Special Market Update

Special Market Update

A Whole Flock of Canaries

Back in 1911, British coal miners started taking canaries into the mines. Because of the bird’s sensitivity to carbon monoxide, an ill or listless canary would give miners warning. The practice continued until 1986.[1]

So began the expression “a canary in the coal mine” to denote a warning of imminent peril. 

As students of the markets, we are beginning to see a flock of ailing birds everywhere. They warn not just of market weakness but potentially of market collapse.

Canary #1: The Afghan Collapse

The markets don’t like political instability. The recent fall of the Afghan government wasn’t supposed to happen. It shares many patterns with other intelligence embarrassments like 9-11 and Pearl Harbor.[2]

Eleven thousand U.S. citizens remain stranded in Kabul. What happens if just one of these American citizens ends up dead, captured, or jailed?  The market won’t like it.

Not many know it, but Afghanistan has the world’s third largest supply of rare earth elements—critical to satellites, DOD weapons systems, and other high-tech systems. China has already made it clear that it will be the Taliban’s new big brother, so these rare elements will probably be added to China’s already monopolistic supply.[3]

Canary #2: The FED and Transitory Inflation

​With today’s release of the Fed’s June 2021 minutes[4] we learned what transitory inflation might look like. Of course, further important inflation data will come in July,[5] but the minutes provide further detail on the Fed’s thinking.

“Transitory” May Mean About 6-9 Months

Despite using the term transitory for our current 5% inflation,[6] the Fed hasn’t precisely defined the term. According to the notes, the Fed generally expects elevated inflation for the remainder of this year, but moderating into 2022. Thus, elevated inflation might linger for another several months. Not all Fed policy makers share this view, some suspecting inflation may last into 2022.

To some degree, the Fed is also keying off market expectations. These suggest higher inflation in the short-term, but without much of an impact on long-term expectations after a year or two.

Base Effects Matter

The Fed believes that base effects are one important driver of the current surge in inflation. Last year, at around this time, inflation was subdued. But in 2021, we are seeing inflation catch up with last year’s unusual drop. Though inflation may remain elevated, this base rate effect will cause inflation to begin to calm over the coming months, just as comparatively, inflation picked up off low levels toward the end of 2020.

Supply Bottlenecks

The main driver of inflation is supply bottlenecks as the economy reopens. Paired with robust consumer demand, clogs in supply pressures prices upward. Again, the Fed sees these unusual disruptions to the economy moderating into 2022 as global supply chains work out their current issues.

What Could Change the Fed’s Outlook

Indeed, even now the high rate of inflation surprised many on the committee. The notes stated: “The actual rise in inflation was larger than anticipated.” Despite the surprise, however, the Fed doesn’t appear too concerned just yet.

Given that base rates serve as a key driver, if inflation doesn’t show a downward trend over the coming months, that may prove a concern for the Fed. While inflation may be high for a while, if we aren’t heading into a rate far closer to the Fed’s 2% inflation target by early 2022, that too will be a concern for the Fed’s transitory-inflation thesis.

If inflation doesn’t ease, monetary policy might have to adjust. The market won’t like higher interest rates, and investment strategies will have to adjust. That adjustment might cause some angst.[7]

Summary

Just because prices are going up doesn’t mean that inflation is. Inflation, after all, is the rate at which prices are advancing, not the fact that prices are rising in themselves.

It makes no sense to claim that “transitory inflation” includes all versions of the world in which inflation does not stay at, or make, new cyclical highs on a sequential basis.

In this sense, recent curve flattening and a sustained rise in short-term rate expectations could also be a result of the bond markets discounting a world in which inflation stays high enough to prompt policymakers to withdraw policy stimulus quickly enough to dent growth and tighten financial conditions.

The amount of time spent by economists debating the ins and outs of inflation is mostly an attempt to assure each other, and policymakers, that the spectacular CPI (Consumer Price Index) and PPI (Producer Price Index) headlines we now see in the news are nothing to worry about. It follows that slowing the pace of asset purchases—not to mention raising interest rates—would be a grave and unforgivable error.

