Author: Franklin J. Parker

Franklin is the founder and chief investment officer of Directional Advisors. Since beginning his career in 2007, Franklin has been dedicated to helping investors of all kinds achieve their goals using financial markets. A CFA charterholder and active researcher, Franklin is an international speaker and author of dozens of peer-reviewed articles and trade publications, including the 2023 book with Wiley, Goals-Based Portfolio Theory. In 2016, he was the winner of a Quora knowledge prize, and in 2017 Franklin was recognized by the National Association of Active Investment Managers for his work incorporating business cycle analysis to help individuals achieve their goals. Franklin serves on the advisory board of the Journal of Wealth Management, and his written work has appeared in Enterprising Investor, Forbes, Financial Planning Magazine, RealClear Markets, CityWire, Foundation for Economic Education, HuffPost, Journal of Wealth Management, Journal of Impact & ESG Investing, Journal of Behavioral Finance, International Family Offices Journal and many others. Franklin is an adjunct professor for the American College of Financial Services, and he is the incoming Season 4 host for the CFA Society of Dallas-Ft Worth Podcast. Franklin is also a member of the Sons of the American Revolution. Franklin enjoys playing guitar and piano with his free time, and expressing his creativity in the kitchen. More than anything, he enjoys good food and good wine with good friends.

Three Rules for Retirement Spending

Posted by on in Living Well1 Comment

by Franklin J. Parker, CFA

I am surprised how often we advise clients to spend more money in their retirement.

It is, of course, a wonderful problem to have, but I have found that people often feel guilty — not about spending the money they had always planned — but guilt about enjoying their resources. I think this is because many people draw an emotional equivalency between enjoyment and irresponsibility.

I want to disentagle those two because, while enjoyment can be done irresponsibly, you are also allowed to enjoy the fruits of your years of labor, discipline, and savings. After all, if you don’t enjoy your savings, someone else will enjoy it for you!

I have, therefore, three simple rules for spending in retirement — but before we get to those, let’s talk about a key idea underpinning those rules.

Your Resources Serve a Purpose

“Money is a good servant,
but a bad master.”

Francis Bacon

Ultimately, your resources — your money, your health, your social standing, etc — should serve you, not the other way round. While this seems obvious, it is not so obvious in practice. Because in order for your resources to serve you, you must have some vision of what it is you want to accomplish with them. In short, you must have a goal. Absent that, we are left with no other objective than: “make more money.” But to what end? And how do we know when we’ve accomplished that objective?

What’s worse, that makes enjoyment of those resources difficult. If the objective is to see a bigger number on a statement, withdrawals certainly work against that.

Of course, that isn’t to say that enjoyment is the purpose of retirement! I simply use “enjoyment” as a placeholder for a life well lived. Living the best possible version of your life should be the point. Your resources should serve that objective. Do not sacrifice a well-lived life for bigger numbers on a piece of paper you receive every month.

Do not sacrifice a well-lived life
for bigger numbers on a monthly statement.

The Three Rules

With that in mind, we have three rules for retirement spending. Only three, but in combination they are quite powerful.

Rule #1: Spend Intentionally.

Whatever you spend, we want to make sure it isn’t by accident.

For example, maybe shopping is an enjoyable experience for you, and that is perfectly okay. However, accidentally ordering $100,000 worth of stuff on Amazon is not a good way to enjoy your resources. If you do it with intention, not by accident, that is another matter — then you are enjoying the experience.

Doing things without intention robs you of enjoyment. That’s why our first rule is intentionality.

Let’s connect

Rule #2: Spend Meaningfully.

Whenever you spend, spend on meaningful things, experiences, causes, or people.

When you spend retirement funds, ensure that the spending is building meaning into your life. Meaning is had from things that help you accomplish objectives (hobbies, dreams, fun), experiences with loved ones that build memories and legacy, causes that you find important and impactful, and people that you care about.

Paying for an annual family vacation, for example, is a way to create experiences with loved ones that they will remember forever. Watching your loved ones enjoy your resources is something many find very meaningful.

Rule #3: Spend with a Budget.

Of course, whatever we do, it needs to be budgeted.

Budgets do two things for us. First, they allow us, as your advisors, to organize your resources to give you the best chance of doing these things on an ongoing basis. We can discuss what your resources can and cannot support, and how to best make it all happen.

