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Methodical wealth building (MWB) may be defined as the accumulation of wealth, or net worth, at a pace faster than inflation. It is a Biblical concept, a practical endeavor, and a noble enterprise, as the effort of one invariably blesses the lives of many. MWB prioritizes not the accumulation of money, but good stewardship, and often chooses a course with slower accumulations due to principle. The only reliable means of MWB is the consistent application of financial principles over time, as a manner of living; the tortoise beat the hare because it stuck to the plan, and the hare lost because it didn’t! While persistent high inflation makes MWB elusive, the means, as a rule, prevail, giving every partaker a high probability of success.

The practices of methodical wealth builders are simple, but often defy both the natural appetite and our profligate culture, so don’t confuse ‘simple’ for ‘easy’:

• Methodical wealth builders work hard and live simple, frugal lives. They spend less than take home pay each month, saving and investing the difference. While a miser forsakes all for more gain, wealth builders enjoy the fruits of their labor, but with discretion. A fancy automobile is viewed not as a status symbol, but as an imprudent disposition of capital. The dispensation of every resource is weighed on a scale of prudence and scarcity, as with accountability.

  “Aspire to live quietly, and to mind your own affairs, and to work with your own hands, so that you may be dependent on no one.”  ~1Thessalonians 4:11-12  

• Methodical wealth builders manage debt with scrutiny. They understand the danger of debt in certain circumstances, that leveraged investments do not match unleveraged investments in profitability, and that debt only makes financial sense when the borrowed money is invested productively (net of interest paid, after tax return exceeds inflation). They always carry a miniscule debt/equity ratio, and never fully retire with any debt at all. “The borrower is the slave of the lender.”  ~Proverbs 22:7

• Methodical wealth builders dispense capital carefully and productively. They understand prices are negotiable, and consider the value of a thing before tendering an offer. They know a company’s reported revenues and earnings can deceive investors, and that dividends and free cash flow can’t. They invest primarily in boring businesses which dominate their respective industry, have a moat of protection against competition, earn steady cash flows, and pay (and increase) dividends systematically. They speculate sparingly with minimal capital, and keep individual position sizes small. They are judicious in the deployment of their hard-earned capital. ”Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it.”  ~Proverbs 21:20  

• Methodical wealth builders are generous, and give freely to those in need, understanding this is the one instance where returns are non-financial. They give not to enable, but to empower and bless, and that “you give a child enough to do something, but not enough to do nothing”. They seek to forget every gift immediately. “God loves a cheerful giver.”  ~2Corinthians 9:7         

May these principles and practices be a blessing to you and others, Shaun.

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Mountain climbing, like investing, inherently involves risk. Packing a survival blanket to withstand hypothermia, and a second pair of goggles to prevent the blindness of frozen eyelids, and establishing multiple camps on big mountain adventures, to which you may flee and recover from injury, all offer the dividend of living to climb another day. The financial benefits associative to income investing, or owning investments which pay a present stream of income (‘Income’), as opposed to none, are commensurate with such critical climbing principles, and include:

• ‘Income’ provides a margin of risk reduction with your investment. ‘Income’ paid today replaces a pure reliance on growth, which is often speculative and risky.

• ‘Income’ accelerates the compounding of investment returns (over reinvesting capital gains alone) and increases share ownership.

• It is our opinion ‘income’ fights inflation more effectively than growth because inflation places a premium on ‘income’, and discounts its absence.

• ‘Income’ can give you a raise without depleting the principle of your investment, even when growth is elusive.

• A portfolio containing ‘income’ investments likely equates to less overall risk and higher average portfolio quality, and it is our opinion only established, competitive companies can meet the promise of a consistent dividend through periods of recession and bear markets.

• ‘Income’ investments simplify the investment process and potentially decrease portfolio expenses because the average hold time far exceeds that of non-‘income’ investments.

Doc Eifrig, a successful and well-known ‘income’-focused investor at Stansberry Research, suggests we are in a ripe period for ‘income’ investing today, following the Fed’s aggressive rate hike campaign in 2022, and lays out three simple principles for successful ‘income’ investing:

• Buying dividend stocks alone isn’t enough. To consistently maximize both income and returns, investors must a) utilize bonds, REIT’s, MLP’s, ETF’s, annuities, and Treasury bonds, b) understand the environment in which each ‘income’ investment thrives, and c) act at the appropriate time. It won’t help a climber who responds to frozen hands by putting their helmet on!

