhaps a deep one), stagflation (combination of high inflation and low or even negative growth), or a “soft landing” (the economy avoids a recession while inflation comes down meaningfully). Here we are many months later, and the jury is still out deliberating – we simply don’t know yet how this will play out. In the meantime, interest rates have soared to levels we haven’t seen in decades pummeling bond prices along with stocks. For investors who thought they had conservative portfolios, this has been an especially painful drawdown.

Is There Any Hope Out There?

Yes, there are certainly some reasons for optimism, but it’s quite possible that markets will deteriorate further before they get better. A recession in 2023 is not a foregone conclusion, but it’s certainly looking more likely. But consider that stocks might already be priced for a recession…this certainly looks true for small and mid-sized companies.[1] The money supply (M2) has continued to grow at a very slow pace for the last 6 months, which helps inflation – though it takes about 12 months to impact the inflation numbers. And there are many signs that inflation is cooling in key areas that were red hot: you don’t have to look any further than housing – with mortgage rates near 7%, home prices have run into a wall.

The Bear Has Also Gotten to Bonds

The terms “bear market” (price drop of 20% or more) and bonds don’t generally belong in the same sentence. But they do this year. By far, this is the worst year on record for bonds. Even conservative, investment-grade bond funds are down 20% and more this year.

But here is the good news with bonds: assuming the issuers of the bonds don’t default, then the bonds will mature at par value (i.e., the original cost of the bond). As the bonds approach maturity, they will regain their losses (up to par value).

Let’s use an example. Let’s assume you purchased a $1,000 U.S. Treasury bond yielding 2% last year, and its value has dropped to $950. Today, you’re not feeling very good about a 5% loss in value on “safe” investment. However, if you hold onto the bond until it matures in another year, then you will receive $1,000 from the U.S. government. You would therefore receive a $50 gain to maturity plus another $20 in interest. From here, that would be a return of 7.37%.

And if interest rates decrease between now and maturity – they typically do during recessions – then bonds could see substantial gains in value prior to maturity. Right now, markets are pricing inflation at 2.69% over the next five years.[2] If that comes to pass, then interest rates should drop alongside inflation in the next few years and boost the value of bonds.

Stick to Your Financial Plan

Investors are prone to making big mistakes at market bottoms and market tops. We’re all human, so it’s understandable that emotions would begin creeping into our thinking when markets move too far in one direction. The emotion is always rooted in fear: fear of loss and fear of missing out. If you’re feeling some fear right now, it’s understandable. But it’s crucially important that you do not act on the fear and exit your security positions.

And now, the boring but important stuff: There are three general asset categories: cash, bonds, and stocks. The key to financial planning is matching these categories of assets to the time in which you will need the money from your investments to fund the goals set in your financial plan. For goals coming due within 2 years, you should have enough cash on hand to cover those expenses (or anticipated cash from investments and other sources). For goals coming due within 3-7 years, we recommend bonds or other income-oriented investments. And for goals coming due 8 or more years from now, we recommend that you invest in stocks. Please remember that, on average, we recover from equity bear markets in a little over three years, so I hope this provides some comfort that you can wait out these downturns with some confidence.[3]

If you’ve done the proper financial planning, then this should help keep emotions out of investment decisions. Why would anyone liquidate a beautifully constructed portfolio of stocks when they won’t be needed for at least 8 years? Yes, bonds will be needed sooner, but we’ve already covered the built-in price appreciation you will get with bonds.

Don’t Forget the Opportunities Mr. Market is Presenting!

Roth Conversions

It’s a great time to consider a Roth conversion. For married people, tax rates are scheduled to remain lower through 2025, so considering a Roth conversion was a good idea anyway. But now it’s even better when you can move securities – at depressed prices – into a Roth IRA where, over time, they should rebound in price inside a tax-free vehicle. There are a lot of considerations prior to converting to a Roth IRA, so please obtain professional tax and financial planning advice prior to proceeding.

