We wanted to share a brief mid-quarter update on portfolio positioning and our current market outlook.

Mid-Quarter Investment Update

In light of the recent events in Iran, we thought this would be a good time to give you a mid-quarter update on your investments.

Since late January, we have been reducing risk in your portfolios. Put simply, the outlook has become more murky, though not clearly bearish.

While we are not outright bearish, more risks than opportunities have emerged since late last year. High valuations, overheated investor sentiment, and cracks in selected credit markets led us to prune risk. Midterm elections in the US also potentially offer a mild headwind to markets this year.

We pruned or sold out positions, especially in areas that had strongly performed. Such areas included equities perceived to benefit from the AI capex surge, certain suppliers, and precious metals.

Conversely, we have built up positions in fixed income (US Treasury), base commodities (energy), and hedged equity. Your portfolios also have a healthy level of cash that will be redeployed into opportunities as they present themselves. However, we believe it is prudent to be patient.

With regard to Iran, it would not surprise us to see near-term volatility continue over the next several weeks. Fears of a spike in oil and potential negative impact on the economy will grow until we get closer to a resolution of the situation. Historically, near-term spikes in fear have presented buying opportunities. We continue to monitor developments.

As always, please reach out if you have any questions about your portfolio or would like to discuss your investment plan in more detail.

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Investment Update: March 2026 appeared first on AWM.

Happy Spring! We have a lot to talk about this quarter. Let’s jump right in!

2022 Will Be a Difficult Year

Over the next couple of years, we expect the economy to struggle. We are taking proactive steps to ensure that, as the economy rotates and challenges come and go, each client’s positions are adjusted to fit their individual needs and goals.

If you anticipate any changes to your circumstances in the coming months, please let us know. The better we understand you and your situation, the more appropriately we can adjust your investments.

It’s Up to You to Protect Your Family

Each of you is in a unique situation. Depending on where you fall on the retirement timeline, we can offer some recommendations to potentially help you preserve your assets, grow your investments, and keep up with inflation.

1. Retirement: You Are Retired.

Set aside time to review your Trust documents. In seasons of high inflation and rising prices, you potentially might position your assets to mitigate estate taxes that your heirs might otherwise pay more of.

The key in this stage is income, tax & estate planning.

2. Preparation: You Are Getting Ready to Retire.

As you prepare for your upcoming retirement, ask yourself if your investment accounts are working for you and if your business or real estate holdings are positioned to prepare you for retirement.

The key in this stage is income & tax planning.

3. Accumulation: You Are Establishing a Career.

Establish a good, working budget to understand where your money is going. Think about ways to increase your savings, maximize retirement account contributions, invest in real estate, and/or work on paying down debts.

The key in this stage is budgeting & saving.

Due to higher energy costs, geopolitical turmoil around the world, shortages of fertilizer, and various restrictions on trade between nations, we expect food costs will continue to rise. Some parts of the world might even suffer more supply chain shortages.

We have kept you informed about what we are doing with your portfolios to prepare for these challenging times ahead. Check out this sidebar for ideas everyone should consider to help their family in these inflationary times.

Investment Thoughts (by Petr Burunov & Stuart Quint)

In our last newsletter, I told you that 2022 was likely to be quite different than 2021.  So far, it has.

Both stocks and bonds have declined moderately.  (In fact, bonds have declined slightly more.)

While the economy is cooling off, prices are not.  As a consequence, the Fed for the first time in 3 years started to raise interest rates.  Though we are near historically low-interest rates, the fact remains that bond yields, which used to be notably above inflation, are significantly below.  Controversy exists as to how far the Fed can raise rates without putting the economy into recession.  Yet, inflation has now resurfaced for the first time in decades as a serious potential problem to people’s purchasing power.

Consider the recent news in Germany, Europe’s largest economy.  Supermarkets just announced price increases from 20 to 50% on over 300 products.  While the official excuse is the war in Ukraine, remember that supply chain issues and commodity price hikes had begun well before the end of February. In fact, prices started to go up in the first half of 2021

Closer to home, many of you have noticed higher gasoline prices.  Not only are commodity costs rising, but prices for homes, appliances and even wages are also moving up.  After several decades of modest inflation, we are experiencing an environment more similar to the 1970s.

As mentioned in our previous newsletter, we entered the year moderately cautious about risk.  Stocks looked richly valued, and bonds even more so.  Traditional stocks and bonds might face further headwinds to posting compelling returns while inflation and higher interest rates loom.

Part of your portfolios has been invested in what we call a “diversified” bucket. This “diversified” bucket consists of select alternative investments that are less reliant on traditional stocks and bonds. Their purpose is to add potential stabilization to your portfolio while seeking positive returns.

Examples include precious metals, commodities, and long/short strategies. Precious metals might serve as a hedge either against higher inflation and/or recession.  Base commodities such as energy, agriculture, and metals face supply shortages and have the potential to appreciate in US Dollar terms.  Your long/short manager has the potential to benefit from price dislocations in companies in both rising and falling markets.

Though markets have recovered tremendously from the trough last month, it appears early to declare the coast is clear.  First-quarter earnings could introduce near-term volatility.  Economic data appears to be slowing (jobs, housing market, consumer confidence).  Add in uncertainty surrounding further Fed rate hikes and geopolitics.  We would not be surprised to see further choppiness in markets in the coming months.  Furthermore, you should not be surprised to see further traditional risk being reduced in your portfolios in the coming weeks and months.

Upcoming Changes

Every year there seems to be some form of adjustment made by Congress to impact your retirement. This year is no exception.

Congress already passed several rules to defer RMDs (required minimum distributions) and increase annual contribution limits. Pending a Senate vote, more changes are coming. Stay tuned for future updates.

Final Thoughts

It’s great to have money, but at the end of the day, your bottom line is what counts. Remember: it’s not about how much you make, it’s about how much you keep. This is where planning, savings, and budgeting is crucial.

Plan for the taxes and unexpected circumstances. I want to see you thrive.

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Client Newsletter 2Q22 appeared first on AWM.

Tempered Outlook on the New Year

Investments at times decline even if bull markets were to continue.

Most of you know and expect this.  However, this reality particularly hits hard for those who spend too much time watching screens or expect to live off their money, in vain hoping that it keeps growing in a straight, uninterrupted line.

We have enjoyed another good year in the markets in 2021.  2022 might be different.

Unlike 2020, not everything in the market rose.  6 stocks drove the majority of returns in the S&P 500.  Commodities in general rose, but precious metals declined.  Cash and fixed income posted flat to slightly negative returns.

However, small-cap and international developed equities lagged large-cap US equities.  Emerging markets actually finished down in 2021.  Fortunately, you had very limited exposure to these assets.

We believe 2022 will bring more volatility and lower returns.  Valuations are high, inflation also remains high, and the Fed is about to raise interest rates and further tighten liquidity.  Additionally, government stimulus is decelerating, companies have loaded up on a lot of debt, and geopolitics (China/Taiwan, Mideast, Russia/Ukraine) overhang the markets.

Not everything has to be bleak. 

In our view, 2022 might end up being less positive compared to last year.  Even with a rate increase, though, interest rates adjusted for inflation are likely to remain negative for a while.  Though indices remain near historical highs, many companies have traded closer to the lows of the year.

Your investments are positioned modestly cautiously relative to risk.  “Vanilla” is an apt description of current positioning.

Staples in your portfolio include large-cap (mostly US) equities, commodities, gold, and hedged equity manager anchored by fixed income with low-interest rates and credit risk.  While we monitor many markets for other opportunities, high valuations and deteriorating fundamentals deter us for now from investing in most other asset classes.

How We Invest: Heed the Sages of Ages Past

Some of you might get tired of my reminders about prudence both in how we work with you and monitor your investments.

Rather than hearing from me, here are some nuggets of wisdom from “smart money” investors of decades past.

1. Protect your downside.

   “RULE 2: DON’T LOSE MONEY: This may seem naïve, but believe me, it isn’t. If you want to be wealthy, you must not lose money, or I should say you should not lose BIG money.  Absurd rule, silly rule?  Maybe, but MOST PEOPLE LOSE MONEY on disastrous investments, gambling, rotten business deals, greed, poor timing.  Yes, after almost five decades of investing and talking to investors, I can tell you that most people definitely DO lose money, lose big time – in the stock market, in options and futures, in real estate, in bad loans, in mindless gambling, and in their own business.”[1]

2. Don’t invest just because you have to. Invest because you see opportunity.

   “RULE 3: RICH MAN, POOR MAN: In the investment world the wealthy investor has one major advantage over the little guy, the stock market amateur and the neophyte trader.  The arbitrage that the wealthy investor enjoys is that HE DOESN’T NEED THE MARKETS.  I can’t begin to tell you what a difference that makes, both in one’s mental attitude and in the way one actually handles one’s money.