• Always be a value investor when purchasing ‘income’ investments. Have strict ‘buy’ parameters, and stick to them like a tick on a dog. Never overpay for an ‘income’ investment. Never chase prices.

• Never accept less interest on cash savings than the market will safely give you, even on your emergency fund, especially in a high inflation environment.¹

An elite winter climbing day above tree-line, and ‘income’ investing in today’s pristine rate environment both come with three charges; the former: pack carefully, fuel up, and enjoy the adventure!; the latter: recognize the benefits, apply the means, and enjoy the financial blessing.

Think about it, Shaun.

“Our favorite holding period is forever”. ~Warren Buffet

“Price is what you pay. Value is what you get”. ~Warren Buffet

“Never depend on a single income. Make an investment to create a second source”. ~Warren Buffet

“Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.”  ~Proverbs 13:11

1 Stansberry Research, Daily Wealth, “We’re in a Rare Age for Income Investors”, by Dr. David Eifrig, April 12, 2023

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

It has been the practice of our two-man winter climbing team for 15 years to hire guides on glaciated adventures, and to go-it-alone on snow. We’ve paid guide teams to endanger us, and we’ve paid guide teams to save our lives. On one particular 5 day climb in 2011, the guiding policies were so irrational, we may have saved their lives! They were good people, and strong young men, practicing unsound principles. The investment tenets driving your investment decisions, or those of your wealth manager, are equally critical to your financial survival and success! Here are two fundamental principles to investing that are upheld by many of the most experienced investors in America:

• Negative principle; something to avoid: Never allow your geopolitical or macro-economic views to impact investment decisions. Investors who do so consistently produce among the worst returns in the marketplace. Allow your perceptions of the broad picture to impact financial planning decisions, but never decisions aimed at growing capital. There are no exceptions to this rule.

• Example: many friends and clients have recently expressed intense concern about the likelihood the U.S. dollar loses its world-reserve currency status, to the effect it should be impacting investment decisions. Not so! As Ian Bremmer keenly noted, “you can’t replace something with nothing”, and there is no viable alternative on the horizon today.¹ Investments made on the faulty premise the inevitable death of the global dollar must occur in the next few years  will eventually turn woefully sour, even as disciplined investors continue to consistently make wise decisions and profit!

• Positive principle: something to practice: Always be a buyer of a highly profitable business at a reasonable price. Warren Buffet, to express this point, suggests investors think of themselves as business owners, not stock pickers. Doc Eifrig, the top performing investor at Stansberry Research during his long tenure, often recommends the purchase of companies that a) show several years of consistent revenue growth, b) have return on assets (ROA) of 10% or more, c) have 10 consecutive years of dividend growth, d) have a net debt-to-earnings before interest, taxes, depreciation, and amortization (“EBITDA”) ratio of less than 4, and e) have a price to earnings ratio (P/E) under 25.² What matters is that you have parameters that are tested and reliable, and that you follow them.

• Example: retail investors are notoriously the worst investors on earth. They never buy into the stock market until very late in a raging bull market, and are the credited catalyst which ‘pushes’ stock prices to their peak and warns elite investors to protect their long-standing, massive gains. Later they methodically capitulate near the bottom of the following bear market, and resolve never to own stocks again. They are a group of highly emotional investors without a plan, trying to compete in a highly counter-intuitive marketplace designed to ultimately inflict the maximum amount of pain on the maximum number of investors. Track the retail investor, but make this powerful investing principle your guide.

May these two sound principles be a blessing to your investing efforts! Think about it, Shaun.

“It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.” ~Warren Buffet

“Where there is no guidance, a people falls, but in an abundance of counselors there is safety.” ~Proverbs 11:14 ESV

1 Mauldin Economics, Over My Shoulder, “Ian Bremmer: The Dollar is Dead, Long Live the Dollar”, April 10, 2023

2 Doc Eifrig’s Health & Wealth Review, “Five Traits of Any Good Investment”, April 8, 2023

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Engaging an activity without an understanding of the associative principles and rules is generally a consequential endeavor. This winter alone a good number of outdoor enthusiasts ventured into the White Mountains of New Hampshire absent both knowledge and attire, and quickly met their Maker. Ed Viesturs, the greatest mountaineer America ever produced, never put his crampons on before reading, “Freedom of the Hills”, a 575 page manual on the sport, also known as “The Bible of Mountaineering”, two times word for word! His success is not a mystery, but the result of his commitment to education. Finance needlessly claims far more financial lives than all the mountains on earth. Burn the following rules into your thinking, allow them to incinerate your financial fallacies, practice them devotedly, and enjoy the blessings they will bring.