Canary #3: What Happens if the FED Tapers?

Tapers.

We hear the term all the time. But when did it enter the financial vocabulary? That would be May 22, 2013, “when U.S. Federal Reserve Chairman Ben Bernanke stated in testimony before Congress that the Fed may taper, or reduce, the size of its bond-buying program known as quantitative easing.”[8] 

And what happens when the FED slows down its bond-buying program? The rate of increase in the money supply begins to diminish. The money supply doesn’t get smaller. It just doesn’t grow as fast.

The money supply has an enormous impact on stock and bond markets. If the money supply increases, that money has to go somewhere. If it goes into the stock market, prices of stocks go up.

The FED increases the money supply by increasing its balance sheet. That means, the FED enters the private market and buys government and sometimes corporate bonds.

How the Money Supply Grows

How does a FED purchase of a bond increase the money supply? Suppose you have a government bond. You sell the bond to Jim. Jim writes you a check for $1,000, which you deposit in your checking account. Jim’s balance goes down $1,000. Yours goes up $1,000. There’s no change in the amount of money in circulation.

Now suppose you sell your bond to the FED. The FED sends you $1,000, which you deposit into your checking account. Your account goes up by $1,000. But the FED’s “checkbook” does not go down by $1,000. It bought your bond with money it creates out of thin air. So, the money supply of the nation goes up by $1,000.

Now consider what the FED did to respond to the COVID crisis. On March 11, 2020, the FED’s balance sheet stood at $4.31 trillion. Flash forward to June 22, 2021, on that date the FED’s balance sheet totaled $7.94 trillion.[9] These FED purchases of bonds caused the money supply to increase by $3.6 trillion.

Those extra dollars poured into the stock market, they poured into real estate, they poured into artworks and yachts and jewelry and Bitcoin. And as those dollars poured into these various sectors, they precipitated significant increases in the “value” (price) of those assets.

What Does a Taper Do?

Tapering doesn’t decrease the money supply. It just slows down its rate of increase. But even a hint of tapering might cause upheaval in the markets.

An analysis of what a decrease in the rate of increase of the money supply gets complicated. Though difficult to comprehend, the analysis makes for interesting reading. We suggest you spend some time and look over this treatment of the issue from Bloomberg: Following the Money Suggests Stocks Have a Problem.[10]

Canary #4: The Supply Chain Crisis

The stories keep coming: a new worldwide wave of COVID-19; natural disasters in China and Germany; a cyber attack targeting key South African ports. All these have conspired to drive global supply chains towards a breaking point, threatening the fragile flow of raw materials, parts, and consumer goods.

The Delta variant of the corona virus has devastated parts of Asia and prompted many nations to cut off land access for sailors. Resulting in captains unable to rotate weary crews and about 100,000 seafarers stranded at sea beyond their normal stints—a flashback to 2020 and the height of lockdowns.

“We’re no longer on the cusp of a second crew change crisis, we’re in one,” said Guy Platten, secretary general of the International Chamber of Shipping. “This is a perilous moment for global supply chains.”[11]

Because ships transport around 90% of the world’s trade, the crew crisis is disrupting the supply of everything from oil and iron ore to food and electronics. German container line Hapag Lloyd described the situation as “extremely challenging.” “Vessel capacity is very tight, empty containers are scarce and the operational situation at certain ports and terminals is not really improving,” it said. “We expect this to last probably into the fourth quarter—but it is very difficult to predict.”[12]

Meanwhile, deadly floods in China and Germany have further ruptured global supply lines, which had yet to recover from the first wave of the pandemic.