   ‘He who doesn’t understand interest pays it.’  The little guy is the typical American, and he’s deeply in debt.

   The little guy is in hock up to his ears.  As a result, he’s always sweating – sweating to make payments on his house, his refrigerator, his car or his lawn mower.  He’s impatient, and he feels perpetually put upon.  He tells himself that he has to make money – fast.  And he dreams of those big juicy mega-bucks.  In the end, the little guy wastes his money in the market, or he loses his money gambling, or he dribbles his money away on senseless schemes.  In short, this “money-nerd” dashing up his financial down-escalator.

   But here’s the ironic part of it.  If, from the beginning, the little guy had adopted a strict policy of never spending more than he had made, if he had taken his extra savings and compounded it in intelligent, income-producing securities, then in that time he’d have money coming in daily, weekly, monthly just like the rich man.  The little guy would have become a financial winner, instead of a pathetic loser.”[2]

3. Don’t overstay your welcome.

“Bulls make money, bears make money.  Pigs get slaughtered.”[3]

Summary

As you set your New Year’s resolutions, I encourage you to be proactive with your financial planning.  You can control your future, but it’s up to you to make it happen.

Now is the time to set new goals and dreams for the year. I am here to cheer you on along the way.

Let’s make 2022 a great one!

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

[1] Richard Russell, Dow Theory Newsletters, July 17, 1996 on http://dowtheoryletters.com cited in Jane A. Williams, A Bluestocking Guide: Economics based on What Ever Happened to Penny Candy?, (Eagle, ID: Bluestocking Press, 2015).

[2] Richard Russell, Dow Theory Newsletters, July 17, 1996 on http://dowtheoryletters.com cited in Jane A. Williams, A Bluestocking Guide: Economics based on What Ever Happened to Penny Candy?, (Eagle, ID: Bluestocking Press, 2015).

[3] J. Robert Bloom, commentator on MSNBC, President and Chief Market Strategist in the early 2000’s, FIS Asset Management North America.

The post Client Newsletter 1Q22 appeared first on AWM.

2021 has been a bumpy ride, and I shared why in my last newsletter. As we head into the fourth quarter, I want to give you access to new strategies, address inflation, and speculate what’s to come after the holiday season. Let’s dive in.

Are You Looking for a Unique Strategy?

You know my heart and approach to developing holistic relationships with each of my clients.

In the same way, we look at managers with unique strategies that can increase prospects to help our clients meet their goals. We believe many of you might benefit from owning strategies outside of traditional US stocks and bonds.

Over the years, we have been building relationships and allocating portions of client assets into managers with strong niches. Examples include Japanese stocks, long-short equities, commodities, and managed futures.

One of our managers closed their strategy to new, outside investors. However, all existing and future clients of AWM still have access to these strategies because of our long-term relationship with the manager.

If this sounds intriguing to you, come talk with us to see if it’s a good fit for you and your family.

Inflation Will Impact Your Family

Unfortunately, your investments are not the only thing going up. Anyone who has recently gone for a drive, enjoyed a meal out, vacationed, or bought a house knows that things don’t cost what they used to, especially in the Pacific Northwest.

Filling up your gas tank is 40% more expensive compared to a year ago. Food prices are up over 4%. Restaurant prices are up 7%. Some companies are even charging higher prices for smaller portions of food. No one is likely to forget that home prices have risen over 13% in the last year.

These are all examples of inflation. As you can imagine, inflation can take a real bite out of your standard of living.

Inflation Might Be Here to Stay

We’ve heard some say, “Well, this is transitory. Gas prices won’t rise 40% again! They should eventually go back down as they pump more oil.” This news can be difficult to hear, but we think many of the gains are here to stay and might even continue to rise in other areas.

What’s our reasoning? Here are a few things to consider:

1. Many commodity companies are cautious on spending capital expenditure to produce more goods even with higher prices. (The oil company Chevron recently forecasted minimal high spending on boosting oil production even with higher prices. Farmers in many parts of the world have had poor harvests, which will limit supply again in 2022.)