There is a more important reason, however. Budgets offer freedom from guilt. When you have confidence that these funds are sustainable and are not undermining your future needs, you can spend the funds freely and without hesitation. Freedom from that guilt and hesitation allows you to indulge fully in the enjoyment of it.

Spend with intention, spend on meaning, and spend with a budget. Those are the only three spending rules you need in retirement. Of course, the last one requires quite a bit of work with numbers — not just in setting the budget, but also in organizing your resources to meet it! But, that is the value of working with an advisor: your job is to dream, our job is to work out the details.

So, there is really only one question left: what does a life well lived look like to you?

What does your best life look like?

Let’s Talk.

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This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

What I Care About This Week | 2024 Mar 11

Posted by on in Uncategorized

by Franklin J. Parker, CFA

The Summary

Last week we saw data on employment, which was worse than most expected. Though the private sector created 223,000 jobs, the unemployment rate moved from 3.7% to 3.9%. Job openings remained about the same as last month, and the services sector posted slightly worse than expected. Overall, the data remains mixed: not terrible but not good either. The slow ticking higher of unemployment has been enough to set off one of our recession warnings (see this week’s Chart of the Week).

This week is the all-important inflation figure. After Fed Chairman Powell’s testimony last week, which put investors at ease that rates will be coming down soon, investors are watching inflation closely — the only figure standing in the way of the Fed cutting rates. There are other cracks forming, however, with the banking sector under increasing stress from defaulting commercial real estate loans, for example. This is a story that I am watching extremely closely.

In all, my opinion remains about the same: this appears to be a pre-recessionary environment, and caution is warranted. Exactly which risks you can afford to take, however, will depend on your goals.

Chart of the Week

One of our recessionary signals is based on the headline unemployment rate. This particular alarm tends to ring about six to twelve months before a recession. Last week’s unemployment rate gave us the 7th month in a row of this recession signal offering its warning. Everything in this cycle has been in slow motion, so it is very possible that we see this signal flash for several more months in a row before something changing. Even so, this is part of why I am suggesting a cautious stance.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

What I Care About This Week | 2024 Mar 4

Posted by on in Uncategorized

by Franklin J. Parker, CFA

The Details

Last week’s data was more of the same: durable goods orders came in well below expectations (orders shrank 6.1% in December), and consumer confidence also posted worse than expected. Personal Consumption Expenditures — which is the Fed’s preferred measure of inflation — posted exactly in-line with expectations, and markets rallied a bit after the news. This week we get data on employment: job openings, the unemployment rate, continuing jobless claims, and total consumer credit, as well as some insight into the health of the service economy. In Europe, we see data on retail sales and producer prices.

All-in-all, the data is still very mixed. Hype around AI has driven the market rally in recent weeks, and the SEC’s approval of several bitcoin ETFs has driven the price of bitcoin (and other crypto) much higher. So, we’ve seen a big rally in risky assets. Yet underlying economic fundamentals are still weak. That said, I have still not gotten the “recession is here” signals, so while I see a storm brewing on the horizon, it is not necessarily time to batten down the hatches and shorten sail. Of course, exactly how this outlook affects you and your investments is completely dependent on your situation — and we’d love to have a conversation with you to discuss it!

Chart of the Week

After trending downward post-Covid, underemployment has spent the last year trending back upward, moving from a low of 6.5% to now 7.2%. Underemployment (U-6) is much broader measure of labor force health as it includes people who have stopped looking for work but would still like to work, and people who work part time but who would like to work full time.

In short, this is a concerning trend — people pushed to the margins of the labor force are (1) not as economically productive and (2) not strong consumers.

source: LSEG Datastream & Directional Advisors

More to Explore

Franklin Parker joined host Christopher Hensley on his podcast “Money Matters.” Come join the conversation where we discuss goals-based investing, the future of wealth management, how very wealthy families invest, and many more topics!

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

What I Care About This Week | 2024 Feb 26

Posted by on in Uncategorized

by Franklin J. Parker, CFA

The Summary

Nvidia earnings took center stage last week and propelled US stocks to all-time highs. Almost all of the index’s return, however, is being driven by the top 10 stocks in the index — almost entirely big tech. Yield curves are still inverted, with investors being paid more to tie up cash for 3 months than for 10 years, and earnings have been largely flat for most US companies.