More Pain for Automakers

Automakers are again being forced to stop production because of disruptions caused by COVID-19 outbreaks. Toyota Motor Corp said this week it had to halt operations at plants in Thailand and Japan because they couldn’t get parts.[13]

The bad news list goes on and on:

· In the U.K., Stellantis temporarily suspended production at a factory because workers had to isolate to halt the spread of the virus.[14]

· The shortage in semiconductors, mainly from Asian suppliers, has caused considerable disruption in auto production. Many thought the shortage would ease in 2021, but now some senior executives say it will continue into 2022.[15]

· The price of steel has surged partly due to higher freight costs. According to an executive at a South Korean manufacturer of auto parts: “When factoring in rising steel and shipping prices, it is costing about 10% more for us to make our products.”[16]

Canary #5: COVID, COVID, and More COVID

As if we all haven’t had enough, now our eyes blur as screen after screen of information scream at us: The Delta Variant Is Already Leaving Its Mark on Business.[17] According to the Wall Street Journal:

“Repercussions from the Delta variant of Covid-19 are starting to ripple across companies, raising staffing costs in senior housing, disrupting production of potato chips and leading some companies to rein in profit projections.”[18]

It remains unclear whether these effects are temporary or the beginning of something far more serious.

Of this, we’re certain. This execrable virus is one more canary in our growing flock. But we can all join together and hope, the birds stop there.

Please Call Us

If you have any questions, comments, or suggestions, or if you’d like to review your assets, please call 301-294-7500. We are always happy to answer any questions you have.

[1]https://www.smithsonianmag.com/smart-news/story-real-canary-coal-mine-180961570/
[2] https://www.jpost.com/middle-east/afghanistan-and-the-history-of-intelligence-failures-analysis-676977

[3] https://www.cnbc.com/2021/08/17/taliban-in-afghanistan-china-may-exploit-rare-earth-metals-analyst-says.html

[4] https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20210616.pdf

[5] https://www.forbes.com/sites/simonmoore/2021/07/06/what-well-learn-about-us-inflation-this-july/?sh=1333bfc856e5

[6] https://www.forbes.com/sites/simonmoore/2021/06/10/three-key-considerations-as-inflation-hits-5/?sh=4894f6446b78

[7] https://www.forbes.com/sites/simonmoore/2021/06/01/how-to-invest-if-inflation-surges/?sh=6c023d9a47af

[8] https://www.thebalance.com/fed-tapering-impact-on-markets-416859

[9] https://www.statista.com/statistics/1121416/quantitative-easing-fed-balance-sheet-coronavirus/

[10] https://www.bloomberg.com/opinion/articles/2021-06-22/stocks-are-at-risk-of-decline-as-money-supply-growth-dries-up

[11] https://www.reuters.com/business/global-supply-chains-buckle-virus-variant-disasters-strike-2021-07-23/

[12] https://www.reuters.com/business/global-supply-chains-buckle-virus-variant-disasters-strike-2021-07-23/

[13] https://www.reuters.com/business/autos-transportation/toyota-says-suspends-thailand-vehicle-production-amid-parts-shortage-2021-07-22/

[14] https://www.reuters.com/business/global-supply-chains-buckle-virus-variant-disasters-strike-2021-07-23/

[15] https://www.barrons.com/articles/chip-shortage-auto-stocks-51629133890 

[16] https://www.reuters.com/article/global-freight-supplychains/insight-global-supply-chains-buckle-as-virus-variant-and-disasters-strike-idUSL1N2OZ1LJ

[17] https://www.wsj.com/articles/-delta-variant–business-economy-11629049694

[18] https://www.wsj.com/articles/-delta-variant–business-economy-11629049694

 

Weekly Market Commentary 8/23/2021

Weekly Market Commentary 8/23/2021

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Weekly Financial Market Commentary

August 23, 2021

Our Mission Is To Create And Preserve Client Wealth

Markets were shaken last week by a potent cocktail of central bank tapering and economic growth concerns mixed with coronavirus and a splash of the new Chinese privacy law.

On Wednesday, the minutes of the United States Federal Reserve’s Open Market Committee Meeting were released. They confirmed the Fed could begin tapering – buying fewer Treasury and U.S. government agency bonds – sooner rather than later, reported Jack Denton and Jacob Sonenshine of Barron’s. While that wasn’t new information, investors startled like cats surprised by cucumbers, triggering a broad sell-off.

