Millbrook Advisors, LLC - a fee only financial planning firm - offers this blog on selected planning topics for the use of the general public. Millbrook is not an investment adviser and does not offer, for compensation, advice on the value of securities or the advisability of investing in securities.
Financial planning tip for the day from Shakespeare!
| Investigate the free, interactive and self-directed financial planning advice available on this website.
Complete a shortself survey to determine your financial risk tolerance and suggested asset allocation. Investigate the many benefits of the super IRA - a.k.a. health savings account. Analyze the rent vs. buy investment tradeoff for homes in your area. And more!
The chart below presents key trends in the US stock market since we dumped the gold standard in 1972:
While the random walk theory is a powerful one, we at Millbrook Advisors nevertheless find the X-factor helpful. When it goes strongly negative, the market seems headed for trouble. For the quarter ended June 30,2022 the X-factor continued negative as inflation accelerated to a run rate of 9%. Interest rates also increased as a result to 4.24%. The earnings outlook is still positive, however. The Fed now seems intent on shifting gears and fighting inflation with proposed interest rate increases and rollback of quantitative easing. The Fed's response has been well received and investor pessimism is possibly overdone.
- The blue line is the S&P 500 index in log scale
- The violet line is the composite earnings of the S&P500 in log scale
- The shaded bars are the official recessions during the period
- The yellow X-factor line (right axis) is the difference between the actual S&P earnings yield and the S&P earnings yield estimated by a regression on the yield on AAA corporates and the inflation rate through 2020.
Recent financial news that we, with our contrarian bent, found worthy of note:
- In the long run, we are all fine. Unlike death, inflation in the U.S. - so far - has not led to the end of days. Real returns have kept their head above water since the shift to paper money in 1972. But the lost decade of the 1970's required a long convalescence. These days the Fed is back to debasing the currency again - a.k.a. quantitative easing. Real returns on cash and bonds have gone negative. For the alert investor, what steps would have dodged the bullet of the 1970's? Would they make sense in 2021?
- Euthanasia of the Bond Market. For sensible investors, the Federal Reserve and other central banks have ruined the bond market. Unrestrained money creation and monetizing of national deficits are driving real interest rates below zero. The best way to make money is not to lose any. Investors should carefully analyze bonds for the time being and possibly look elsewhere for alternatives.
- Is Gold the Real Deal? Keynes dismissed gold as a barbarous relic; gold bug is not usually offered as a complement. Yet the trailing 20-year average return for gold is 8.9% as of 12/31/19 - helped by another strong return last year. In our efficient frontier analysis it trounces government bonds as an equity diversifier for all but the most conservative portfolios. Is the wisdom of crowds sensing that central banks and fiat money have led us astray?
- Is College Worth It? Absolutely. Although saving and paying for college is a huge challenge for many families, the payoff is high. Of CareerCast's Best 20 jobs for 2019, all require a college degree or more. These jobs are an eclectic and interesting mix.