“Tax Loss Harvesting”

In taxable accounts, it’s an ideal time to sell securities to “harvest” losses to offset present and future gains. The idea is to sell an existing security that has a loss and reinvest in a similar security so that you remain invested. You cannot reinvest into the same security for 30 days or the IRS will disallow the loss.


With higher interest rates, annuities are attractive again. They’re not appropriate for every situation, but they can be an excellent solution for certain situations. There is a lot to consider before purchasing an annuity. You give up liquidity, but you eliminate some important risks in your financial plan.

Certificates of Deposit (CDs)

We’re now seeing rates above 4% for brokered CDs that mature in one year. Considering that banks remain stingy on what they are paying bank depositors, a brokered CD might be a good option for your excess cash.


This has been one of the most difficult market environments I have ever seen.  But there is no reason to panic.  Stay patient, stay disciplined, and stay invested.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Marshall Investment Management, LLC, a registered investment advisor. Marshall Investment Management, LLC and Kirsch Wealth Advisors are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

By |2022-11-01T17:06:52+00:00November 1st, 2022|Uncategorized|0 Comments

Stocks Had Their Worst Start Since 1970…But My Inner Optimist is Waking Up

“What’s glaringly missing in the headlines is that in 1970 the S&P 500 lost 21% in the first six months but recovered 27% in the second half. And that’s not the only example of significant second half turnarounds.”
– LPL Research Note to advisors on 6/30/2022.

Perhaps you’ve heard it 11 or 100 times in the last week or two: the first six months of 2022 was the worst since 1970. True, it was. In fact, we saw the S&P 500 decline 23.6% from its previous high. The NASDAQ was worse.[1] Mainstream bond indexes piled on by declining over 10%. The year 2022 has undoubtedly been a tough year so far.

More noteworthy even than the extent of the decline was its gathering violence in mid-June when the market ran off a streak of five out of seven trading days during which 90% of the S&P 500 stocks closed lower. This is one-sided negativity on a historic scale. According to LPL, the S&P 500 declined more than 5% each in back-to-back weeks in mid-June: something that’s only happened seven other times since WWII.

Don’t Do It!

And now you can probably guess what I am going to say: historically, the best way to destroy any chance for lifetime investment success has been to sell one’s stock holdings into a bear market. Selling when everyone else is selling must strike us as the height of foolishness. It might feel good in the moment to sell, but these are generally mistakes from which investors never recover. Think of it another way as succinctly stated by one of my long-term mentors: stocks are returned to their rightful owners during bear markets.

As previously stated in these emails – and why stock prices are suffering so much – market participants are primarily concerned that the Federal Reserve will raise interest rates too high and drive the economy into recession.[2] If they do, then so be it. There is nothing to be done about it. And we certainly would prefer a temporary recession and another 10% to 15% drop in stock prices rather than the scourge of sustained and elevated inflation. Rather than focusing on recession or where things might be headed in the short-term, it is my mission to help you stay focused on the goals set in your financial plans while allowing dividends on your stocks to be reinvested at lower prices. And if you’re still working, even better…each contribution to a retirement account is buying shares at a lower price. Remember – and we are VERY disciplined in this with financial plans – you do not need to liquidate ANY stocks in your portfolio for at least seven years. So why on earth would it matter if we go into a temporary recession?

Why Inflation Is Probably Peaking

Let’s move on to the good news. The enormous growth rate of money in the economy (“M2”) that caused the inflation is now crashing down. The May number was released on June 28th.[3] And it was beautifully low. We have now strung together four impressive months of low money growth that has now averaged only 1.8% annually. For context, M2 averaged around 6% annual growth each year prior to Covid, and we were solidly over 10% growth in the first quarter of this year. It’s been an impressive turnaround the last 3-4 months.

The current money in the system is still out there, so inflation will persist for a time. And there are certainly energy, food, materials, war, labor, and supply-chain issues that will linger. But the main driver of inflation is now turning the other direction. My Inner Optimist likes what he’s seeing for the first time in months.