In the United States, economic data was mixed. The U.S. Census reported that retail sales declined in July, suggesting weakening consumer demand. Normally, that’s not great news because consumer demand drives U.S. economic growth. However, with inflation at the highest level in more than a decade, lower demand could help relieve upward price pressure.

Lower consumer demand was accompanied by improving supply. Lisa Beilfuss of Barron’s reported, “…business inventories rose in June at the fastest clip since October as wholesalers and manufacturers posted solid increases and retailers saw inventories rise for the first time in three months. From a year earlier, inventories across American businesses rose 6.6%, compared with a 4.6% pace a month earlier.”

Of course, we could see supply bottlenecks again if a COVID-19 surge results in new lockdowns and continued worker shortages.

Finally, on Friday, Chinese stocks dropped sharply after Beijing announced that a new strict data-privacy law will take effect on November 1, 2021. Investors remain concerned that China’s regulatory tightening will affect other market sectors, including fintech, gaming and education, reported Hudson Lockett of the Financial Times.

“American investors’ shock at an ongoing regulatory crackdown in China points to a fundamental difference between the two countries,” reported Evelyn Cheng of CNBC. “…whereas the U.S. system is designed to let corporations influence the government, China’s system is designed to bring corporations in line with government goals.”

Major U.S. stock indices finished the week lower. The yield on 10-year U.S. Treasuries finished the week where it started.

Picking the right place to live…The COVID-19 pandemic caused many people to reconsider how and where they want to live. People relocate for a variety of reasons. They may want to be closer to family and friends, live in a more affordable place with lower taxes or have better employment opportunities.

Another reason people relocate is climate. While many people move to regions with better climates, today they also are avoiding areas with high climate risk, reported a 2021 survey from RedFin.

 “About half of respondents who plan to move in the next year said extreme temperatures and/or the increasing frequency or intensity of natural disasters played a role in their decision to relocate. More than a third (36%) said rising sea levels were a factor.”

Those who planned to move and lived in the northeastern and southern U.S. were most concerned about the frequency and intensity of natural disasters, while those in the West were most concerned about extreme temperatures. The two factors tied for most serious concern in the Midwest.

The importance of climate change to relocation decisions varied by age. People age 55 and older were less likely to factor climate risk into relocation decisions, while younger respondents, especially 35- to 44-year-olds, prioritized climate risk issues.

When all respondents, regardless of whether they intended to move, were asked whether natural disasters, extreme temperatures or rising sea levels would affect their decision to buy a home, the majority said they would hesitate to buy homes in areas with these issues (79%, 75% and 76% respectively).

Home buyers aren’t the only ones thinking about climate risks. A real estate developer told Swapna Venugopal Ramaswamy of USA Today, “…real estate investors such as banks and insurance companies used climate risk data to inform their investing decisions.”

It seems that climate risk is becoming a factor in personal and business investment decisions.

Weekly Focus – Think About It
“The evidence on climate risk is compelling investors to reassess core assumptions about modern finance… . Will cities, for example, be able to afford their infrastructure needs as climate risk reshapes the market for municipal bonds… . How can we model economic growth if emerging markets see their productivity decline due to extreme heat and other climate impacts? Investors are increasingly reckoning with these questions and recognizing that climate risk is investment risk.”
— Larry Fink, Chairman and Chief Executive Officer of BlackRock

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Investment advice offered through Research Financial Strategies, a registered investment advisor.
* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

 

Investment advice offered through Research Financial Strategies, a registered investment advisor.

 