This week we see inflation data from a different angle with personal consumption expenditures, and data on global and US manufacturing, which is expected to post the 15th month in a row of contraction. Investors are also repricing the timing of Federal Reserve moves, with some beginning to expect a less aggressive rate-cut plan through the end of the year.

Recessions have taken hold in many places outside the US. The European Union is in a technical recession as is Japan, the United Kingdom, New Zealand, Canada, and Australia is teetering on the edge. My concern is that the rally in US stocks has not been led by positive economic fundamentals, but rather by a handful of companies and the optimism around artificial intelligence (some of which I believe is justified). I am, therefore, cautious.

Chart of the Week

After years of very strong decline, our “Is Life Getting Better” index has begun to tick up. The lowering of inflation and increasing of wages has seen this index level off and move higher in recent months. While not a direct economic variable, there is some overlap with markets as a whole — especially now that most economic growth is being driven by consumers. If this trend can continue, this could be an early sign that the economy is standing on firmer footing.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

What I Care About This Week | 2024 Feb 19

Posted by on in Uncategorized

by Franklin J. Parker, CFA

The Summary

Last week we got a slew of data, and it wasn’t very good. Both the UK and Japan entered recessions in the last few months of 2023 (it does make one wonder about the health of this expansion, globally). We also saw inflation data, which posted hotter than expected — investors took that opportunity to take some profits. Earnings season is also almost done, and we’ve seen a mere 3% growth in profits over this time last year.

The big concern for me in last week’s data was retail sales, which posted lower than expected (and December’s figures were revised downward). Consumers have kept the US economy afloat, and if there is strain developing there I worry that it will spill into the larger economy. Additionally, over-leveraged commercial real estate is now an international problem. It is always hard to tell, but souring commercial real estate could well be a catalyst that saps investor confidence.

Overall, I am still cautious (admittedly, I am getting tired of saying that!). Higher share prices have not been driven by underlying economic fundamentals, and that makes me believe prices at this level are fragile. Prices can stay fragile for a while, but when they break they can break quickly.

Chart of the Week

After declining to historic lows, credit card delinquency rates have risen to above pre-pandemic levels, one of the signs that the US consumer is struggling to keep up. We are still well below the levels reached during the Great Financial Crisis (2008 – 2012), however, when delinquency rates reached 7%. Nonetheless, 3% delinquencies is approaching a high for the last decade.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

What I Care About This Week | 2024 Feb 12

Posted by on in Uncategorized

by Franklin J. Parker, CFA

The Summary

Investors have been buying over the last week — large-cap US stocks have hit all-time highs. That said, there are underlying weaknesses. It is not earnings that have pushed prices higher. With about three-quarters of the S&P 500 companies reporting earnings, we have only seen around 3% earnings growth over this time last year (and last year saw earnings contract by around 7%). This means that valuations on stocks are becoming stretched. In fact, the price-to-earnings ratio (a measure of stock valuation) is now above both its 5- and 10-year averages.

This week we see data on inflation, retail sales, industrial production, and consumer sentiment. All of this gives us a helpful read on the economy, retail sales and consumer sentiment are playing a bigger role than usual. Of course, at the moment, investors are watching the Fed very closely. Markets still expect a rate cut in the May/June timeframe, and Tuesday’s inflation may give investors reason to adjust their thinking (and thereby move markets).

I admit, markets hitting all-time highs somewhat baffles me. That said, until the underlying economic data improves, I am generally cautious. History has shown us that markets are fragile when they move higher without support from the economic data. In all (and as this week’s chart shows), I don’t think it is time to celebrate just yet.

Chart of the Week

An interesting chart from Fathom Consulting this week who point out that the new highs in stocks is, in fact, not a new high when we factor-in inflation. When accounting for inflation, earnings are also below where they were when markets hit their previous all-time high, and it has only gotten worse from there. In a sense, this helps us to normalize equity markets in an otherwise strange environment.

So, despite the headlines, stock investors have moved backward over the last 3ish years!

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

What I Care About This Week | 5 Febuary 2024

Posted by on in Uncategorized

by Franklin J. Parker, CFA

The Summary

This week is a fairly light data week, which is a releif after last week’s torrent. The Federal Reserve met last week and kept interest rates steady, with little guidance on when rate cuts might come (markets are betting on a May – June timeframe).