Establish a net positive cash flow (‘NPCF’: net income exceeds gross expenses) with hard work, career specialization, and strict budgeting.

• Most consumers make excuses for their overspending, but this rule requires unfunded, voluntary expenses to be eradicated, including, but not limited to pets, cell phones, cable TV, eating out, needless driving, vacationing, hobbying, and even excess giving.

• Most Americans accumulate debt faster than equity for failing to obey this simple rule. Don’t be one of them! Do no further financial planning until accomplishing a ‘NPCF’ in your household, which would equate to fertilizing a grub-infested lawn.

Appropriate your monthly excess (NPCF) productively.

• Establish an ample emergency fund equal to at least six months household expenses, accelerate debt repayment dutifully, and buy enough term life insurance to protect your loved-ones.

• Understand real wealth building requires investment returns equal to, or greater than inflation, which necessitates the ownership of great businesses. Diversify holdings, dollar cost average your purchases, own index funds, minimize expenses, and avoid taxes.

Become a judicious risk assessor of your investment portfolio.

• A 1,500 lb. brown bear won’t engage a 45 lb. wolverine because it understands injury results in death. Most great investors insist the avoidance of catastrophic loss is the single most important aspect of investing. Embrace this truth.

• Keep individual positions to 5% or less of the whole. Establish stop-loss orders on all non-forever stock holdings at the time of purchase, and follow them militantly. Buy primarily boring businesses which earn consistent profits and pay dividends. Follow purchase parameters to avoid overpayment.¹

These rules are few and simple, but sufficiently powerful to transform wealth consumers into methodical wealth producers. Think about it, Shaun.

“Rule number one is never lose money. Rule number two is never forget rule number one.”  ~Warren Buffet

“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.”  ~Ecclesiastes 11:2

“Wealth gained hastily will dwindle, but whoever gathers little by little will increase it.”  ~Proverbs 13:11

1 Stansberry Research, “The Stansberry Digest”, April 10, 2023

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets. 

Asset allocation does not ensure a profit or protect against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

I think the single biggest factor governing a winter mountain expedition is the weather, and the biggest weather factor is the wind. A 105 MPH gust will throw a 200 pound climber like a leaf, forcing the humiliating crawl. An 80 MPH wind will cause such exertion staying vertical that exacerbated breathing can freeze the goggles, a potential deathblow. The wind is always a primary concern for mountaineers, not only direction and velocity now, but where these forces may be in an hour, and every attempt to move on the mountain evaluates them. If there is a single comparable governing factor in finance to the mountain wind, it is interest rates. Rates represent the cost of capital, and capital is the lifeblood of every financial entity; your family is a financial entity. Rate assumptions factor into computing the time value of money, so every decision pertaining to any use of capital is impacted by interest rates, at all levels. In a highly indebted society, the impact rates have on finance is even more dynamic. So where are interest rates heading, and what are the primary implications?

Following one of the most aggressive inflation-fighting, rate-hike  campaigns in the Fed’s 110 year history in 2022 and early 2023, the recent failure of Silicon Valley Bank caused a stampede of capital into the largest perceived safe-haven asset on earth, U.S. Treasury Bonds. Frenzied buying caused the rate on the closely watched 2 Year T-Bond, which peaked at 5.07% on March 8, 2023, to crash to below 4% in just three trading days, one of the biggest three day drops on record.¹ I liken the drop, which has occurred only ten times in fifty years, to a sudden calm in the midst of sustained 90 MPH mountain winds! All ten of these occurrences took place in the 1980’s, and consistently indicated a reversal in the direction of rates. Any remaining contagion from recent bank failures likely means additional concentrated demand for T-Bonds, which would further reduce rates. Economic weakness associated with the oncoming recession would apply further downward pressure. These factors, combined with the fact today’s 5% Fed Funds Rate is the highest in 15 years, suggest rates may be reversing and can drop significantly from here.²

We’ll be wise to consider the implications of falling rates:

• The U.S. dollar will likely weaken against foreign currencies, and especially against real assets.