Sources:
https://www.barrons.com/articles/stock-market-today-51629283162?mod=article_inline (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/08-23-21_Barrons_Stocks%20End%20the%20Day%20in%20Ugly%20Way_1.pdf)
https://www.census.gov/retail/marts/www/marts_current.pdf
https://www.npr.org/2021/07/13/1015754832/inflation-is-the-highest-its-been-in-nearly-13-years
https://www.barrons.com/articles/demand-slowdown-depleted-inventories-51629480605 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/08-23-21_Why%20Slowing%20Demand%20Might%20Be%20Good%20Thing_4.pdf)
https://www.ft.com/content/c5572f5a-d086-4ca2-995a-7b559f4e1d32 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/08-23-21_Financial%20Times_Tech%20Sell-off%20Pushes%20Hong%20Kong%20Stocks_5.pdf)
https://www.cnbc.com/2021/08/19/lobbying-china-firms-cant-influence-government-like-us-companies-do.html
https://www.barrons.com/articles/dow-sp-500-stock-market-news-51629505091?refsec=the-trader (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/08-23-21_Barrons_Stocks%20Survive%20a%20Taper%20Scare_7.pdf)
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
https://www.redfin.com/news/climate-change-migration-survey/
https://finance.yahoo.com/news/turning-faucets-source-stress-climate-040103089.html [Click on ‘Story Continues’]
https://www.blackrock.com/ch/individual/en/larry-fink-ceo-letter

Weekly Market Commentary 8/23/2021

Weekly Market Commentary 8/16/2021

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Weekly Financial Market Commentary

August 16, 2021

Our Mission Is To Create And Preserve Client Wealth

What is the most important driver of economic growth in the United States?

The most common way to measure economic output is Gross Domestic Product or GDP. It’s the value of all goods and services produced in our country over a specific period of time. GDP is a combination of the following:

·         Government spending

·         Business investment

·         Consumer spending

·         Net exports (Exports minus imports).

In June, U.S. GDP was almost $23 trillion, reported the Bureau of Economic Analysis.

A trillion is a difficult number to comprehend. Jerry Pacheco of KRWG explained the amount like this, “If you laid one billion dollars side by side like tile, they would cover about four square miles. A trillion dollars laid out the same way would cover approximately 3,992 miles, or 1,000 square miles larger than the states of Rhode Island and Delaware combined.”

Twenty-three trillion dollars would cover Rhode Island, Delaware, Connecticut, Hawaii, New Jersey, Massachusetts, New Hampshire, Vermont, Maryland, West Virginia and part of South Carolina.

U.S. GDP grew by 6.5 percent annualized in the second quarter of 2021. Consumer spending was up 7.8 percent, while government and business spending were down, along with net exports. It’s not unusual for net exports to decline because the U.S. imports more than we export. Overall, consumer spending accounted for almost 69 percent of the economy.5 So, the answer to the initial question is that consumer spending is the most important driver of economic growth in the United States.

Consumers tend to spend when they feel confident. Last week, we learned that consumers are feeling a lot less confident than they were in July. Richard Curtin of the University of Michigan Consumer Sentiment Survey reported:

“Consumers reported a stunning loss of confidence in the first half of August. The Consumer Sentiment Index fell by 13.5% from July…The losses in early August were widespread across income, age and education subgroups and observed across all regions. Moreover, the loses covered all aspects of the economy, from personal finances to prospects for the economy, including inflation and unemployment. There is little doubt that the pandemic’s resurgence due to the Delta variant has been met with a mixture of reason and emotion.”

The seven-day moving average of new U.S. COVID-19 cases has been rising since early July, reported Our World in Data.

All eyes on digital currency…It seems as though everyone is talking about digital currencies these days. Among the topics being discussed are:

1.    Should the Federal Reserve issue a central bank digital currency (CBDC)?

2.    Should digital currencies be better regulated?

In July, Federal Reserve Chair Jerome Powell confirmed that he is undecided about whether the Federal Reserve should issue a CBDC, reported Ann Saphir and Dan Burns of Reuters. He indicated that digital currencies have failed to become a widely accepted means of payment, although a CBDC would eliminate the need for private digital money, especially digital currencies that claim to be pegged to the U.S. dollar. Chris Matthews of MarketWatch explained: 

“Critics of stablecoins say they pose significant risks to financial stability, especially after it was revealed that some of these dollar-pegged tokens are not backed by actual U.S. dollars, but a combination of riskier assets…[Chair] Powell said in a congressional hearing that regulators need to apply rules to stablecoins that are similar to those that govern bank deposits and money market mutual funds.”

