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Market Insight

Why Your Money is Like a Bar of Soap

It’s been a tough 12-month stretch for financial markets. The S&P 500 (an index of the 500 largest companies in America) was down nearly 20% in 2022 - its worst year since 2008. By many measures, bonds had their worst year ever, recording double-digit losses. Bellwether stocks that carried the market for the past several years had it far worse. On a combined basis, Apple, Microsoft, Alphabet (Google), Tesla, Meta (Facebook), Amazon, and Netflix were down nearly 50%. Many popular “Covid stocks,” like Peloton and Zoom, are down over 90% from their peaks. Some investors in the riskiest corners of the market (like cryptocurrencies) were wiped out altogether. Yes, 2022 was a rude awakening. And while there was little place to hide, those who followed old lessons of diversification and risk management likely avoided life-altering losses.

The Cost of Free Money

There’s no such thing as a free lunch. You know the phrase and what it means. Free hotel breakfasts, free checking, and free shipping all have associated embedded costs that we pay but don’t necessarily see. Everything has a cost, even money. The cost of money is the interest rate we pay to borrow it, and for the better part of the last 12 years, that interest rate has been near zero. And while free money seems like a dream come true, it too has costs, and this year we are paying the price.

Quarterly Newsletter

It’s Real. US Government Bonds That Yield 9%+

Last week inflation hit a 40-year high and there has been much talk recently about its impact on markets and the economy (as we discussed recently here. One way investors can benefit from rising consumer prices is the Series I Savings bond (I-bonds) issued by the US. Treasury. I bonds set their interest rates every six months (in May and November) based on inflation and a fixed rate. Since they are tied to inflation rates, until recently I bonds have flown under...

A Roadmap for Uncertainty

First, the bad news. During this year’s first quarter inflation reached a 40-year high. Russia invaded Ukraine, destroying cities and killing civilians. The bond market had its worst three month stretch since 1980. At one point, the NASDAQ entered bear market territory, while the S&P 500 and Dow both experienced corrections. And, by one common measure, recession is a near certainty.

Reading the Tea Leaves of 2022

It has been said that “far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves”. That sage advice would have come in handy at the turn of 2021. Remember, this year started with a riot on Capitol Hill…during a global pandemic. Following the insurrection, concerns about newly elected President Biden’s proposed tax hikes took center stage, only to later be overshadowed by inflation running at levels not seen since the early 80’s.

Quarterly Newsletter