Stock Market

What is the U.S. Debt Ceiling?

Q4 2021 Market Commentary…

What is the U.S. debt ceiling? It’s simply a dollar cap limit that the US Government places on its own authority to raise money by issuing government bonds to continue to meet its obligations like social security payments, tax refunds, interest payments on existing debt, government employee salaries, military salaries, just to name a few. Since 1917, Congress has raised the debt limit 78 times (See Citation 1).

The U.S. government hit the debt limit of $28.4 Trillion (yes, with a T) in July 2 (See Citation 2). In fact, the debt load is a few billion over that as I write this newsletter, and the U.S. Treasury is pushing to get it raised by October 18. Since the U.S. Treasury debt is over the limit, something needs to get done, lest they are forced to default on the payments. Of course, members of congress rarely let that happen. They typical play hard ball with each other and then usually get it done in the 11th hour.

Raising the debt ceiling is not a healthy thing. It’s a necessary evil. With each dollar the government borrows, it steals purchasing power from future generations, and it makes all of us poorer for it. Unfortunately, the alternative is that the government defaults on their obligations. We each know hundreds of people who count on government payments, and no one wants those recipients to be adversely affected by a problem they didn’t create. Beyond the debt, we have other concerns…

Future BrightWhat is the U.S. Debt Ceiling?
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Has inflation fully kicked-in yet?

2021 Q3 Commentary…

In last quarter’s commentary, we addressed inflation as an increasing headwind on the stock market. Just how much inflation is in the offing and whether it is transitory (i.e. – temporary and manageable) has been the hot public debate in financial circles during the second quarter. Anecdotally, I’ve heard from many of you about the rising cost of 2 x 4’s, tires, used cars, gasoline, and even Burger King chicken sandwiches. I paid $4.09 for an order of large fries at McDonald’s in Moorhead this week! Perhaps the only real takeaway there for me is that by making better diet choices, I could help stave off inflation.

Has inflation fully kicked-in yet? That’s what investors want to know. The uncertainty makes for a Jekyll and Hyde market. Admittedly, there have been days this quarter in which the markets have made our reflationary investment thesis (aka – Silo 2) look foolish and other days it has made us look genius, but we must stick to our guns on the data we have in hand. The alternative is to become like the dog who chases its tail, and that doesn’t end well when investing.

Future BrightHas inflation fully kicked-in yet?
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What happens when interest rates rise?

2021 Q2 Commentary…
Can stocks and interest rates go up at the same time? Yes, they can, and they often do. Right now, we are in a period of recovery from economic shutdowns across the globe. As companies are forced to raise prices in 2021 and meet a return in consumer demand, we are watching inflation like a hawk. Specifically, we pay very close attention to the 10-year treasury note yield as our sentiment barometer.

First, a quick education on why the 10-year treasury yield matters…
▪ Treasury securities are loans to the federal government. Maturities range from weeks to as many as 30 years.
▪ Because they are backed by the U.S. government, Treasury securities are seen as a safer investment relative to stocks.
▪ Bond prices and yields move in opposite directions—falling prices boost yields, while rising prices lower yields.
▪ The 10-year yield is used as a proxy for mortgage rates. It’s also seen as a sign of investor sentiment about the economy.

How high can the 10-year treasury yield go before we do see it adversely affect the performance of the stock market? Some economists predict it’s 3%. Others say it’s 2.5%. The truth is that their predictions don’t really matter. What matters to us is the rate of change in inflation data that typically drives the change in interest rates. If the rate of change of inflation is increasing quarter over quarter, it signals a robust recovery is afoot, assuming job growth and GDP are accelerating, as well.

Future BrightWhat happens when interest rates rise?
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Using Data to Position Assets Favorably!