Congress and the Securities and Exchange Commission (SEC) are both considering ways to regulate digital currency. The pending bipartisan infrastructure bill includes tax-reporting requirements for cryptocurrency brokers. If the bill passes without changes, digital currency sales would be reported to the IRS in much the same way that stock sales are. The change is expected to generate about $28 billion in taxes over a decade to help pay for infrastructure, reported Marcy Gordon of AP News.

In addition to tax regulation, digital currencies may become subject to greater securities regulation. In early August, SEC Chair Gary Gensler discussed the need for cryptocurrency regulation at the Aspen Securities Forum. He said:

“As new technologies come along, we need to be sure we’re achieving our core public policy goals. In finance, that’s about protecting investors and consumers, guarding against illicit activity, and ensuring financial stability… at our core, we’re about investor protection. If you want to invest in a digital, scarce, speculative store of value, that’s fine. Good-faith actors have been speculating on the value of gold and silver for thousands of years…I believe we have a crypto market now where many tokens may be unregistered securities, without required disclosures or market oversight. This leaves prices open to manipulation. This leaves investors vulnerable.”

It seems that changes are coming for the cryptocurrency market.

Weekly Focus – Think About It
“Humans are allergic to change. They love to say, ‘We’ve always done it this way.’ I try to fight that. That’s why I have a clock on my wall that runs counter-clockwise.”
― Grace Hopper, U.S. Navy Rear Admiral and computer pioneer

 

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Investment advice offered through Research Financial Strategies, a registered investment advisor.
* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

 

Investment advice offered through Research Financial Strategies, a registered investment advisor.

 

Sources:

https://www.thebalance.com/components-of-gdp-explanation-formula-and-chart-3306015
https://www.bea.gov/sites/default/files/2021-07/gdp2q21_adv.pdf [Table 1]
https://www.krwg.org/post/how-much-trillion-dollars
https://statesymbolsusa.org/symbol-official-item/national-us/uncategorized/states-size
https://www.bea.gov/sites/default/files/2021-07/gdp2q21_adv.pdf [Table 3: PCE (billions of dollars) / GDP (billions of dollars)]
https://www.investopedia.com/terms/c/consumer-sentiment.asp
http://www.sca.isr.umich.edu/
https://ourworldindata.org/explorers/coronavirus-data-explorer?zoomToSelection=true&time=2020-03-01..latest&facet=none&pickerSort=asc&pickerMetric=location&Metric=Confirmed+cases&Interval=7-day+rolling+average&Relative+to+Population=true&Align+outbreaks=false&country=~USA
https://www.barrons.com/articles/dow-stock-market-sp-500-51628901659?mod=hp_LEAD_2 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2021/08-16-21_Barrons_The%20Stock%20Market%20Keeps%20Hitting%20New%20Highs_9.pdf)
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield
https://www.reuters.com/business/finance/feds-powell-says-hes-undecided-central-bank-digital-currency-2021-07-15/
https://www.marketwatch.com/story/yellen-to-convene-meeting-of-u-s-financial-regulators-to-discuss-stablecoins-11626451210
https://apnews.com/article/technology-joe-biden-business-bills-cryptocurrency-92628a41124230448f65fdeb89ffad7d
https://www.sec.gov/news/public-statement/gensler-aspen-security-forum-2021-08-03
https://www.thoughtco.com/grace-hopper-quotes-3530092

Special Market Update

LITHIUM !!!

Lithium

That’s a Drug, Right?


Yes, But It’s Also the Next Investment Idea

Everybody has probably heard of Lithium as a drug. It helps those who suffer from bipolar disorder. But not everyone has heard about Lithium as the next big thing for investors.

Up 26% in Five Days

Take Lithium Americas (LAC) as just one example of the next big thing. In the past five days, its stock has jumped 26.75%.[1] Over the past year, it’s up 143.83%.[2]

And what accounts for this rocket-like performance?