According to Scott Grannis (where I got the chart above), this is the “most important chart in the universe right now.” M2 exploded right along with government spending, and, well, you don’t need a PhD in economics to figure that one out. The only thing surprising is that the PhDs at the Fed were surprised by the inflation we got. The Fed and the government did a cash dump into the system at a time when supply was crimped by Covid and simply couldn’t keep up with demand.

It’s not entirely clear what the Federal Reserve will do with interest rates going forward. Three months ago, I would have said that a “soft landing” by the Fed was near a zero probability (meaning that inflation is brought meaningfully back under control without triggering a recession). I’m reluctant to put a probability on it now, but I think it’s more than a mere possibility – it might even be approaching probability. Economic growth is clearly slowing in the economy. At some point, this should slow inflation, especially when combined with slower money growth. As mentioned in my last post, there is a lot to like in the economy from strong company earnings estimates to strong consumer and business balance sheets to a low unemployment rate.

We’ll know more in the next month or two as companies report second quarter earnings and, perhaps more importantly, provide guidance on how inflation is impacting their businesses. If companies have a tough time handling inflation and guide earnings estimates lower, then we are probably in for some further pain. But if we get solid earnings reports along with any positive inflation data, then perhaps the Fed backs off a bit on interest rate increases…that could be very good for markets.

My Inner Optimist is waking up. Stay patient, stay disciplined, and stay invested.

[1] The beginning of the downturn in growth stocks started in February of 2021, accelerated in November of 2021, and hasn’t stopped. Growth stocks are more sensitive to inflation and rates because the cash flows from these companies are further out into the future. If you took a finance class in college, remember one of the main finance principles: would you rather I pay you a dollar today or a dollar tomorrow. The answer is always today, because it’s worth more. And this is especially true in an inflationary environment when that dollar would be worth even less in the future.
[2] As an aside, bondholders are more concerned about inflation than recession. Inflation erodes the real value of future interest payments. In a recession, a bondholder is concerned about default, but they are higher in the corporate capital structure and would get paid prior to stockholders.
[3] “FRED St. Louis Federal, June 06, 2022.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Marshall Investment Management, LLC, a registered investment advisor. Marshall Investment Management, LLC and Kirsch Wealth Advisors are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The information contained in this email message is being transmitted to and is intended for the use of only the individual(s) to whom it is addressed. If the reader of this message is not the intended recipient, you are hereby advised that any dissemination, distribution or copying of this message is strictly prohibited. If you have received this message in error, please immediately delete.

By |2022-07-11T19:15:49+00:00July 11th, 2022|Uncategorized|0 Comments

Another Bad Inflation Number…and Why You Shouldn’t Care

Last week, the government released the May inflation report. The news wasn’t good – and markets sold off. On top of that, we are apparently in one collective bad mood, at least according to the well-respected Michigan Consumer Sentiment survey. The lowest sentiment number ever recorded was just released in the most recent survey.[1] It’s hard to blame consumers when there is a gas “scoreboard” broadcasting the pain on street corners everywhere and, like the Progressive Insurance commercials, you find yourself turning into your parents by discussing grocery store price increases. But there is some good news under the surface that you might not be hearing about. And with a properly designed financial plan, you’re ready for whatever markets throw at us.

Recession, Stagflation, or Soft Landing?

Assuming no more shocks to the system, it’s widely assumed that things will likely go one of three ways: one, the Federal Reserve (the “Fed”) engineers a “soft landing” as we return to 2% inflation while maintaining positive economic growth; two, the Fed is unable or unwilling to control inflation, and we end up in a sort of elevated inflationary period with weak or even negative economic growth (i.e., “stagflation”); three, the Fed follows through on their recent tough talk and sends the economy into recession by significantly raising interest rates to get inflation under control (a recession is generally defined as consecutive quarters of negative economic growth).

