THE WAR AGAINST INFLATION HITS A SPEED BUMP

Six weeks ago we wrote in the January mid-month commentary that the Fed was winning the war against inflation.  If we look at their progress since last year’s peak inflation that is still true.  But January hit a snag.  While the backdrop for inflation has improved, the one inflation indicator that the Fed emphasized so aggressively over the past few months was the only one that did not show further relief in January.  This measure, the personal consumption expenditure price index (PCE), rose 0.6% in January, up from 0.2% in each of November and December.  Most of the increase came from the services side of our economy.

The latest PCE report reinforces the Fed’s view that it has more work to do to correct its great pandemic inflation mistake.  The big question this week is how the Fed chooses to message the disappointing inflation numbers from last week.  It seems clear to us that the FOMC (Federal Open Market Committee) would rather not see a sharp rally higher in stocks, especially if that rally is due to higher valuations as opposed to stronger earnings.  Further strength in stocks might spiral to consumers and businesses to spend more while bolstering balance sheets which would add to inflation pressure.  This is a classic “Don’t Fight the Fed” market.

The Fed is tightening monetary policy at the fastest pace in 40 years.  Furthermore, the economy is more leveraged than any time in history and, therefore, more sensitive to interest rate increases.  We think it is naïve to assume a recession is not probable because a lagging economic indicator, like employment, remains robust.  We still think it is very likely a recession will start later this year.  Market bottoms usually occur about halfway through a recession.  A bear market has never ended before the start of a recession.

With the Fed now slowing the pace of rate hikes, perhaps markets were lulled into thinking the Fed was on their side during January’s rally.  You can hardly blame them.  Markets received virtually uninterrupted monetary support for nearly 15 years before beginning the inflation fight in 2022.  Considering the Fed did not come to the rescue of markets back in October, there is no indication they will be more sympathetic going forward.  In our view, the bear market will continue for a while longer.

 

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Knowledge – Results

Experts in Risk Management

Are you prepared for the next market correction or financial crisis?

Knowledge – Results

Experts in Risk Management

Are you prepared for the next market correction or financial crisis?

Knowledge – Results

Experts in Risk Management

Are you prepared for the next market correction or financial crisis?

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Richard Furmanski

Richard Furmanski

CFA

has been a portfolio manager and analyst for over 35 years. He manages conservative, tax-efficient portfolios for both pre-retirees and retirees. His lower risk approach appeals to investors who want less volatility and competitive risk-adjusted returns.

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Mary Ellen Adam

Director of Operations

has been in office administration for over twenty years. Her experience includes customer service, firm operations, and office administration. She interacts with our clients on a day-to-day basis and handles any requests that may arise.

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Frequently Asked Questions

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Do you manage both stock and bond portfolios?

Yes. We build a portfolio of conservative, high-quality stocks and hold them for the long-term. The average holding period is 4 – 5 years. Our focus is on stocks that are suitable for retirement portfolios.

Our high-quality bond portfolios are designed to provide both income and stability of principal. Bonds provide the anchor for balanced accounts (those holding both stocks and bonds).

What is your investment philosophy?
We take great care in purchasing only high-quality stocks and bonds intent on a multi-year holding period. Portfolio turnover and taxable realized gains are modest in comparison to other active managers. We do not time the market but will become more defensive, in terms of stock holdings, when market conditions warrant.
Will the portfolio be managed in accordance with my financial goals?
Yes. Each of our clients has a custom-tailored portfolio. These custom portfolios are designed to meet specific client objectives with a thoughtful approach to specific constraints such as risk tolerance. And as each client’s situation changes, the portfolio does as well. There is no cookie cutter approach.
What kind of expertise do you have and how can that help me in difficult markets?
We have been working with high-net-worth clients like you since 1982. Over that time we have helped them to navigate several bear markets and financial crises (including the stock market crash of 1987). We hold the Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP) designations.
Are you sensitive to taxes when managing portfolios?
Yes. Our holding period for an individual stock averages 4 plus years which means our turnover is low and realized gains can be carefully managed. Further, where possible, we tax loss harvest small losses as a way of offsetting gains taken elsewhere in the portfolio.
How have you performed?
Results will differ by client and the level of customization but we have provided competitive investment returns for many years.
How do you charge for your services?
We charge a management or consultant fee based upon the size and level of customization of the account. As the account grows, we benefit together.

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