Earnings season continues, and it seems that Q4 of 2023 will be the 4th quarter out of 5 where companies make less money than they did the year before. While the headlines look good, the market rally over the last month or so has been mostly driven by the top 8 – 10 tech stocks while most other companies are struggling to grow.

Employment posted better than expected, and it continues to be the bright spot in the economy. In January, employers added 317,000 jobs, which is more than double the 155,000 that were expected.

My view, however, is that we are still in a pre-recessionary environment and that caution is warranted. All that said, your goals will always define how we manage this information in your portfolio.

Chart of the Week

Looking at the recent GDP figures for the last quarter of 2023, we can see that it is still the consumer that is keeping the US economy afloat. So long as people keep spending like they have been, it is likely that the economy will limp along. Seeing layoffs, however, and the unemployment rate rising (or the state of consumer credit — a datapoint we get this week), would likely be the last domino to fall before a recession (if we do indeed get one).

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

What I Care About This Week | 2023 Dec 4

Posted by on in Uncategorized

by Franklin J. Parker, CFA

The Summary

  • The big news last week was the stellar US economic growth figures for the 3rd quarter, which was revised from 4.9% to 5.2%, much more than expected. We also got data on manufacturing, which posted in contraction territory for the 13th month in a row for both the US and globally.

  • This week we get the headline unemployment rate for November, job openings, and productivity figures. Unemployment is expected to hold steady, but a figure higher than about 3.9% is likely to garner a negative market reaction.

  • Last week’s data reinforces the ambiguity we have been seeing: economic growth at the macro level, but weakness in the individual pieces that make up the economy. The lynchpin, in my view, is the consumer. If the consumer begins to falter, so will the economy. Markets are showing signs of weakness, however. Gold and US treasuries have rallied hard in recent days. Both are very defensive assets and indicative of investors looking for safe-havens. Again, I am watching for a catalyst to push markets either higher or lower. Without a clear signal, I believe stocks will be trading mostly sideways.

The Details

This sounds obvious but bear with me: in music, how you arrange notes is important. How you arrange notes horizontally (through time) gives important context for how you arrange notes vertically. That context is the important factor. Notes are only meaningful to our ears because of their relationship to one another. We have a similar situation when investing.

There is no “one” picture when investing, there are only individual data points that aggregate into a bigger picture. Each data point — like an individual note in music — has little meaning on its own. You have to “hear” each data point in the context of the others. What color does this add to the overall picture? How does it shift the tone, even if slightly?

Of course, just like music, there are some general rules we can follow. However, each economic environment breaks some rules in a new and different way. Again, the importance here is trying to hear the whole piece, and paying attention to the subtle differences and what they may mean to the overall sonority.

So, just like music, there is some art to the process.

Chart of the Week

Looking internationally, Sweden has entered a technical recession, seeing two quarters in a row of GDP contraction. Looking at the Swedish stock market we see that prices anticipated the contraction by a few quarters, beginning to fall in early 2022. The recent recovery in Swedish stocks may also presage a recovery in the broader Swedish economy. If a global recession is forming and if Sweden is on the leading edge of the contraction, this could be a sign that the recession will be light.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

What I Care About This Week | 2023 Nov 27

Posted by on in Uncategorized

by Franklin J. Parker, CFA

The Summary

  • We are still in a holding pattern. Economic data continues to be mixed, and investors are now focused on consumer spending through the holiday season. Consumers have largely kept the US economy afloat and investors are expecting that trend to continue through the last month of the year.

  • The US and EU central banks are expected to be done raising interest rates and markets now predict rates to begin coming down over the coming year. That expectation has resulted in prices moving higher for risky assets (stocks, bitcoin, etc). Interestingly, GDP growth in the US has started to diverge from other global economies — the Eurozone and Chinese economies have seen GDP growth slow, while the US has seen GDP growth tick upward (see Chart of the Week). The big question is whether the US can sail on her own without growth support from the rest of the world.

  • I want to reiterate the challenge of this environment. US stocks have been volatile and traded mostly sideways since April of 2022, and long-dated bonds have had some of the worst returns on record. To be clear, this is a difficult environment to invest through. