The Thin Line Between Snow Showers and a Blizzard
It would be unreasonable and impossible to download my entire information set regarding financial markets. I have seen a lot, more than enough for multiple lifetimes, I can easily say this.
I literally had a second-row view of watching multiple financial geniuses (both academic and in practice, combined), all in the same room, working together, fail (link).
I can explain the housing crisis, in full, because I have first-hand working knowledge of the technology deployed, and then gone awry, creating the Great Financial Crisis in 2006-7: (link). And more. it’s not a flex, it’s fact.
Medicare, Advanced Premium Tax Credit Indexed Universal Life, Deferred Index Annuities, Social Security, Dental Insurance? These are merely single, simple topics if you understand options well. With that frame of reference, the nuances of the different policies, and the different language inside the policies can be identified and compared easily.
Friendly reminder: your politics and philosophy of government’s role don’t affect the analysis of options, and therefore, don’t affect the analysis of what policy or approach is best for you. There is no parameter where you plug in “fairness” to compare financial outcomes so that you can select the best-fitting configuration, let’s agree on that.
I have and will continue to leave the breadcrumbs of what I think that you need to know, applied to today. Onwards.
Santa Ride Under Threat
Read yesterday’s Substack, and that’s especially the case for paid subscribers.
At the end of October, I wrote about the fact that the very end of October was different from the prior 2 quarters. So we had 4 quarters.
a. Q1: Market straight up, small caps beat everything by a wide margin, large tech was negative, as stopped by interest rates, Gamestop, etc.
b. Q2-Q3: relationships among asset classes because a mess (multiple videos explaining my rants on GH2Unfiltered.com). Multiple videos.
c. Q4: relationship changed again, setting the stage for Santa’s ride, that continued despite Omicron. Oct 25, Oct 27, Nov 4. I also left the important caveat on Nov 7.
Now, Right Now
The reason that I believed in point c, at the end of 2022, is because other huge markets (“Stocks For Show, Bonds For Dough” says the broken record) did not support the idea that equities would notably decline. You can see that at the very end of 2021, German yields were stable, just like the US. Thus, stocks were “safe (ish),” within the idea that it’s never safe.
Seasonality commenced. But you can see that the very far right side of both graphs, interest rates sharply higher, and in Germany, a level we have not seen at any point in over a year. That has now been breached, right away, this year.
For the United States, all eyes at 1.75%. In 2021, when the 10-year note was here, the S&P 500 was about 9-10% lower than where it is today. The actual point is that during March of 2021, the US bond market was alone at those higher levels, but today, it is joined by other huge markets (German bond market). When you add in the information from the prior emails/videos, you get the logical conclusion: that makes it different, and worth watching.
If this continues lower, and bonds do not recover at the same time, this opens the door to possible scenarios that the market has largely ignored. I didn’t say entirely ignored. I am not the only, obviously, to see this.
From Bloomberg.com (link):
Maybe it’s nothing, there is always randomness involved, and the buy-the-dip mentality continues unabated, just sayin’ that important inputs, largely de-emphasized, aren’t exactly the same here.
Why the Ruckus Now?
Not everyday is of equal importance. Tomorrow, employment data will be reported. It hasn’t been important, really, since Q3-Q4 2020. It will be tomorrow. When the data appears, professionals will swarm the market, leaving individuals aside, watching from the balcony. This is known, so the big mutual funds, if they have changed their minds, have already done so, or it may appear at the end of today.
Mutual fund adjustments are entered at the end of the day, possibly explaining the 230P-4P drop, with all eyes on Friday at 830A EST.
Avoid Mistake #1 of Financial Anything
“I don’t know, see it worked out in the long run, I was right” is a statement that you should never use, and never believe. The quote does accurately describes LUCK.
Confusing luck for preparation/knowledge leaves you exposed to unintended risks. Intended risk? No problem, as long as you take it with your eyes open. I have now summarized this book, the book I wished I was smart enough to have written. No chance, btw. Read this book before mine, my book happens to be available for pre-order on amazon.com, I ‘might’ have mentioned this.
The issue is that since the information in this Substack is not readily available or frequently publicized (you’ll have to dig and dig), you are not fully equipped to understand how/why outcomes in financial markets can occur. So you are left with “it’ll be ok in the long run.” Even then, randomness occurs. All of the prior statements in this, and every post, do not mean that the outcome is certain. Never. Ever.
If you add your personal situation (age, health, commitments, goals) in the mix, that is a lot riding on an erroneous foundation.
Tell that to auto industry employees, whose jobs, home values, and retirement savings plans plunged, all at the same time. It took multiple government programs, the remnants still exist today. It left behind the singular principle which have propelled asset values to where they are today: the idea that the government will keep interest rates low.
Tell that to the employees of Vanguard, which was forced to retract an intended change: link.
Tell that to the employees of Dupont & Dow Chemical, whose traditional pension is being converted to 401k: link.
We’re All In The Shallow (end) Now
In case you were unchallenged by the prior passages…
Financial Planning Isn’t The Shallow End
Financial planning, now that is actually where it is interesting, and that is the actual move from the shallow end of the pool to the deep end. Yesterday, this conversation.
Mr X, Medicare eligible due to SSDI (which was not correctly processed by the SSA, yikes, even after the client had done everything right, following my guidance precisely). Wife is non-Medicare eligible with plans to retire this year. Retirement savings exist, but careful work is likely required.
Income sources (obviously)
Health insurance costs (husband now situated on Medicare, therefore minimized. The spouse is key here, because she has access to pre-Medicare retiree health benefits from her large employer. Nothing said that was most efficient, because the APTC is based on current income, not financial means. If she was Miss Perfect, her premium can be $0 a month, entirely changing the income/expense projections from the first bullet point.
Portfolio construction & account strategy will create a situation where capturing $0 premium health insurance is a tax matter. Simple portfolio construction, and yet generating cash for income, can lead to tax-related ripple effects on the health insurance premium, where the worst case can be that the full sticker price would be $1500 a month ($18,000 a year).
Issues most people face:
Stock broker may be broadly aware (that’s the nice version) of these interactions.
Health insurance agent may not know any of this.
The idea that the broker can make up the difference, in performance, by $18,000 by his/her marginal line-item selection on a properly-diversified portfolio? Not great, to put it mildly, and also subject to randomness.
Single spot for the combination of these? That is the point of the Comprehensive Planning Service, which is unlikely to continue in its existing form, at its existing price. Your specific combination cannot fit into a pre-ordained plan. It is why I find the free assessments of your financial status, snapshots of your current situation, to be deeply flawed when there are not careful, specific projections of the future.
Mr X asked: What services are included?
Answer: I showed the free quoting tool for health insurance, and how sensitive it was to different levels of taxable income. That changes when both are Medicare-eligible as well. We touched on the fact that a line-item look at financial holdings would be required to not upset the balance, and discussed possible paths.
Mr X suggested: In your emails, why don’t you describe this as you have done here?
Answer: Every person’s individual combination will be so wildly different, that a simple description will not work.
Answer: II really don’t find self-promotion interesting, and I am no good at it.
Maybe I am making up the entirety of this Substack, off the top of my head, unedited (explains typos and poor grammar, like in my awfully-produced videos I actually do know the rules)? Yeah, maybe.
Do It Yourself? It doesn’t have to me with me, but do it yourself? Nah, it’s a bad idea on a singular topic, it is many times worse for the combination.
Let’s take time to laugh at myself (there always has to be time for that).