2. There is a global shortage of computer chips. Have you wondered why it is so hard to buy 2021 car models? It’s because they have many chassis, but unfinished interiors or engines because they lack the electronics! Several observers fear the shortage will last well into next year.

3. Labor shortages in a number of industries have caused supply bottlenecks and price spikes. For example, railroads and truckers have seen an exodus of workers, some due to retirements without sufficient hiring of young workers. Notice the plethora of “Help Wanted” signs, particularly at restaurants.

4. The shortage of shipping containers is an issue for global trade, especially for economies like the US that heavily rely on cheaper imports from Asia. Just look at the record-high backlog of container ships that create delays to unload for West Coast ports.

5. Remember, taxes might also rise due to either changes in tax laws that we have highlighted in past letters or simple inflating asset values. For example, higher home values lead to higher property tax assessments.

You Can Fight Back Against Inflation

You can’t avoid inflation, but there are some steps you can take to help alleviate it.

First, budget. Focus on the expense side. Do you know how much you are spending on gas, food, and going out?  When you understand where your money is going, how much you are spending, it’s easier to prioritize non-discretionary expenses (needs) over discretionary expenses (wants).

Next, prioritize. When staring in the face of inflation, you must decide what is most important to you and your family.

1. You can maintain your current lifestyle and spending habits (which will rise so long as we remain in an inflationary environment) but at the expense of future income generated by savings and investments. Or,
2. You can look for ways to control your spending by adapting your lifestyle, maintaining your current savings and investment strategies, and recognizing that taxes might be a bigger concern for your family.

It’s also important to understand that your investments and assets are working for you and have the potential to keep up with inflation.

Lastly, take action. Work with your team of trusted professionals to collaborate with you on a game plan and carry it out. Your plan does nothing for you unless it’s put into action. Also, remember to check in from time to time to review and make necessary adjustments to your plan.

The Bottom Line: Now Is the Time to Prepare for 2022

Start this last quarter of 2021 with a fresh perspective on your investment strategies and financial planning.

I hope the tools in this letter will help you as we continue to navigate through these challenging months. Know that I and my team are a resource for you and your family. Please let us know how we can help.

Sincerely,

Petr Burunov, CFP®
President / Wealth Strategist

The post Client Newsletter 4Q21 appeared first on AWM.

First and foremost, we hope for good health and wellness for you and your families.

Our Perspective:

As I mentioned in our last update, we anticipated some sort of market correction in 2020.

What we did not expect, was the Coronavirus striking this much fear into our communities and economy. No one knows when the madness will end.

Despite the volatility in the market, we are starting to see opportunities. Instead of continuing to reduce risk, we might be encouraging our clients to take on a little more in the coming weeks.

This is not my first time saying this. It’s crucial to have a strategic Financial Plan. Not only will a plan give you peace of mind, but it will also provide discipline to weather the ups and downs for the market.

During these uncertain times, I can only suggest that you be careful how much the media and noise of every day affect your decision making.

Remember, the stock market also tends to overreact to the various noises in the world:

1. We saw the market turn overly euphoric in January 2020, with little to no justification.
2. What we see now is the market turning overly depressed due to recent corrections and the abundance of negative news headlines regarding the Coronavirus.

In the midst of chaos and havoc, I encourage you to stick with your long-term goals. Don’t let emotions run your life.

In this update, I want to cover a few areas that could suggest stabilization in the market and also a few caution signs we are carefully watching.

Signs of Hope:

1. A good portion of the stock market advertises yields above those of the 10-year US Treasury:

   

2. Perspective on the recent decline: we just went from euphoria to summer 2019 levels on the S&
3. Central banks are still providing “punch to the party” by cutting interest rates.

   

Signs of Concern:

1. The bond market is worried about growth (U.S., not just international).

However, current low rates might keep on stimulating the housing market via cheap mortgages (refinancing, too).

2. Airline traffic in the US might be an indicator of consumer fears.
3. Lead indicators for global activity are weak.

Summary:

As we continue to see volatility in the markets, here are a few things you can do:

1. Don’t let the news control your emotions.
2. Stay focused on your long-term goals.
3. And don’t forget that if you have a plan in place, it will give you confidence for your success.

Thank you for your trust in us as we partner on your financial journey with you.

The post Investment Update: Did the Market Just Catch a Cold, or Is It Terminally Ill? appeared first on AWM.