• Recent declines in price inflation may moderate, and inflation may resurge.

• Existing bond values may rise as new bonds offer lower yields, especially those with longer maturities.

• Investors who recently bought 2-3 year T-Bonds look smarter than those who bought 3-12 month T-Bills.

• Gold, which pays no interest, may look more attractive as compared with treasury bonds, and could get an additional “push” from resurging inflation.

• Stocks may come under pressure initially as the capital ‘flight to safety’ plays out, but ultimately lower rates tend to push stock prices higher.

• The Fed is trapped between fighting inflation, which is far higher than its desired 2%, by raising interest rates, and fighting crises instigated by those rate hikes. There is no indication the Fed will escape this trap anytime soon.     

• Given the shortage of homes in America, residential real estate may find a footing and recover with a reduction in interest rates. 

Think about it, Shaun.

“A slack hand causes poverty, but the hand of the diligent makes rich.”~ Proverbs 10:4 ESV

1,2  Daily Wealth, “Market Turmoil Could Signal a Top in Interest Rates”, by Brett Eversole, March 28, 2023

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.  

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Government bonds and Treasury bills are guaranteed by the US 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.

Any economic forecasts set forth in this material may not develop as predicted. 

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Fear is one of the most powerful human emotions, and for this reason, negativity sells. Successful investing, however, involves a consistent, phlegmatic practice of sound principles over time, and in a broad range of investing environments. While ratings-driven news stories can show us where the emotionally-charged herd is stampeding at the moment, in order to grasp the indications that can help us make wise investing decisions for the mid and long-terms, we need to get past (or avoid) the entertainment, and thoughtfully consider primary forces. Here are a few factors I believe are worthy of our consideration.

Systemically important banks are far better capitalized today than in the 2008 financial crisis. Fed-mandated regulations applicable to banks with consolidated assets exceeding $50billion, including stress tests, resolution planning, stricter liquidity and capital requirements, and enhanced oversight,¹ suggests a crisis similar to The Great Recession is unlikely at this time. While mass fear in a highly indebted society (practicing fractional reserve banking) is alone capable of introducing a systemic crisis, both the Treasury Department and the Fed proved during the 2020 Covid19 lockdown they will go to any length necessary to stabilize the economy and financial markets in a time of crisis, and unless and until the U.S. dollar loses global confidence, they have the power to succeed. That said, the move by federal regulators this week to backstop all Silicon Valley Bank deposits² virtually guarantees a more significant banking crisis will emerge down the road, as it no longer makes sense for banks to consider risk when allocating depositor funds.

While a recession appears imminent (or already here), the U.S. economy is not unraveling in a disorderly manner. Unemployment remains low at 3.6%,³ job openings are robust, and layoffs outside the tech sector are unmentionable. Nothing systemically significant is broken in the U.S. economy at this time, but do not forget inflation remains three times the 2% desired by the Fed!

A Fed policy shift is probably much closer than most investors understand in their present fearful state. For many months the Fed has been aggressively raising interest rates to combat 40 year high inflation, and Jerome Powell has been clear that only a drop in inflation near the desired 2% range, or a crisis, will cause a change in the direction of rates. The Fed’s goal was to raise rates until something big broke, and big things are starting to break.  

These are the relevant factors, and I believe they suggest the following:

• The Fed will likely pivot to easy money policies near term.

• The U.S. dollar will likely weaken against foreign currencies, and gold and other chaos hedges will likely outperform, in this process.

• Investors should favor established, capital-efficient businesses, and build a watch list for the Fed pivot.

• High inflation continues to place a premium on present streams of income, and discount future streams of income.

• The credit market is tightening, which may induce further casualties before regulators take policy action. Look for great businesses to get “thrown out with the bathwater”, and buy them!

• Cash is required to capitalize on these dynamic opportunities.

Think about it, Shaun.