Q1 2021 Commentary…
2020 was a year full of alarming statistics. One you maybe didn’t hear was that over 10 million new brokerage accounts were opened by first-time investors in just the United States alone! This influx was the result of three things: stimulus checks, a pandemic-induced market selloff, and the elimination of trading commissions at brokerage firms such as Schwab, TD Ameritrade, and Robinhood.

2020 created a perfect storm to attract more individuals to invest, which is a great thing for market efficiency and liquidity. The dangerous part of this perfect storm is that many younger, new investors have not yet experienced a significant market crash, as most of this new money came into the stock market during its recovery. Significant gains were created by and for investors who were willing to take on the risk of buying assets some maybe didn’t even fully understand. New money was piling into SPACs, Bitcoin, LIDAR stocks, to name a few. (If these terms don’t ring a bell, it’s okay. We got you covered.)

In client accounts that could afford to take the risk, we benefited from the irrational exuberance of many of these first-time investors. In fact, we rode some of the waves they created. However, we know the tide can go out just as fast as it comes in, and as asset managers, we have to have a game plan in place for when markets aren’t turning up all roses. Discipline is often what marks the difference between casual, DIY investors and those of us who do this for a living in times like these.

Future BrightUsing Data to Position Assets Favorably!
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Recovery

Hello friends, Social distancing affords a person a lot of time to reflect on life, doesn’t it? This time spent at home with family has been a great blessing. Life’s pace has slowed down, and that’s the solace I didn’t know I needed. I hope you’ve found your own moments of solace amidst this abnormal reality, as well.

Ross AlmlieRecovery
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Individual Stocks – Are they for you?

2020 Q1 COMMENTARY:
Contrary to what logic might suggest, the most difficult time to be an investor is when the financial markets are in the late stages of a multi-year upward trend. As we witness market levels hit record highs, the appetite for adding new money to investments can start to wane for fear that the most opportune time to buy has already passed us by. It’s an innate thought process. Since we were little, we’ve all been taught that too much of a good thing is not always a good thing, and it’s a legitimate lesson that I’m sure we’ve all learned multiple times in our lives.

Ross AlmlieIndividual Stocks – Are they for you?
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What a Difference!

Wow, what a difference a year makes. Last year at this time, there was a fear that the economy was overheating and in need of continued interest rate hikes from the Federal Reserve. The 10-year U.S. Treasury note had just hit 3.25% and the service sector strength as measured by the ISM (Institute for Supply Management) measured its highest read in history.

Fast forward one year, and here we sit with the 10-year note sitting at 1.54% and growing fears of a recession. With a yield curve inversion, a trade war with China and other countries, and overall investor exhaustion from the daily deluge of news that moves markets some days and falls on deaf ears on others, it’s pretty remarkable that the market has maintained these levels.

Ross AlmlieWhat a Difference!
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Stock Market Volatility… How do you cope?

Stock Market Volatility
How do you cope?

It’s no secret that the sustained generational low levels in interest rates have helped the stock market climb to near record highs over the past decade. Many would assert that the record rise in stock prices is artificially propped up under monetary policy decisions that have forced savers to take on more risk in order to find more acceptable returns. Nevertheless, for those of you who have not let volatility of stocks shake you into making bad decisions, you have been rewarded for sticking with stocks despite the general public’s irreverence towards them. Low interest rates have certainly played a part in your success, but not all of it.

Many people view stocks in the context of “how long will the party last?” It’s a rational thought, especially if you’ve lived through some vicious downturns like 1987, 2001, and 2008. Yet, underneath the shadows of some pretty dreary market conditions, transformative technologies still emerged amidst the wreckage, and they don’t get enough credit for the role played in the economic recovery and subsequent rise of the stock market. Apple, Google, Facebook, Netflix, and Amazon are the sexy names that grabbed the headlines, but what about the likes of Nvidia, Intuitive Surgical, Lululemon, and Regeneron? They are just a few lesser known names that have played a part in the market’s rise, and I could name several more!

Ross AlmlieStock Market Volatility… How do you cope?
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