Lithium. It’s the lightest metal and lightest solid element in the universe.[3] It’s also scarce. And in very high demand. So LAC soared when the company announced that it was making progress toward production at its Lithium-mining project in Argentina, which is “on track to achieve first production by mid-2022.”[4]

That project “has an annual production capacity of 40,000 tons lithium carbonate equivalent over a projected mine life of 40 years.[5]

So Who Wants Lithium?

Elon Musk, among many others.

Lithium, after all, is used in high-storage batteries, the kind used in EVs—electric vehicles like Tesla, Ford, Chevy, VW, Mercedes …. Virtually every car company has introduced some form of EV. We counted 45 models of electric cars, SUVs, and trucks in Motor Trend’s latest review.[6]

And almost all of them run on batteries containing Lithium.

Lithium Research Begins

The oil crisis in the 1970s prompted scientists around the world to begin the search for “a new battery—one that could recharge on its own in a short amount of time and perhaps lead to fossil-free energy one day.”[7] In three different labs, M. Stanley Whittingham, John B. Goodenough, and Akira Yoshino began to use Lithium as electrodes in batteries.

In England, Whittingham—working for Exxon—used titanium disulfide and lithium metal as the electrodes. Short circuiting and the danger of fires, however, caused him to stop the experiment.[8] But the word was out: Lithium has properties needed in high-storage batteries.

In the 1980s, Goodenough shifted the research and used “lithium cobalt oxide as the cathode instead of titanium disulfide, which paid off—the battery doubled its energy potential.”[9]

Then, five years later,  Yoshino dropped the use of Lithium metal and used Lithium ions instead. His research “led to a revolutionary finding: not only was the new battery significantly safer without lithium metal, the battery performance was more stable, thus producing the first prototype of the lithium-ion battery.”[10]

Lithium and the Nobel Prize

In 2019, the Nobel Committee recognized these trail-blazing research efforts and awarded the Nobel Prize in Chemistry to the three scientists. When presenting the award, the Nobel Committee said:

“[T]his lightweight, rechargeable and powerful battery is now used in everything from mobile phones to laptops and electric vehicles. It can also store significant amounts of energy from solar and wind power, making possible a fossil fuel-free society.”[11]

Demand Heats Up

​Anyone capable of reading or watching TV can conclude that the demand for Lithium will spiral. President Joe Biden, on August 5 of this year, issued an Executive Order “aimed at making half of all new vehicles sold in 2030 electric.”[12]

According to the Institute of Electrical and Electronics Engineers, the world’s largest technical professional organization:

A carbon-free future will require many millions of batteries, both to drive electric vehicles and to store wind and solar power on the grid. Today’s battery chemistries mostly rely on lithium—a metal that could soon face a global supply crunch. Some analysts warn that as EV production soars, lithium producers won’t be able to keep up with demand.[13]

Our Lithium Position

We won’t be left behind.

When the financial pages light up with the latest hot stock, we don’t race to our computers and hit the buy button. Instead, we subject all of our positions to rigorous technical analysis that involves comparing “moving averages,” studying “relative strength,” and perusing a host of charts.

We pulled up some charts of the top Lithium companies and saw extremely solid “technicals.” Because we don’t invest in individual stocks, we then sought out the top Exchange Traded Funds investing in Lithium companies.

Our search and technical analysis landed on LIT, a fund investing in 37 companies in the Lithium industry. So on July 14, we took our initial position in LIT for our Aggressive Growth Model. On July 22, we took a second position. These positions are already up nearly 8%.

According to GlobalX, the fund manager:

The Global X Lithium & Battery Tech ETF (LIT) invests in the full lithium cycle, from mining and refining the metal, through battery production.[14]

Remember Lithium Americas? The stock that soared 143% over the past year? It appears as one of the holdings in LIT.

For our Aggressive Growth Plus Model (which can hold individual stocks), our research turned up Standard Lithium (SLI). This company has a patent-pending process that extracts Lithium from brine, copiously found in Arkansas, where SLI has a new processing facility.

After studying the technicals of SLI, we added it to our Aggressive Growth Plus Model.

We Aren’t Chemists

The technology of ion-Lithium batteries gets quite complex. So we can’t pretend to understand what makes them work. But we can understand the exploding demand for them, and when you see more EVs on the road, you’ll know that the demand for Lithium continues to rise.