“Only when the tide goes out do you find out who has been swimming naked” ~Warren Buffet

“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.” ~Ecclesiastes 11:2

1 McKinsey & Company, “A decade after the global financial crisis: What has (and hasn’t) changed?”, August 29, 2018 https://www.mckinsey.com/industries/financial-services/our-insights/a-decade-after-the-global-financial-crisis-what-has-and-hasnt-changed

2 NBC News, “US moves to protect all deposits at Silicon Valley Bank in a bid to stem a wider fallout”, March 12, 2023 https://www.nbcnews.com/business/business-news/treasury-says-will-back-silicon-valley-bank-deposits-rcna74570

3 U.S. Bureau of Labor Statistics, March 10, 2023 https://www.bls.gov/news.release/empsit.nr0.htm

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Vegetable gardening fascinates me in both its simplicity and productivity. Mix dirt with nutrition, balance the PH, add sunshine and water, and you can grow anything! And as you encounter problems, there are only four conditions to investigate. Compounding the dividends of great businesses over time is one of the simplest, and historically one of the most effective ways to build wealth. Many of the greatest investors America ever produced would attest to this, and this strategy may be most responsible for the great Warren Buffet’s investing success. What makes the compounding of wealth a wonder, and why don’t more people do it? What are the critical dynamics of this investing strategy?

Albert Einstein declared compounding returns to be the 8’th wonder of the world, and he was smart enough that, when placing something on that scale, we should find out what it is. Reinvested dividends buy additional shares of a stock, which increases next quarter’s dividend, which will buy more shares over time, and so on. This process also compels dividends to buy fewer shares at higher prices, and more shares at lower prices, a key component of long-term returns. Apply this process to a business that increases its dividend annually, and dollar cost average into the position each month, and you have started the engine of a wealth production machine. Einstein discovered the chart on this process mirrors the bottom right quarter of a standard circle, consisting of three stages: 1) share accumulation with slow, methodical growth, 2) lift-off, as returns on investment escalate, and 3) parabolic growth of the value of the position with expanding returns.

The two likely reasons why investors don’t more often apply this incredible strategy, at least as part of their overall investment approach, are ignorance and impatience. Either they don’t know about it, and Wall Street has no vested interest in sharing it with them, or they are too impatient to consistently apply it over sufficient time to experience the wonder. Don’t let that be you! The three associative conditions to this investing strategy are as follows:

• Invest only in businesses of such high quality that, short of a fundamental change in the company or industry, you’ll never sell. This means capital efficiency, industry domination, large and increasing free cash flow, a moat against competition, dividend payment, and ideally, annual dividend increases.

• Exercise disciplined buying. Have strict parameters for when to buy with a lump sum. Never buy unless those parameters are met, but when they are met, always buy. Keep individual positions to 5% or less of the total account value.

• Understand the time component. Your timeframe is your lifespan. Do not delay unnecessarily. Make sure dividends are reinvesting (without cost), and try to never stop dollar cost averaging into the position, either with dividends, or new dollars, or both, but remember the 5% rule mentioned above!

Three issues, that’s it! It’s even simpler than vegetable gardening, and far more productive, at least financially. May God bless the allocation of your hard-earned capital. Think about it, Shaun.

“If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” ~Warren Buffet

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” ~Warren Buffet

“You should have invested my money with the bankers, and at my coming I should have received what was my own with interest.” ~Matthew 25:27

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets. 

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

The great first ascent of Meru, a shark fin-shaped peak found at 20,000 feet in the Himalaya Mountains, formerly thought to be unclimbable, was preceded by the infamous trio’s failed attempt. After being confined to their hanging tent through a multi-day storm, Conrad Anker and Jimmy Chin, to the shock and befuddlement of Renan Ozturk, proceeded not down, but up the mountain, and with no food! As Conrad later candidly admitted, they were not far from eating portions of their own boots. The U.S. consumer is no less vital to the domestic economy than food is to the mountaineer, and recent data confirms two things, 1) U.S. consumers better be wearing leather boots, and 2) certain investment and market trends are entrenched.  

A recent Federal Reserve report concluded the following:

• U.S. household debt surged to a record $17 trillion in the final quarter of 2022.

• The number of mortgage loans in “serious delinquency” (90 days overdue) nearly doubled in the past 12 months.¹

• Delinquency rates on consumer and auto loans are also up sharply.

If you had been tracking the initial (failed) attempt on Meru, you’d have known when the food ran out that the expedition, one way or another, would soon end. We will be wise to acknowledge the following economic and market trends, confirmed by the above consumer data:

• Consumers are no longer funding purchases with pandemic handouts, but with debt.