Now, as a long-term, patient, and disciplined investor – with goals set within your financial plan that have investments matched to that time when you will need that money – can I please remind everyone: who cares which way this goes! There is nothing to be done about it. And only a novice would try to time markets by withdrawing capital from investments at just the right time (and that time has passed) and then hope to be correct a second time by deploying capital back into investments later on when stock prices bottom out. Stock prices will turn up well before the data show that everything is getting better. The only way that we can be sure of capturing the superior returns of stocks is by staying invested, period. A great way to impair your progress – permanently – is to try to time markets.

Recessions come, recessions go. It’s a natural process in a capitalist system that washes away the excesses of prior decisions that, in retrospect, seem rather dumb. Assuming you don’t need your capital from stocks when the recession arrives – and you certainly shouldn’t with a proper financial plan – then let markets do what they will do. An average recessionary bear market typically cuts about 35% off the S&P 500 index. As of this writing, we are well over halfway there, assuming that’s indeed where we’re headed. If the Federal Reserve breaks inflation with a recession, then stop and think about the other side of that. In the five years from August 1982 to August 1987 (after the Fed broke “The Great Inflation”), the S&P 500 tripled![2] So maybe the real risk is missing out on a 300% gain rather than on another 15 to 20% decline.


Now that we’ve established that no action should be taken that will permanently impair your progress, let’s soberly assess our inflation problem and why it might stubbornly persist for a while.

There are two main problems with inflation. First, there is too much money in the system from the enormous amount of fiscal “stimulus” that the government injected into the economy. Second, we have a supply problem, most obviously with energy, labor, food, and other niche things like semiconductor chips.

The Amount of Money in the System

There is about $4.8 trillion of excess money sloshing around out there. For perspective, there is a total of about $22 trillion of money, or what is called “M2”. This money has caused a classic “Economics 101” scenario to unfold: too much money chasing too few goods and services. This will take time to fix. Critics say the Fed is responsible for buying too many government bonds to finance government spending and keeping interest rates too low for too long – both of which led to more money creation. They’re probably correct.

The Federal Reserve can lower the money supply by discouraging borrowing. They do this by raising interest rates. Less borrowing means less money creation. For how money is created, see my March 18th post. But for now, the Fed is nowhere near “tight” with monetary policy – we’re still sitting on a one percent short-term interest rate versus 8.6% inflation.[3] That’s the furthest thing from tight…meaning a recession is probably not on our doorstep. But the Fed’s tough talk combined with higher commodity prices appear to be tightening monetary conditions without drastic action by the Fed.

So now the good news: these tighter conditions already seem to be impacting the supply of new money, as the growth rate in the money supply substantially slowed over the last three months.[4] Frankly, I’m surprised at the turnaround in this number. Perhaps we can now claim that there is a light at the end of the inflation tunnel. If the money supply continues to cooperate, then that should help bring down inflation later this year or next (there is typically a lag on inflation following money supply changes).

Supply Problem

Here is where the Federal Reserve is stuck. They cannot create more oil, more diesel fuel, more semiconductor chips, or chicken, beef, eggs, etc. In fact, by raising interest rates, they run the risk of reducing supply even more. Management teams might think twice about borrowing more money to expand supply when the cost of that capital is now higher. Sure, in the right situations, that will happen. The Fed needs to be very careful here. The war in Ukraine and the fallout have pressured supplies even further. Let’s talk energy.

Energy Supply

Things don’t get better here. Most reasonable people are all-in for a carbonless world, but the facts of our energy consumption say that is unrealistic for now. Doing research for this post, I set out to see what the latest trends are from renewable sources versus fossil fuels, total consumption, emissions, etc. Surely, all of these new solar and wind projects have caused fossil fuel usage to go down, right? Unfortunately, no. Even the use of coal remains stubbornly high. Outside of a dip in overall energy use in 2020 (during lockdowns), we remain at or near all-time highs in our total need/use of fossil fuels. Fossil fuels still provide over 80% of our world-wide energy.[5] In other words, we still desperately need fossil fuels, and the renewable energy sources don’t seem to have made even a dent in that demand. To be sure, fossil fuel use would be higher without renewable energy, but we’ not going down in total fossil fuel usage.

