We are at the time of the cycle where talk turns to the election. If this update is too long, we have a simple message: regardless of who wins the election, don’t bet against America, we’ll be okay.
I recently met with an impressive 90-something-year-old client of mine who’s been managing his own investments for most of his life. It’s only recently that he decided it’d be a good idea to give up [some of the] reins and lean on an advisor. I have to commend a decision like that.
Any time the market makes big moves, specifically big negative moves, people are going to try to find the “why” behind the price action. It’s human nature. We love to find patterns and meaning. As I have said before, it is a worthwhile practice to understand the reason for market moves because it can demystify them and make them more bearable. However, it can also be a source of anxiety to be steeped in headlines which are designed to manipulate emotions. There has been no shortage of headlines in the last two weeks. Last week we had the Federal Reserve policy meeting, and they held rates steady while opening the door for near-term rate cuts without outright promising them. That same day, the Bank of Japan surprised markets with a rate hike and the yen began to rally relative to the U.S. dollar. Technology companies with an AI angle have been pillars of U.S. stock market performance since early last year and we received some disappointment in earnings releases from a handful of those companies which poured some cold water on AI enthusiasm. We have seen headlines of escalating tensions in the Middle East. There is news of a delayed launch on a new chip from Nvidia. There was a weak employment report on Friday. News came out over the weekend that Warren Buffett’s Berkshire Hathaway had sold a sizeable portion of its stake in Apple and raised cash to a record high. When the Oracle of Omaha makes moves, investors take notice. Amid the volatility on Monday there were headlines about recession risk, emergency Fed rate cuts, the yield curve, and the Sahm Rule. In short, it’s been noisy, and investors could pick a topic to worry about. We can’t cover all these topics, but let’s examine two of the more complicated ones, the Sahm Rule and the yen carry trade, and try to put them in context.
In long-awaited final rules, the IRS finally “clarified” the controversial 10-year rule for inherited individual retirement accounts (IRAs). The new guidance, set to take effect in 2025, addresses a key question that has puzzled many advisors, accountants, attorneys and beneficiaries since the passage of the original SECURE Act five years ago.
The S&P 500 and Nasdaq Composite indexes tend to take up most of the oxygen in the room when talking about the stock market and that can leave other stories untold. So today, let’s peel back the onion and see what’s going on elsewhere in the stock market, ask why that might be happening, and whether that means anything going forward.
“Return on hassle” refers to the concept of evaluating the time and effort required for a financial decision in addition to its expected financial return. Hedge fund manager Bill Ackman has another name for this idea: “Return-on-invested-brain-damage.” If the return isn’t high enough to justify the brain damage or hassle, move on. For real estate investors, this includes the mental and physical labor involved in finding tenants, maintaining properties, and managing debt, among other responsibilities. These are “hassles” that traditional investments like stocks and bonds don’t typically entail. An obsession with tax avoidance is perhaps my favorite topic when considering the “return on hassle.”
I write these articles once a month and my goal is to keep my readers informed. Those readers are, for the most part, clients, colleagues, and friends. That information is typically about the financial markets, about trends, about how I’m approaching a given topic, and about the big picture of finances. There is often a running theme of examining a claim or ill-defined story driven by headlines or sound bites and digging deeper. The market is an inherently noisy thing. There is always something new to grab our attention, always someone making a claim that this is the thing we really must heed. Really! It is worthwhile to examine those stories and claims and see what we can learn, but it’s also easy to get lost in the noise and become distracted from the places our attention really belongs.
When you’re little, the world around you seems to turn like a play. And you’re at the center of it. Scenes change; sets turn over—without so much as an interruption. The show goes off without a hitch. The crew in black aren’t seen as they rush around the stage—but you wouldn’t have noticed them anyway. Because things happen somewhat magically when you’re a kid.
Awareness is the bedrock of financial planning. Awareness of incoming and outgoing cash flows, of risks and returns, of various investment vehicles, of economic conditions, of goals. Awareness. After awareness comes control. Controlling cash flows by directing them in the right investment vehicles at the right time over a long time-horizon to achieve those goals. For perhaps 70% of our lives this is what we are doing. We are saving, investing, and accumulating. Part of accumulating wealth is keeping our burn rate in check. As NYU Stern Professor Scott Galloway says, “Rich is having passive income greater than your burn. People on a path to money focus on their earnings; people on a path to wealth also focus on their burn.”
There has been some talk of stagflation this year and it finally became enough for Federal Reserve Chair Jerome Powell to comment on it. It seems to me that a lot of financial jargon gets tossed about without consideration for the fact that most people didn’t go to school for economics or get a job in finance. So, since it’s in the zeitgeist, maybe it’s time to define some terms and get to the bottom of a couple of questions. What is stagflation? Is it occurring in the U.S. right now?
