“GIGO”, “The World Changed”, and “Bills to Pay” – Nvest Nsights Q2 Newsletter

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We hope you are enjoying summer and sunshine.  Unfortunately, the financial markets remain stuck in a “storm”.  After the difficult first quarter, pain accelerated during the 2Q.  There was no place to hide; bonds and stocks together experienced a 2nd consecutive negative quarter each – a somewhat rare occasion.

Against this backdrop and with so many big worries without easy or quick resolution (inflation, Russia/Ukraine, Fed that is intentionally trying to slow the economy to balance supply & demand), it can become challenging to maintain a longer-term perspective.  Our newsletter this quarter provides the following context:

  • “GIGO” – Do your best to control the type of information you consume, as well as how you react to it.  What version of “GIGO” will you be?
  • “The World Changed” – A review of market action so far in 2022 and context from history providing clues to what might be expected from here.
  • “Bills to Pay” – The “cost” of fiscal and monetary stimulus pursued by governments around the globe in response to the Great Lockdown is being paid in 2022.  How is the bill being paid and how long will that last?
  • “iPod, iPhone, iPad… now the I Bond” – What are I Bonds, and are they for me?

A printer-friendly version of the newsletter, including benchmarking and fund performance data, can be obtained here: Q2 Nvest Nsights.

We realize how troubling is the current market environment and are here for you.  We continue to monitor the backdrop, and be intentional about managing portfolios tactically.  Please do not hesitate to call, email with questions, or to coordinate a time to visit together.

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iPod, iPhone, iPad… now the “I Bond”

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Similar to the steady stream of successful products developed by Apple, it seems the US government hit a homerun with the “I Bond”.  Although this US government savings instrument is not a new product, popularity is spiking (along with inflation) in 2022.  Through mid-June the government sold $14.4 billion of I Bonds, which is 40x more than was sold in all of 2020!  We are receiving a number of questions about “I Bonds”.  As interest rates and inflation increase in 2022, the headline attractiveness of this product is enhanced.

So what is a “Series I Savings Bond”?  What should investors know about this product?

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Special Market Update – “Market Sentiment = Inflation Stress”

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“Sentiment” means an attitude, thought, or judgment prompted by feeling; a refined feeling.

Late last week market sentiment quickly soured, like moving from spring to summer in just a few days; sentiment is very concerned about INFLATION and its influence on the future domestic and global economic path.  It’s not about economic strength – strong consumer spending, or company sales/earnings – it’s all about how the Fed and other global central bankers will be “attacking” stressful inflation.  2022 is the year of rates – inflation and interest rates (the Fed just raised rates another 0.75% – the biggest hike in a single move since 1994).  Inflation is creating demand destruction.  Inflation diverts where consumers would otherwise spend.  That growing concern is causing investors to rethink their attitude toward stocks and bonds.  After approaching these levels in late-May, the stock market officially entered a bear market down -20% on Monday (June 13) following  a short-lived bull market which ran just 22 months (from 3/23/2020 and ending on 1/3/2022).

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Bowling Bumpers – June Commentary

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“Chloe and Miles grew up between the same bowling bumpers that encouraged risks, inflated confidence, and prevented consequences.”  The quote is from “Rock the Boat” by Beck Dorey-Stein.   Ever bowled where bumpers are placed in the gutters on each side of the lane?  Rolling a gutter ball is not possible.  This makes bowling fun for young kids and new bowlers.  But, this concept is dangerous in real life – putting up “fake” guardrails to prevent bad outcomes; then when the trouble occurs, extending “forgiveness” without consequences.  The same concept can occur in life when we are allowed to enjoy our “kicks.” But when the “bumpers” are removed, unwelcome “kickbacks” can occur.  When my boys were growing up they were cautioned, “You can choose your kicks, but you cannot choose your kickbacks.”

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Double-Barrel Shotgun – May Commentary

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The rivalry between the Hatfields and the McCoys is one of the oldest and best-known family feuds in American history.  For nearly 50 years, violence between the two families raged over who owned two razor-backed hogs that swam in the Tug River, a valley area between Kentucky and West Virginia.  Even though the feud ended in 1891, they finally shook hands in 1976; a truce was signed by the families in June 2003.  With a total of 60 deaths between both sides, it’s questionable that either won.  The Hatfield-McCoy legend was embellished by a brief love affair between Johnse Hatfield and Rose Anna McCoy.  Not sure if it was true or not – as a double-barrel shotgun is seldom able to bring sweet marital bliss!

