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Friday Thoughts

I am very sorry that I haven’t written more of these Friday Thoughts over the last year or so. I could do like a lot folks these days and blame COVID. But, that wouldn’t be honest. My family has been amazingly insulated from many of the issues other families around the country, and the world, have been dealing with over the last year and a half. We have not been ill and the kids were are back to their second year back in school full-time, even if with masks and a few restrictions. 

The impact to our family has been one I wouldn’t have thought in March or April of 2020 - We’ve been traveling a lot as a family. The week after Memorial Day 2020, we bought a travel trailer and made a commitment use it often. Our Labor Day trip to Paris Mountain State Park last month was our 20th trip in our camper, nicknamed “Katie the Travel Turtle”. 

Many people talk of wanting to find the elusive “work/life” balance. While we’ve done a great job of focusing on the life part of that equation recently, it has come at a slight cost to projects that I had been working on. Writing was the biggest sacrifice and some of the reading and research I enjoyed also took a small step back. The two are linked, as I would read and research for things to write. And, I’ve found that writing helps me more clearly understand an issue, as I need to have a clear grasp of a topic to be able to write about it.

So - I share my goal of writing two to three times a month for the rest of 2021. We have some travel weekends planned, so I’m not sure I can do a weekly message. 

One thing I’ve done to help with my time management is hiring a virtual assistant. This isn’t a computer program that will be automating part of my work. It’s no Rosie the maid from The Jetsons. Rather, I’ve hired a service called TalentLink who has a team of trained assistants who work remotely for us, as advisors. My assistant is Jimena Escudero. She lives in San Diego, California with her husband, who is in the Navy. She has been helping me with paperwork, digital files, and administrative issues. She may be reaching out to some of you, on my behalf. She could be contacting you to schedule a call or meeting, to deal with some paperwork that needs updating, or to help with any number of other matters that could come up. I’m still learning about all of the things that Jimena can do and am looking forward to our relationship. 

The main thing that I wanted to go over and share thoughts about today revolve around the quarter that just ended and the quarter that started on Friday. September has been the most challenging month for the broader stock markets, historically. That historical norm was to be tested this year, though. So far, 2021 had been a pretty good year for stocks. Stocks failed the test. The Dow Jones Industrial Average finished the month of September down 4.3%. It was the best performing of the popular indexes - The NASDAQ was -5.3% and the S&P 500 was -4.7%. But, the S&SP 500 squeaked out a small gain of 0.6% for the quarter while the Dow was off 1.9% and the NASDAQ was down .4%. Despite the tough quarter, the indexes are still positive for the year - S&P 17.3%; DJIA 12.2%; NASDAQ 13.0%. All of theses numbers are as of 9/30/2021, not the date of publication. 

Historically, October has also been a challenging month for stocks, before they often see what is referred to as the “Santa Claus” rally to end the year. Will that happen again this year? There’s no way to tell. 

There are a number of challenges going into the fourth quarter, which is part of why I think markets got spooked heading into the spooky season of Halloween. The first concern is the disfunction of congress and the pending fiscal legislation that seems to be going nowhere. The second is what the Federal Reserve will do with all of the stimulus they have been pouring into the market. Third and fourth, kind of tied together, is rising inflation and the supply chain bottle necks around the world. I could write an entire letter about each one, and may in the coming weeks, but for now will just share a few thoughts. 

There have been four pieces of legislation regarding fiscal issues that have been batted back and forth in Washington over the last few months. The most crucial was a funding bill, funding existing government operations. The deadline for that legislation was last Thursday and it passed and was signed by the President on Thursday. The second is legislation to raise the debt limit. Think of this as the credit limit on your credit card. Recent reporting says that by the middle to end of October the United States will hit that limit. Democrats have the ability to raise the limit, but want to remove the limit entirely and they can’t do that alone. This is important because we, as a country, are living off of our debt and without raising the limit, we can’t pay our bills (not a good place to be). The last two pieces of legislation are large spending bills, one that is smaller and largely supported by both parties, as it’s mostly being spent on needed infrastructure around the country. The second is a massive spending bill that even the Democrats can’t agree on and no Republicans support. All three pending pieces of legislation face challenges and I suspect that the markets will be volatile as the chances of them passing go up and down. 

The second issue that could spook the markets is the Federal Reserve and how it handles what is referred to as tapering. Since the COVID crisis hit, the Federal Reserve has not only kept short term rates low through the rates they charge banks for overnight loans, but they have been buying AT LEAST $120 Billion of US treasuries and mortgage-backed securities each month. The goal of those purchases has been to provide a liquid market for those bonds and to help keep rates down. Well, now that the economy has recovered to where it was before the pandemic and inflation is going up, there is pressure to slow down that buying - tapering. They’ve indicated that they intend on starting the taper before the end of the year. But, at what speed? They haven’t said. When the Fed tapered their support following the financial crisis in 2013, US Treasury rates spiked in what was known as the Taper Tantrum. The stock market didn’t react negatively at that time, but would they stay the course now? We don’t know. 

Lastly are the tied together issues of inflation and supply chain bottlenecks. We’ve all seen prices going up. Lumber, plastics, metal, meat, dairy, gas, and on and on have all gone up in price lately. Many blame shortages due to not being able to get goods or materials. There are a number of folks who blame labor shortages, brought on by fears of the spreading Delta variant of COVID, higher unemployment benefits discouraging working, or any number of other excuses. I’m not convinced that there’s one reason for the employment issues, but it is a real issue that will have long term inflationary impact. If you hire someone at $15 an hour to get them to come work for you, you can’t go back in a year and lower them down to $14 just because the labor market changed. My suspicion is that most of the supply chain issues, which are also inflationary on their own, are driven by these employment issues. I don’t expect inflation to be as short term as the Federal Reserve thinks. 

With that, I’m going to wrap up. I will drill down more into each of these issues in subsequent weeks. I also want to write a few things about Crypto assets, as that’s one of the top questions I get asked, more so than interest rates, inflation, and whatever is happening in Washington. 

I hope that you have a great fall weekend. Leaves will be changing here soon as night time temps are finally staying down. Fall in the south - pullover in the morning and shorts when I get home from work! You have to love it.