Friday Thoughts

I haven’t written in a while, as summer has kept us busy. While we haven’t been on as many trips this summer as last summer, we have still stayed busy and have taken longer trips to the beach. Unfortunately, as I’m writing this, our camper is in a repair shop in Conway getting the slide rebuilt. There was a series of small holes in the roof that were letting water slowly drip into the wall, unbeknownst to us. Eventually, the water made its way to the floor, requiring its replacement. It’s taken time to find someone who could do repair that serious, but I have confidence in this shop. 

Today, I have two things that I want to cover. The first is a change with my broker dealer. It’s been something that I’ve been expecting and as we get closer to it, I’m getting more excited about some of the new things it will mean for me, as an advisor, and for what I’ll be able to provide to clients. The second thing is a brief market update. The volatility of the early part of the year has continued, although the trend has been better as of late. 

You may, or may not, be aware that my broker-dealer, First Allied Securities, Inc, was merged in with a number of other broker-dealers between 2013 and 2015. The organization is known as Cetera Financial Group. Earlier this year, they shared with us the exciting news that they have made the decision to join First Allied with another of their top broker-dealers, Cetera Advisors LLC. This marriage of these two successful firms—each with a long history of supporting America’s investors—will bring together fifteen hundred financial professionals and is very welcome news that will drive efficiency and scale. Very importantly, I believe the joining of these two firms will further improve my ability to serve you. 

 Like First Allied, our sister firm Cetera Advisors is an independent broker-dealer that provides many of the industry-leading financial products and services to its financial professionals and their clients nationwide. Additionally, my new affiliation with Cetera Advisors will allow me to benefit from advanced technologies that are not yet available at First Allied, in order to serve you better. This conversion is expected to occur on September 12.

 The relationship I have with you, as a client, will not change. I will continue to have the privilege of working with and helping you pursue your financial objectives. Much of the transition work to move to Cetera Advisors is taking place behind the scenes, and there will be very minimal impact to you. 

What does this mean for you?

This will be a seamless transition for you. You should also know the following:

·       Starting in September, your account(s) will reflect Cetera Advisors as the new broker-dealer and Cetera Investment Services as the new IRA tax/recordkeeping custodian. Any of your applicable accounts, including retirement accounts, as well as accounts that are held directly at companies such as mutual fund companies, insurance carriers or third-party money managers, will reflect the change in broker-dealer. These changes will automatically take place and there is nothing you will need to do. Pershing will remain the asset and account custodian for all of your accounts other than those held directly. 

·       Cost basis information on your accounts will continue uninterrupted.

·       All current instructions on your account will be maintained.

·       If you would like to or currently access your accounts online, you will continue to be able to do so. 

 One other aspect of the change, and it’s the one that has me the most excited, is that I’ll be changing over to the Cetera Advisors operating platform, known as AdviceWorks. That name may be familiar to you, as I do use AdviceWorks some right now. It’s the platform that I share with you to access your financial plans and account access. But, the platform does so much more. 

AdviceWorks was built by Cetera Advisors as a comprehensive business management and advisory platform. The various components of my daily work are all integrated together, rather than having to go to a number of different programs and apps. Due to the high level of integration, it promises to finally be able to deliver a paperless transaction process. Most documents will be able to signed electronically and processed automatically. It should dramatically reduce the instances of paperwork not being in good order, meaning I won’t have to come back to you again and again for “one more signature”.

In the coming days, you will receive a letter directly from First Allied regarding the change in broker-dealer. I encourage you to review its contents and if you have any questions, feel free to call me. If you do not have any objections to moving your account(s) to Cetera Advisors, no action will be required on your part and your consent will be assumed.

I truly value our relationship and cannot thank you enough your continued confidence in our relationship. I look forward to continuing to serve your investment and financial planning needs through my new affiliation with Cetera Advisors. I am truly excited. 

As for the economy and the markets, I’m not as excited. 

After the worst first half of the year for the US equity markets in something like 40 years, they have rebounded over the last month and a half or so. I find this a bit puzzling, as inflation is staying high and the evidence of a slowing economy and negative earnings reports continue to pile up. While the economic news isn’t looking good, the Federal Reserve has said that they will be continuing to raise interest rates in an effort to bring down inflation. 