• Persistent high inflation, in the face of a tapped consumer, proves inflation is not ‘demand-driven’; it is driven by supply constraints, which are fueled by the Russia-Ukraine war and de-globalization.

• There is no end in sight for either the ongoing war, or the reconfiguration of the global supply chain. The impetus’ for higher than normal inflation are firmly entrenched.

• The global reversion to domestic production will present numerous investing opportunities for astute investors. We should be thinking about formerly imported goods that will now be produced domestically, and the materials this will require.

• A tapped U.S. consumer suggests we may already be in the widely anticipated recession indicated by the inverted yield curve. 

• The economy will struggle until consumers get relief, which can’t happen until ‘the Fed’ lowers rates, which it won’t do before admitting we’re in recession, which it rarely does prior to the recession ending.

Consumer data reveals a weak economy is also entrenched. This is STAGFLATION, and history suggests it favors the following investment themes:

• Concentration on present income (interest, dividends, and rents).

• Careful industry selection (concentration on outperforming, and avoidance of underperforming industries).

• Nimble allocation (adjusted more frequently than in other investing environments).

• Dollar cost average the whole market cycle.

The Conrad Ankor-led team did that which everyone thought was impossible. Investors can succeed investing in this environment. The above strategies are few and simple, but can be profoundly helpful. Think about it, Shaun.

“Be wise as serpents and innocent as doves.” ~Matthew 10:16

“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth.” ~Ecclesiastes 11:2

1 Chaikin Analytics Power Feed, “The ‘Bearish’ Side of Relative Strength Says Ski Season is Over”, by Pete Carmasino, February 23, 2023

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets. 

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.

Babe Ruth was dynamic to baseball in that, with unparalleled frequency he would change the score with a swing, and in any ballpark. His presence meaningfully changed the game. Hakeem Olajuwon, a former soccer player, and the greatest shot-blocker in NBA history, changed the game with his presence in the paint. This week the U.S. Bureau of Labor Statistics released CPI index data showing a .5% increase in prices for December, and a 6.4% increase over 12 months, as opposed to the widely expected .4% and 6.2% respective readings.¹ Persistent high inflation (PHI) changes the landscape and forecast for both the U.S. economy and financial markets, and due to the following implications, must be on your financial radar:

• Rising prices diminish the purchasing power of cash savings. While fiscal responsibility requires emergency savings, inflation nibbles on the kitty, and PHI consumes it! Avoid excess cash savings, and maximize earned interest (without assuming solvency risk). Use excess savings to pay down high interest debt, and to thoughtfully pre-purchase future necessities at today’s lower prices.

• PHI disrupts normal business valuation metrics due to its effect on cash flows, and redirects investment. Inflation places a premium on present, and discounts future streams of income. Don’t get caught chasing growth in a high inflation environment! Fight PHI with interest, dividends, and rents.

• Due to the redirection of capital and the general inefficiencies of the market system, PHI causes increased market volatility. Vigilance is required! Never chase prices higher; rather, hunt like an alligator with limit orders. Focus on bullish industries and sectors. Favor dividends. Dollar cost average constantly. Have an exit plan on all non-forever holdings from the date of purchase, and follow it judiciously.

• PHI exposes central bank fallacies and induces major policy errors. When fighting PHI, ‘the Fed’ has never failed to raise rates sufficiently high to cause economic recession. Don’t expect this to be the lone exception! The financial markets are forward looking, but recessions are identified in hindsight, so don’t get too bearish, either. Portfolio cash should exist to capitalize on ‘Fed’ blunders, but don’t forget PHI is consuming it while opportunity delays. 

• PHI is a life-threatening foe to those in every class of wealth. The second essential principle (to establishing streams of income) in fighting PHI is strict budgeting. Every dollar not spent frivolously can be used towards the higher price of necessities. Shopping is fun, but financial peace is far superior. Choose financial peace, and get busy cutting unnecessary expenses. Be creative, and exchange ideas with others. 

Think about it. Shaun

“Unequal weights and unequal measures are both alike an abomination to the Lord.” ~Proverbs 20:10

“Inflation is the most universal tax of all.” ~Thomas Sowell

1 CNBC, “Inflation is higher than expected at 6.4%, with the ‘most important’ measure remaining elevated”, February 14, 2023 https://www.cnbc.com/2023/02/14/inflation-higher-than-expected-in-january.html

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy insures success or protects against loss. Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.

Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets.

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