You’ve got your position to go along for the ride.

Call Us

We are always happy to answer any questions you have. If they involve the chemical ins and outs of Lithium batteries, perhaps we can locate a knowledgeable professor.

Weekly Market Commentary 8/23/2021

Weekly Market Commentary 8/9/2021

How Are Your Investments Doing Lately?  Receive A Free, No-Obligation 2nd Opinion On Your Investment Portfolio >

Weekly Financial Market Commentary

August 9, 2021

Our Mission Is To Create And Preserve Client Wealth

Are we there yet?

For months, investors have wondered when the Federal Reserve (Fed) might begin to “normalize” its policies, a process that will eventually lead to higher interest rates. Last week, a better-than-expected unemployment report – showing a gain of almost a million jobs – sparked speculation about whether we’ve arrived at that point. It’s difficult to know.

When the pandemic arrived, the Fed adopted policies that stimulated growth. It cut short-term interest rates to zero and began buying Treasuries and agency mortgage-backed securities to keep long-term rates low, too. Low rates make borrowing less expensive for businesses and individuals, reported the Brookings Institute. That’s important in economically challenging times.

In late July, the Fed said it would continue to keep rates low and buy bonds until it saw “substantial further progress toward maximum employment and price stability [inflation] goals.”

The Fed may have already achieved its inflation goal. Its favorite inflation gauge is called Personal Consumption Expenditures (PCE), excluding food and energy. It’s a statistic that reflects changes in how much Americans are paying for goods and services. In June, the Bureau of Economic Analysis reported that PCE was up 3.5 percent year over year. That’s well above the Fed’s two percent inflation target; however, the Fed’s new policy is to overshoot its target before raising rates.

If July’s employment numbers satisfy the Fed’s expectations for progress on jobs, the Fed may begin the process of normalizing monetary policy. The first step would be purchasing fewer bonds, a practice known as tapering. “Many market watchers are looking for [Fed Chair] Powell to discuss tapering at the central bank’s big policy meeting at Jackson Hole, Wyo., this month,” reported Randall Forsyth of Barron’s.

​WHAT’S MAKING US MORE PRODUCTIVE? While the United States has not yet recovered all of the jobs lost during the pandemic – 22 million were lost and 16.6 million have returned – productivity is higher than it was when more people were employed.8 The Economist reported:

“Though output reached a new high in the second quarter, employment remained more than 4 percent below its pre-pandemic level… . At present, America is producing more output than it managed just a year and a half ago, with roughly 6 [million] fewer workers.”

Higher productivity undoubtedly reflects the ingenuity of American businesses. The pandemic forced companies to find ways to remain productive. In response, many adopted new technologies, implemented new patterns for working, and changed their business models.

However, not all companies have experienced gains in productivity, reported Eric Garton and Michael Mankins in the Harvard Business Review. Those that proved to be the best at managing time, talent and energy – the top 25 percent of companies – were 40 percent more productive than other companies. (The productivity of companies in the lower quartiles was averaged to make the comparison.)

Not all sectors of the economy are equally productive, either. “The surge in output per worker also reflects the changing mix of the workforce. Employment in the leisure and hospitality industries, where productivity tends to be low, remains about 10 percent below the pre-pandemic level, compared to a 3 percent shortfall in the higher-productivity manufacturing sector,” reported The Economist. As less productive sectors recover, productivity may return to previous levels.

In the meantime, some employees have been wondering whether it’s necessary to return to the workplace when productivity has been high while they’ve been working remotely. In an early July survey conducted by The Conference Board, a majority (56 percent) of employees asked whether returning to the workplace was wise, but just 18 percent of chief executive officers shared the concern.

Weekly Focus – Think About It
“Whenever you are asked if you can do a job, tell ’em, ‘Certainly I can!’ Then get busy and find out how to do it.”
—Theodore Roosevelt, 26th president of the United States

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Investment advice offered through Research Financial Strategies, a registered investment advisor.
* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

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