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By: Jeff Bullock

Have you ever gone to a go-kart track to race against family or friends? If you’re like me, as you wait in line, you are watching intently to find the fastest go-kart. In theory, all of them should go the same speed, but we all know that some are faster than others. If you choose unwisely, it doesn’t matter how hard you try, or how firmly you push down on the pedal, you are destined to lose against a faster machine. Perhaps you have a few tricks up your sleeve that can stave off a speedier kart for a short amount of time, but ultimately, you need a bigger engine if you want to compete. The outcome of a scenario like this is inevitable before the race even begins.

This same outcome occurs every day when the cash in your bank account tries to keep up with inflation. Cash is destined to lose every time in our current environment. The engine in your checking account will not keep up with the engine of inflation. The outcome of the cash vs. inflation scenario is known before the race even starts.

It’s important to remember that price and value can be different. Price simply refers to the amount something costs in terms of a given currency. Value refers to the worth, usefulness, or utility you get out of it. Price and value don’t always line up perfectly.

Think of it this way, would you rather have something that fluctuates in price, and has the potential to appreciate in value, or something that is stable in price but will slowly lose its value over time? Cash may feel safe because the price is stable, but in our current environment, it is no different than an ice cube sitting on your deck on a warm spring day – its value is continuously melting away.

How do we change the outcome?

There are many ways to try and beat inflation and, at minimum, maintain your value, but all require the willingness to accept price fluctuations along the way. One thing we know with high probability is the engine on the cash go-kart is losing every minute to the engine on the inflation go-kart

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Created by: Sam Tenney

Chinese third quarter economic growth has slowed by a large amount, with this quarters gross domestic product numbers coming in at just 4.7% growth, compared to 18.1% growth in the first quarter of the year. This is likely due to serious issues with supply chains originating from China as well as a serious energy crisis for Chinese producers.
The change in core product inflation (CPI) has hit a 25-year high, reaching 4% inflation growth readings annually for the first time since the mid 90’s. This is in part due to large increases in shipping costs over the past year.
The US Treasury has frozen access to Afghani government dollar reserves held offshores, putting a fiscal embargo on the Taliban. This has had dramatic consequences for the country, with the poverty rate expected to reach 98% by 2022. The poverty rate in Afghanistan at the start of 2020 was 48%.

SOURCES

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Created by: Sam Tenney

All countries in the organization for economic cooperation and development have finally agreed to the proposed global tax agreement for multinational corporations. This new agreement is expected to generate $150 Billion in global income. OECD has not laid out a timeline for the rollback of regional laws.
Chinese manufacturing centers of the country are facing large power shortages as the price of coal has gone up nearly 300% in the region. Currently analysts are predicting a 15% decrease in industrial output as the Chinese rust belt faces these coal shortages.
Crude oil has hit a 7-year high, recently crossing above $80 a barrel. The last time oil was this high was 2014, and just a year and a half ago oil was trading as low as negative prices.

SOURCES

Retirement!

What do you think of when you hear this word: Retirement

Let’s play another game – take a minute and fill in these blanks:

Retirement is ________________________________
When I retire, I see myself ______________________
When I retire, I will feel ________________________

In a 1995 study out of the University of Montana, Stephen Phillips and Betsy Bach studied metaphors that people use when describing retirement. Their research found that 52% of respondents used metaphors of transition or emotion to describe retirement. For example, one participant described retirement as a transition into a different world or starting a second life. Digging deeper into these initial responses, they found a common theme in this group that centered around uncertainty. In other words, for over half of the people studied, retirement is a transition that involves uncertainty.

On the opposite side, their research found that 29% of respondents used a metaphor of freedom to describe retirement. For this group, the common theme centered around lack of pressure and freedom of time. In other words, one-third of people in this study said retirement is freedom from pressure and time.

How does this study compare to your answers above? Perhaps to some degree a combination of both uncertainty and freedom describe how you feel about retirement.

