In this review, we have chosen not only to look back over the prior 90 days, like we usually do, but we also wanted to look forward as we go up to the end of 2022!
Patience is a Virtue
Jerome Powell (Chair of FOMC) and his fellow FOMC board members have continued to raise rates, much faster and much greater than many, including ourselves thought possible. Rewind back just to the beginning of the year and the federal reserve were actually pushing rates down, in a quick about face by the end of the first quarter, rates were on their way up an asset purchases by midyear had reversed and become asset runoffs. Their purpose is of course to slow inflation a.k.a. CPI (consumer price index), while with great intentions many of the inputs in the CPI index are very lagging and have likely already rolled over but have yet to feed into the actual report due to their delayed nature.
Patience is needed as mentioned in the bullet before this commentary and also greatly outlined in our Q4 2022 newsletter. In that newsletter, which you should already have in your possession, we outline the normal lengths of time that a slowdown occurs and what to expect from almost all angles. The main reason that we did this is to remind ourselves, and everyone else as well, as the last decade has garnered an unusually fast and short slowdowns and commensurate recoveries. With the FOMC on a continued rate increase, this slowdown is likely to be much more similar to prior slowdowns in both time and fatigue of the economy. Patience, we will get there.
Looking Forward but no Predictions
Using history as our guide, the fourth quarter is indeed usually one of the best. However, as mentioned above, the macro economy pulled down by the federal reserve and continued right increases may overwhelm seasonal historical blossoms and weigh down a normally sunny period on the calendar.
Contra moves in both Equity/Stock and Fixed Income/Bond
In slow downs, equity markets have an unusual tendency to slowly drip in reverse and then all the sudden make a jump forward only to slowly start dripping in reverse again.
In this economic cycle, we have a new asset class that is also participating, the Fixed Income Market. As mentioned earlier with the federal reserve and Powell on a continued increase goal interest rates on the longer end of the yield curve i.e., the 10 year (versus the very short one or two) have smartly slowly gone down only to jump backwards up again and then slowly begin their decrees again. Patience is again a virtue, a slowdown leads to lower rates eventually, even with the FOMC raising rates. Patience really is a virtue, we will be there with you, thanks for your time and your patience
John A. Kvale CFA, CFP
Enclosure (2022 Report)
Fourth Quarter 2022 Review, Bill(s), Rates, Bills and Sunshine – Private Policy, Annual Offerings
On December 20th, 2019 the Secure Act was singed into law. On December 27th , 2022 the Secure Act 2.0, a bill long in the works and a mere 4200 pages long was signed into law. The most important item in the financial world (there were a multitude of areas addressed) as the second upping of RMD’s to age 73. Look for more information soon from us.
In December the FOMC (Federal Open Market Committee) led by Jerome Powell raised rates to over 4% after starting the year at zero. As mentioned in our Q1 2023 Newsletter article (Maybe a Tiger can change Stripes0, on a percentage basis this would be a possible once in a lifetime speedy move. This may also be a return to a normal interest rate policy (hopefully) with no intention of going to the zero boundary again. See Next point.
Not getting too wordie, but US citizens “bills” or the increase in them in the form of food, travel, energy, housing just to name a few are what is creating the opportunity of the afore mentioned speed of rates or rate increases. The CPI (Consumer Price Index) measurements continue to hold at much loftier levels than anyone thought possible (somewhat due to lagging indicators) and are allowing rates to rise and likely stay higher for longer. This is a good thing for our safe assets aka Fixed Income/Bonds thankfully as most of the headwinds are likely behind us, again see Q1 2023 Newsletter lead article and associate graphs.
Last year at this time we were reviewing items such as “Anatomy of a Slowdown” and “The R” Word – Recession.
Today, from our unique “Personal Reflections” portion of our Q1 2023 Newsletter :
“Future is better
Just as we pointed out over a year ago what a slowdown looks like and that it might occur, we are now ready to point out later on this year it’s very likely the clouds of higher interest rates and two feet on the economic brakes by Powell are likely to clear.”
This is also the time we attach our Private Policy Statement for the year, along with our opportunity to offer our latest ADV filings and Client Relationship Summary (Form CRS); Requests for review will be accepted via phone, mail or email, and mailed immediately upon request.
Happy Turn of the Calendar, and Best Wishes for the Start of a New Year!
John A. Kvale CFA, CFP
Enclosure (2022 Report)
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Posted in Clients/Clients Only, Economy, FOMC, Interest Rates, Investing/Financial Planning, Market Comments, Performance Report Cover Letter, Retirement Planning
Tagged Cover Letter, Quarterly Cover Letter, Quarterly Performance Cover Letter