“The stock market has predicted 9 of the past 5 recessions.”  Paul Samuelson (Nobel Prize-winning economist in 1966 Newsweek article)

There is a better weathervane than stocks to forecast if the economy has hit the skids.

Please let us know of any questions.

Watch Treasury bond yields, not stocks, to know when to worry.

Yields on major bonds issued by the Treasury have done a pretty credible job of signaling economic recession in the last half-century.

The chart above displays the slope of the yield curve in the US Treasury bond market.  The “slope” is defined as the difference between the yield provided by Treasury bonds with a stated maturity of 10 years (“10 Year yields”) vs. the yield provided by bonds with a maturity of 2 years (“2 Year yields”).  This difference is also known as “spread”.

When the slope is positive, or greater than zero, that has typically indicated a growing economy.  When the slope goes to zero or turns negative, that has been a near perfect indicator that the economy is shrinking or slipping into recession.

The performance on your investments is directly related to the performance of the US economy.

• “Risk on” assets, that is, investments that benefit from economic growth, tend to rise in price over time when the economy is growing.  Stocks, high-yield corporate bonds, and many commodities are examples of “risk on” assets.
• “Risk off” assets, investments that attract investors in times of fear and uncertainty, tend to do better than “risk on” assets when economic growth turns negative.  Gold and Treasury bonds with long maturities are examples of “risk off” assets.

Since 1976, the slope of the yield curve has turned negative 4 times (1978-1982, 1989, 2000-1, 2007).  (Refer to the black arrows, including the large one marked “Great Recession”.)  Once the slope turned and stayed negative, “risk on” assets sold off and performed poorly relative to “risk off” assets.  In all 4 cases, the US economy soon fell into recession and posted negative growth.

The good news is that the slope of the yield curve has been mostly positive over the last 5 decades.  “Risk on” assets have benefited with positive returns for most of this time period.

But when the yield curve turns negative, all bets are off. 

What about today?  (Refer to the yellow arrow “We are here”.)

The yield curve currently has a modest positive slope of less than one half of one percent.  This reflects expectations for the US Federal Reserve to influence rates upward for bonds with shorter maturities.  Long-term yields are still greater than yields on bonds with shorter maturities, but the gap has reduced from a couple of years ago.  This reflects that market participants have some concern that the Fed runs the risk of raising interest rates too quickly and might potentially cause a future recession.

However, there might be a historical precedent of a narrowly positive yield curve persisting for some time: 1995-2000.  This was also a time of strong returns for “risk on” assets.  It eventually led to a brief bear market and recession to start the new century.  However, this took several years to play out.

We monitor the yield curve as one important indicator of where we are in the economic cycle.

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The post Investments 101: What Can Bonds Tell Us about the Economy? appeared first on AWM.

Believe it or not, we have now enjoyed a bull market running through the last decade.  What information will help us to know if a bull or a bear is around the corner?

When I started my career nearly 30 years ago, the challenge was too little information.  The Wall Street firm for whom I worked was just beginning to use Lotus Notes spreadsheets and WordPerfect word processing.  Many older analysts continued to use notepads and fax machines.  You had to pick up the phone and read newsprint and microfiche to find worthwhile information.  It took effort to find good information.  That meant you were forced to focus only on finding the information truly relevant to making important decisions.

Today is quite different.

We are spoiled by huge advances in technology with the advent of smart phones and the Internet.  We have a plethora of sources for news and research.  Based on the glut of information we have today, we should be far better informed now than in the past.

Yet, all this information might not necessarily empower us to make better decisions.  In fact, it is quite possible that more information brings more “noise” and “fake news” that might even paralyze us.  (See Nicholas Carr’s article on “Is Google Making Us Stupid?” [source] in the July/August 2008 issue of The Atlantic magazine.)

We want to help you see the main issues that could influence the next leg in the markets.  Your investments depend upon having the right information to guide how you should be positioned.

We present a series of simple charts (7 to be exact) to help you navigate through the noise and get to the real issues.  Part One displays 7 charts critical to understanding the state of stocks and bonds.  Part Two will present 7 more charts that focus on key issues in the economy, both US and overseas.

Please let us know of any questions.

Regards,

Stuart P. Quint, CFA

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The post Investment Dashboard 2018 (Part 2: Economies: US and International) appeared first on AWM.