Welcome to 2019! The depths of winter have arrived, and with them temperatures in the US that are literally colder than Antarctica. But fear not dear readers! We have prepared this January newsletter with you in mind, and hope you will find the content stimulating enough to keep you warm.*
Have you heard of Modern Monetary Theory? If not, you just did. And you’ll probably hear more of it soon, because it’s like an Acme Portable Hole for the government’s Wile E. Coyote. It just can’t help itself.
Understand the implications of a 401(k) loan to decide if it's the right option. By Rachel Hartman
Ha! See what we did with the title? That’s clever. It’s like we’ve got a little series going to start 2019: first it was Jan-YOU-ary, and now Febru-WHERE-y. (Looking ahead, “March” doesn’t quite fit the pattern, but that’s a problem for future me.) Staying in the present, hopefully you’ve started paying yourself first - that was what Jan-YOU-ary was all about, after all. Those of you who happened to miss that particular article or perhaps would just like a little refresher (shameless plug coming), you can read past Beachcomber issues online! Go ahead, we’ll give you time to get caught up...
Alright. So you’ve started (or will start) paying yourself first every time you get that paycheck. Where’s the best place to put that money? Bank account? Stocks? Under the mattress?
Apparently Santa came early this year! Or at least that’s what we’re telling ourselves given that top of our Christmas list every year is “less government”. So we’re going to choose to look at this Christmas, with about ¼ of the government shut down, as a happy little present and just ostrich out all the nonsense about why we’re actually in a partial government shutdown and how much of 2019-2020 will also be spent in a partial shutdown…
For the equity markets, however, it has been an absolute bear of a holiday season. Quite literally:
Whew! Nothing like waiting until the very last possible minute for a November newsletter, huh? We don’t care what science says these days, we still blame the tryptophan.
It feels like we have been writing about benefits elections ad nauseum recently, but after a quick glance back through the last few months’ newsletters, apparently that’s not true. So with a couple weeks left to make or change your elections (at least for the Healthcare exchange and likely for your own workplace benefits platform as well), let’s go through a Rundown of different places you can put your money. Just don’t eat the Konlobos, it’s worse than tryptophan.
Calendars are pretty arbitrary, especially when it comes to investing. I mean, sure, the development of the calendar as a means of tracking the passage of time makes sense, especially when it is based on observable patterns like, say, phases of the moon or positioning of the sun. But to use January 1st as the starting point for measuring investment performance is meaningless. I could just as well tell you about your portfolio’s performance since the first new moon after the vernal equinox - you’d probably look at me like I was crazy, but really there’s no difference between the two. They’re both arbitrary points in the flow of time that are equally irrelevant to you as an investor unless you actually invested your money on that particular day. And since the market is closed on January 1st, that is exactly nobody. Ever.
Well, that certainly escalated quickly. The third quarter ended with the US market at pretty much all time highs (again) and the early February gyrations long forgotten by most. But then the calendar rolled over to October, the witching month, and much hell has broken loose. Not all hell, but much. As of last Friday, markets were down about 10% overall - and we mean all markets. Large Cap, Small Cap, International, Emerging...even bonds fell this month. In point of fact, in the last sixty years, this is just the 13th time US markets have sold off by 10% or more within a month after reaching all-time highs. (And yes, that stat is completely cherry-picked because it let us use “Friday” and “13th” in making the same point, and how else would we work a Jason Voorhees reference into this note?) Pretty much the only things that haven’t gone down this month are gold and cash. There has been a little bit of a recovery these last two days, but we are still well on track for all major asset classes to close the month below their average price level for the last year.
So. What was it that solved the puzzle box and unleashed the Cenobites on the market? According to anyone who gets paid to make up explanations for the daily movements of the stock market (and don’t kid yourself, they are made up), the proximate cause was rates going up.
From CNN: “simply put, stocks are sinking as Treasury rates rise...the 10-year hit 3.24% on Wednesday for the first time in seven years. That’s an about-face from 2.85% at the end of August.”
From USA Today: “the catalyst was the recent spike in the yield on a closely watched government bond to a seven-year high.”
There are some tangential things thrown into the mix as modifiers, usually about trade tariffs or geopolitical uncertainty or tech stocks falling, but the main culprit is this nasty “about-face” “spike” that happened in Treasuries. Let’s look at that for a second, shall we?
Check out a graph of the yield on that “closely-watched” 10-year government bond for the last 50 years. Hoo-boy! Take a look at that spike. No, not that first one, that’s the 70s. No, not the big one either, that’s the 80s. Yeah, it does kind of look a bit like a seismograph for the duration of the 80s. That spike? Nope, that’s 1995. Can’t you see it? On the far right-hand side of the graph? Okay, zoom in on just the last two years, since the most recent bottom.
Huh. Well, we’re not sure what that looks like to you, but to us there is neither a spike nor an about-face in that. An actual “about, face” is a two-step, 180-degree change of direction. This is more like “gradual sweeping arc around the entire parade ground, face”. The Fed has raised rates 7 times, or 1.75%, over the last two years. So yeah, yields are higher than they have been since 2011 because rates are higher than they have been since the Bear Stearns bailout in 2008! And what was the yield on the 10-year the last time the Fed Funds rate was at this level you ask? Between 3.5% and 4%. Versus the 3.25% that supposedly precipitated this market correction. If Freddy ever came after us, that would be our nightmare - stuck listening to market commentators whose entire world resets every weekend until our head explodes.
Okay, gratuitous sarcastic rant over. Let’s get to the rotting meat of this Halloween note - Zombies!
Emptier beaches and more waves mean that winter is coming. And winter means holidays, food comas, and a nostalgic look back at the year mixed with excitement and planning for the year that comes. Speaking of planning, this is also the time for employer benefit elections and open enrollment for healthcare exchanges! (And yes, that certainly does warrant the exclamation point of excitement.) So let’s take a little stroll through some dos and don'ts to make sure your financial self gets the same kind of care and attention the rest of you is getting.
The World Cup this summer threw off our newsletter scheduling a bit, as school is now well in session and we have yet to do a “What is…?” newsletter. But fear not! This one has been a long time coming - we tried looking back to see which previous newsletter promised this current one, but stopped when we looked back through four to no avail. But better late than never, as they say, so without further ado: what exactly is inflation?
Active investors utilize options to increase their income, but it’s not for everyone.
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