So, why the recent optimism in the stock market? I think that there is a sense that inflation will be coming down sooner, rather than later. That would allow the Federal Reserve to ease off on their interest rate increases. I believe that this thinking is wrong. 

If you go back and look at Wall Street firms’ predictions about inflation over the last several years, you’ll realize that they have always predicted a quick return back down to 2%, even when the data showed the opposite. The reality is that our economy has gone through a cosmic shift since COVID arrived on the planet. Many of the factors that kept inflation at bay for the last 20 or more years aren’t there any longer. 

The baby boom generation came into the workforce in full force in the 1980s. Since then, there has been a large and stable labor market. It has often been the case that there would be two to three times as many people looking for work as there was available jobs. As the baby boomers started reaching retirement age, that began to change. Just before the world shut down out of fear of the COVID outbreak, we reached the point of parity in jobs available and those looking to work. Now, there are nearly twice as many jobs available as people looking to work. This will keep pressure on employers to pay more, keeping inflation higher. 

We’ve also seen a trend of globalization sweeping the world for 30 years. In 1994, the North American Free Trade Agreement (NAFTA) was implemented. In 2001, China was accepted into the World Trade Organization. Manufacturers have been able to find ways to move operations to cheaper places around the world, keeping inflation low. We’ve been able to buy as much cheap stuff as we wanted, without having to do the hard work of making it. 

All of that international trade has come at a cost, though. It has put a strain on global supply chains. Ports have had to be bigger and bigger. Ships and trucks have filled the seas and the highways. And there has been a further divergence of the wealthy and the poor, with the middle class getting caught in the tug of war. 

We began to see this globalization trend switch about six years ago with the election of President Trump and China’s Xi Jinping’s crackdowns on their “free markets”. The move toward “home shoring”, however, has dramatically gained momentum with all of the supply chain disruptions brought about by the over reactive shutdowns due to COVID. I’ve lost count, but there are no less than seven microprocessor plants being planned for construction in the US  right now. A friend who works in the furniture industry was telling me that they are seeing more furniture being made in the US and Mexico. With the previously mentioned labor force issues, I this will add to inflationary pressures. 

Lastly, for this Friday Thoughts, with continued government spending, there is no downward pressure on inflation. In fact, I suspect it’s the opposite. The “Inflation Reduction Act” spends another $300+ Billion dollars on things like electric cars, new windows, and other wasteful and unnecessary things. The Presidential order to reduce student loan debt by $10,000 per person just frees up more money for college grads to spend on stuff. All of this is inflationary. More money chasing after less things. 

In conclusion, while I’ll concede that we may have seen the peak of inflation for now, I don’t see it getting back to the targeted 2% any time soon. The Federal Reserve will see this as a challenge they must face. The only tool they think that they have to face it with is increasing interest rates. As Chairman Jerome Powell just said at a speech today in Jackson Hole, Wyoming, that there will have to be “some pain” in the economy as they raise rates in an effort to lower the increases in the prices we pay for things we need in every day life. 

I’m still feeling the need to stay conservative, watch every dollar closely, and remain financially nimble - especially for shorter term financial needs. In the longer term, I remain encouraged. We are still the most dynamic and productive economy in the history of the world. That hasn’t changed and we will get thought this, just like we always have.

I’ve gone on enough. If you are concerned about either the change of broker-dealer or the economy and your investments, please feel free to call and schedule time for us to talk. 

Football season is upon us, which means that cooler weather is close. We kick off high school football tonight with a school wide tailgate. Next weekend, we’re taking the (hopefully) repaired camper to Edisto Beach for a Labor Day weekend celebration of the summer. I hope that you have something fun planned for the end of the summer and start of fall.

The views stated in this letter are not necessarily the opinion of First Allied Securities, Inc. and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein.  Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed.  Past performance does not guarantee future results.

“Cetera Financial Group” refers to the network of independent retail firms encompassing, among others, Cetera Advisors, Cetera Advisor Networks, Cetera Investment Services (marketed as Cetera Financial Institutions or Cetera Investors), Cetera Financial Specialists, and First Allied Securities. All firms are members FINRA/SIPC. Cetera Financial Group is located at 655 W. Broadway, 11th Floor, San Diego, CA  92101