Fossil fuels are obviously a sensitive political topic. I will leave that discussion to the energy and other experts. But here’s what I know: when people in power are unfriendly to capital, then that capital will go somewhere else where it’s treated better. It’s hard to imagine that energy executives and investors feel comfortable right now committing capital to long-term oil and gas projects knowing that, once the current crisis resolves, they will be on the wrong end of politics again. Add in shortages of labor, sand, and other materials needed to drill, and here we are. Nuclear power also seems to be a sensible carbon-free alternative, but that, too, isn’t getting much love in policy circles.

Therefore, something’s gotta give, and right now it’s the price of energy. Until we get more supply or “demand destruction” (people buy less at a certain price), energy prices will remain elevated. But over the medium to longer-term, technological advances will contribute to solve these problems. Hydrogen from seawater anyone?[6] It’s hard to know which ideas will prevail to solve our energy problems, but the rewards are huge for big breakthroughs – and this always attracts the brightest minds to solve the world’s most vexing problems. It has continuously been this way for the last 250 years.

Some of the Good News I’m Watching

Besides some recent good news on the money supply, here are some further facts to keep in mind. The dollar has recently strengthened, and that’s positive for inflation. The leading economic indicators remain firmly positive.[7] Consumer spending drives the majority of our economic growth, and the consumer overall remains strong – household debt ratios remain near all-time lows.[8] Our employment numbers also remain strong. Supply chains are finally showing signs of easing.[9] China is coming out of lockdown – let’s hope this holds – as this should help further ease supply-chain problems. We remain in growth territory on important manufacturing and services metrics.[10] And S&P 500 company earnings are expected to grow around 9% this year.[11] There is a lot to like here.

None of these facts are meant to convince you that we won’t enter a recession or a deep bear market in stocks. We might. But a normal recession is usually caused by the Fed having to raise interest rates to slam the brakes on excesses created in the private sector. We can’t blame the private sector this time. Rather, loose fiscal and monetary policies have mostly gotten us into this mess. Therefore, my hope is that the private sector holds up better than many anticipate as we work through things.


Expect short-term pain, but we stay invested, we focus on executing our financial plans, and we anticipate continued problems with inflation. And we do not let markets, inflation, the media, or anything else derail our investment strategy. This too shall pass. It’s an election year, so it’s important to be ever more vigilant to discern facts from hyperbole.

As always, I remain confident that our patience and discipline will be rewarded. I am only a phone call away to discuss any concerns or questions you have. Thank you for your continued confidence and trust.

[1]Surveys of Consumers, June 2022[2]S&P 500 Historical Prices by Month, 06/13/2022. And this doesn’t include dividends![3]“Tight” monetary policy would be a short-term interest rate that exceeds the rate of inflation.[4] FRED St. Louis Federal, May 02, 2022.[5] US Energy Outlook Introduction, March 03, 2022. Hannah Ritchie, Max Roser, and Pablo Rosado (2020) “Energy” Our World in Data., April 26,2022.[6] CNBC, October 1, 2021.[7] FRED St. Louis Federal, April 2020.[8] See JP Morgan Guide to the Markets, page 22.[9], May 2022.[10], Spring 2022.[11] YRI S&P 500 Earnings Forecast, June 13, 2022.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Marshall Investment Management, LLC, a registered investment advisor. Marshall Investment Management, LLC and Kirsch Wealth Advisors are separate entities from LPL Financial.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The information contained in this email message is being transmitted to and is intended for the use of only the individual(s) to whom it is addressed. If the reader of this message is not the intended recipient, you are hereby advised that any dissemination, distribution or copying of this message is strictly prohibited. If you have received this message in error, please immediately delete.

By |2022-06-14T17:49:58+00:00June 14th, 2022|Uncategorized|0 Comments
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