Physicians' Guide to Wealth

A guide for anyone pursuing financial independence

Q
Life Assessments and Feelings

Apr 6, 2022

The modern car is so complex that the former process of opening the hood to figure out what is wrong is a complete exercise in futility. This, of course, does not stop the modern male who will still pull over and open the hood, apparently believing he can spot and solve the problem so he can get on his way. Technicians (formerly known as mechanics) will hook up multiple data lines to your engine and can tell you everything about your car, including error codes that have been triggered and even your driving habits.

Besides computers, there are other indicators to assess how your car is performing, not revealed by computers and only during your driving experience itself. Does the car pull to one side (tire pressure low or out of alignment), are the brakes mushy (maybe low on brake fluid), did the engine suddenly start to sputter then stall (probably out of gas), or how do people look at you while you drive by. However, despite all the sources of information, our feelings about our car and decision to keep the car can be influenced by simply peer pressure or how comfortable the seats are. It may run great, but ending rides with a sore back is a non-starter.

Assessing the health of the US economy is very similar. We have many technical sources to determine our understanding of the US economy that, including detailed economic reports. Our feelings about the economy come from a completely different source of information that includes the main media, our friends, and our experiences.  
One recent technical indicator includes factory orders. If businesses are seeing rising sales and demand for their products, they will increase their orders. Yesterday, the US Census Bureau released February’s Factory Orders report indicating a shallow 0.5% decline month over month (Mo) from January and the first MoM decline since April 2021.

 

Excluding last April’s 0.1% MoM decline, this has been the longest consecutive run of monthly gains in factory orders in 30 years. 

 

Following April’s 2020 significant drop in factory orders, businesses have not only recovered but now, after 23 consecutive monthly gains, are placing orders at all-time levels. This is a good indirect commentary on the health of consumers and businesses (buyers) that are driving the rising demand for products.

We referenced the all-time high of corporate productivity in the Brief, “How Productive Are We?”. We noted in that Brief,

“The Bureau started tracking US labor productivity in 1940 with the first-year baseline of 100. For the past 81 years, the US has consistently improved its productivity, which is partly due to more laborers (more workers, more production). Note the surge in productivity during the 1990s into mid-2000s as the influence of new technology began to show its value for businesses.”

Our car technician can tell us the car is strong and running well, but a few negative words by friends can skew our feelings about it. Despite the good reports about the car, we may ultimately sell it. In the same sense, even with reports of all-time high factory orders and corporate productivity and even experiencing personal benefits of steady employment and rising asset values, we may sell our investments to hold more cash to satisfy our feelings of doom.

Managing your investments and building wealth by feelings is a fool’s errand. We are the fiduciary advisor to retirement plan trustees representing over $100M in participant accounts. In observing participants, we noted that those with the highest trading activity typically had the lowest returns. In fact, one participant has a record of a zero-dollar account gain in 8 years. Not 0% but zero gain in his account balance. Meaning, that this participant has consistently bought and sold at the wrong time so often that his losses consumed his 8 years of his own and employer matching contributions. If he had kept his account in the money market with a 0% interest rate, he would at least have his original balance plus contributions. We encouraged this individual to stop reacting to the news but to no avail. He since retired with the same retirement account balance he had in 2012.

I can understand the need to sell your car because it is getting older and not as impressive even though it runs great. Pride is a powerful influence. The US economy is doing well and even better when compared to most countries. However, the technical-economic reports seem to be missed by the main media, whose recent doom and gloom focus is the interest rate yield curve inversion – when short-term Treasury rates are higher than longer term Treasury rates. A concern, yes, but not a harbinger indicator for a pending recession. The feds are raising rates to slow inflation. 30 Year Fixed Mortgage rates hit 5% today, which will slow the residential real estate market. The media has been focused on the risks of 1980’s “hyper” inflation, and people complain that residential property values are at extreme levels. The fed’s raising rates will slow both down. Investors know this is good policy and why the Dow Jones Industrial Average soared 1300 points the day the fed’s raised its discount rate.

What Does This Mean to Me?
Our view remains positive on the US economy and stock market. The major indices reached a bottom on March 14 and have recovered 50% of the year’s loss. Last week we noted the S&P 500 crossed its 20 days and now 50-day moving averages. The continued rising trend of the index since March 14 may indicate it reached the low for the year. However, it is not unusual for the market to correct one more time and re-test the March 14 low. If the market does cycle down to March 14 level, it may prove to be another buying opportunity for this year. As mentioned several times in this Brief, we view 2022 as an accumulation year just like 2016 was. Add to your account on dips during accumulation years like this with the prospect of account gains later in 2022 or 2023. NASDAQ has been up 10% since March 14. If one bought the NASDAQ index ETF (exchange-traded fund) on March 14 and the index recovers all its decline, the investor from March 14 would result in a 19% return.

Give us a call or send an email if you have any questions about this Brief or your account. We welcome the opportunity to assist you with your questions and your pursuit of financial independence.

SECURE YOUR SPOT TO RECEIVE THE WEEKLY BRIEF

Name
Consent(Required)

SEND US A MESSAGE

11 + 15 =