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Special Market Update: “Escalators, Not Elevators”

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Why does investing in the stock market feel like taking an escalator up, and riding an elevator down?  Rising markets seem to be slow upward climbs, like an escalator; the rise occurs over extended time (months and years).  But, a correction or market pullback occurs quickly (days and weeks, or months), like riding an elevator down.   It’s quick.  It seems to take a year to earn 10% in a rising market, but a few days to lose 10%.  The elevator experience is always uncomfortable and creates anxiety.  Yes, anxiety for us too as we manage client accounts with great care and effort.

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“Goes Without Saying” and a “Stitch In Time” – Nvest Nsights Q1 Newsletter

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After nearly two years of strong market gains, investors experienced their first meaningful pullback during the first quarter of 2022.  While it is typical for markets to experience pullbacks and a higher level of volatility after the initial 12-18 months of a new bull market, it is never welcomed or comfortable.  That is probably because the uncertainties that usually accompany them are always unique.  Present uncertainties include a still fractured global supply chain, a Federal Reserve that finds itself needing to raise interest rates and tighten monetary policy in pursuit of arresting inflation that is running at the hottest pace in 40 years; and of course Russia/Ukraine which muddies both challenges further.

This quarter our Nvest Nsights newsletter shares what we’re watching and perspective to the topics/questions we’re most frequently hearing from clients.  Perhaps it “Goes Without Saying” that the backdrop highlighted above implies 2022 will likely remain a challenging year; but there are also some important messages to be heeded from history.  There is also the saying that “A stitch in time saves nine”;  while ‘main street’ consumers may not welcome rising interest rates and the impact on the cost of borrowing (or the markets in the short term) it is nonetheless appropriate for the longer-term health of the economy.  The markets are adjusting to a changing investment landscape.  We close the update with our personal finance theme article with a change coming to employer 401k statements this year.  Will the new “Lifetime Income Estimates“ being provided help you feel more secure?

A printer-friendly version of the full quarterly newsletter, including benchmarking and fund performance data, can be obtained here: Q1 Nvest Nsights

As always, please do not hesitate to let us know if you have any questions or would like to coordinate a time to visit.

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401k Lifetime Income Estimates… Will You Feel More SECURE?

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If you are fortunate enough to have a company sponsored 401K plan, you will likely see some new (and potentially confusing) illustrations on your statements in the coming months.  The changes are related to the 2019 Secure Act passed by congress.  The mandate requires 401k administrators to provide an estimate of “guaranteed lifetime income” assuming your current 401K was completely “annuitized”.

What does it mean to “annuitize” your current 401k balance?  Continue reading→

Turn! Turn! Turn! – March Commentary

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“Geopolitical conflicts and/or exogenous events do more to reinforce trends already in place, rather than act as a catalyst for change (in the markets) – Strategas Research Partners.”  Gold is rallying; oil is in a bull run higher; value style is besting growth while Tech is a pronounced underperformer.  And Bitcoin –who’s strongest advocates claim it to be an alternative currency – is yet to offer any hedge or stability to risk assets.  These trends don’t change (because of geopolitical issues), just the urgency of them.  The horror and uncertainty of the Russian/Ukraine invasion is extreme; it is terrible, inappropriate, and immoral. It is most challenging to offer thoughts on how it will play out, as no one knows.  We can pray that it is a temporary geopolitical event which will hurt Russians economically, and will slow Germany and Europe economies (to a lesser degree), and will marginally slow other global economies depending on their connections to Russia/Ukraine.  At present, the US bond market is functioning normally (unlike March 2020 when COVID hit and the Great Lockdown was initiated).  There is increased volatility in all markets, but there is not dysfunction.  There is the normal, predictable flight to safety.  Please read our Special Market Update, “Market BUMPS to Climb On” from February 23 on our website, at www.nvestwealth.com.Continue reading→