Creating a retirement plan and multi-year roadmap is a great way to quell the uncertainty that surrounds retirement. What does your current financial and retirement plan look like? Has it been updated recently? Similar to getting a physical from your doctor every few years, frequently updating your retirement plan is a best practice to make sure you’re on the right road to meet your goals. If you don’t have a plan, I invite you to get one. If your roadmap has accumulated a little dust, come in for a check-up.

Retirement is great. When I retire, I see myself continuing to work on my passion projects. When I retire, I will feel the freedom to use my time as I please.

Let’s get a plan in place to make this happen.

Created by: Sam Tenney

Treasury funding is set to run out this Friday, October 1st, requiring lawmakers to pass a suspension of the debt ceiling by the end of this week or else face a non-essential government services shutdown.
Seasonally adjusted job openings continue to remain at all time highs, with well over a million job openings currently and higher demand expected to continue into the holiday seasons. This could pose unique challenges for US retailers during this period.
Berlin, Germany, has passed a vote to allow the city government to expropriate housing units owned by real-estate companies. Companies with more than 3,000 units in the city will be subject to having their excess holdings expropriated by the local government to control housing costs in the city. While this bill will likely be challenged long before enactment, Germany does have a historic constitutionality for socializing business assets, often private land is socialized to build roadways in the country.

SOURCES

https://www.wsj.com/articles/congress-heads-into-tumultuous-week-pressured-by-converging-deadlines-11632657601

https://www.ft.com/content/76e557d5-e792-4b73-8bb0-7e1f647e39fa

https://www.reuters.com/world/europe/berliners-vote-expropriate-large-landlords-non-binding-referendum-2021-09-27/

Created by: Sam Tenney

US monthly retail sales beat expectations, coming in at 0.7% growth for August compared to a consensus -0.8% decline that was projected. Retail sales consumption accounts for around 70% of US economic output.
The Chinese real estate firm Evergrande has sparked worry about potential financial contagion in China, as the firm’s $300 billion dollar bond default has caused liquidity issues with regional Chinese banks. This has made global news due to the widespread reach of the company’s securities within the world economy.
JPMorgan predicts long term bond rates have bottomed out already, with their analysts expecting inflation and tapering pressures to continue pressuring rates up through November.

SOURCES

https://www.ft.com/content/79d42fab-5d8d-4ba8-b8a7-f3bbb5ca262b

https://www.forbes.com/sites/russellflannery/2021/09/20/hong-kong-stock-index-plunges-39-as-evergrande-contagion-spreads-beyond-real-estate-into-banks/?sh=7e148c3e4b42

https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/weekly-market-recap/

Created by: Sam Tenney

House democrats have finalized language in their new bill that would look to raise taxes; this tax bill is meant to help fund the new 3.5 trillion-dollar spending bill that is still in the works. The new corporate tax rate would rise to 26.5%, up from 21%, and the new long term capital gains rate would be at 25% up from 20%. If passed this could lead to volatility in the markets.
Supplemental unemployment assistance provided for the Covid-19 pandemic has ended in all 50 states, as of the week of September 4^th. However, preliminary JOLTS numbers show that hiring has not picked up as sharply as expected, likely due to increased savings through the pandemic.
Consumer Inflation expectations have hit a decade high, with consumers reporting a predicted 4% year over year expected inflation. This could have a large effect on consumer purchasing habits.

SOURCES

https://www.ft.com/content/ced45222-f266-4d48-b754-e960e8581c94

https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/weekly-market-recap/

https://www.wsj.com/articles/china-sets-new-rules-for-youth-no-more-videogames-during-the-school-week-11630325781?mod=rsswn

By Jeff Bullock

Money & Investing – September 2021

A Nickel Ain’t Worth A Dime Anymore

Yogi Berra was one of the all-time greats at baseball. A WWII veteran, he was an 18x All-Star and won ten World Series playing for the New York Yankees – enough said! His No. 8 jersey was retired alongside the other Yankee greats and he was inducted into the Major League Baseball Hall of Fame in 1972.

Outside of his playing career, he became famous for his “Yogi-isms” which were phrases that often seemed to contradict themselves or were redundantly pithy or paradoxical in nature. Whether it was giving general advice or making an appearance on a TV commercial, Yogi was famous for these sayings. One of these phrases that he is credited to have originated is:

“A nickel ain’t worth a dime anymore.” While seemingly paradoxical in nature, there is a lot of truth to the statement, especially in the context of inflation.

Inflation

Inflation eats away at the purchasing power of your money. We see it in two forms: (1) prices of goods go up faster than your income or (2) prices of goods stay flat, but you get less of what you buy (sometimes jokingly called “shrinkflation”). For example, the other week I noticed that the plastic bags we buy now come with 125 bags per box. A few months ago it was 145 bags per box. Same brand, same box size, but I now get fewer bags. However you look at it, plastic bag inflation is up about 15% from a few months ago.

In our zero-interest rate environment, and with inflation seemingly higher than normal for many goods or services, sitting on too much cash can devastate your purchasing power.

Are You Sitting on Too Much Cash?

Are you sitting on too much cash? How much cash is too much cash? While where to invest is a necessary conversation, let’s first figure out if you are sitting on too much cash.

Here is the framework I like to use to help answer this question:

Does your income from all sources cover your annual expenses?
Do you have cash available in an emergency fund in case you lose any of this income for a short period of time?
Do you have cash available for any one-time big purchases earmarked for the coming year?
If you answered Yes to questions 1-3, then any excess above and beyond these savings should probably be invested in some manner to at least try to keep up with inflation.

This is simply a starting point and a framework. Where to invest your excess cash is the next conversation. If you think you are sitting on too much cash, or if you are on Step 4 and have excess to invest, then we should talk. Yogi Berra has never been more accurate, because truly, a nickel ain’t worth a dime anymore. With inflation in full force, a sound strategy around excess cash should be top of mind for everyone. Don’t let inflation devastate your purchasing power.

Feedback from these newsletters is not only welcomed but encouraged. If you have any questions or comments, please email me at jeff@fidelis-wealth.com. If you think this might be useful to any of your friends or family, feel free to forward it to them.

Created by: Sam Tenney

Federal Reserve chairman Jerome Powell has not laid out any roadmap for tightening the Fed’s balance sheet at the Jackson Hole Symposium, unlike many market participants expected. Other Fed members have hinted tightening talks may come on the September fed minutes.
One highlight of both the PMI and durable goods data is that supply backlogs are ongoing, as the ratios of new orders-to-inventories and unfilled durable goods orders-to-shipments both remain above their long-term averages of 1.2x and 6.1x, respectively suggests that an inventory rebuild could act as a tailwind for growth over the coming quarter.
China has recently unveiled legislation to limit minors access to videogames, limiting any Chinese citizen under 18 to three hours a week of videogames on Friday nights. This has had a huge impact on international gaming stocks, with Chinese gaming giant Tencent having lost nearly half its market cap since the introduction of the legislation.

SOURCES

https://www.ft.com/content/ced45222-f266-4d48-b754-e960e8581c94

https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/weekly-market-recap/

https://www.wsj.com/articles/china-sets-new-rules-for-youth-no-more-videogames-during-the-school-week-11630325781?mod=rsswn

Created by: Sam Tenney

US Composite PMI has dropped to 55.4, a large drop from the market consensus 59.2 expected reading. Along with other recent misses in economic data, this shows a slowing of the US economy to normal levels.
The Citi Economic Surprise Index has reached negative levels again for the first time since the Covid pandemic. The Economic Surprise index tracks the deviation of economic data from expected data projections, if the index is positive that means data is generally better than expected.
Yearly net equity issuances have hit all time highs, reaching $230 billion in net equity issued for the past year, as compared to the tech bubble which had $140 billion in net equity issuances at peak. This is likely due to record IPO and SPAC offerings for 2020, which seems to be reflected in the data.

SOURCES

https://www.reuters.com/business/delta-variant-supply-woes-crimp-business-activity-august-ihs-markit-survey-2021-08-23/
https://www.ft.com/content/f8eaf88b-53f8-4b7f-a110-dcc5ad767c8c
https://www.federalreserve.gov/releases/efa/efa-project-equity-issuance-retirement.htm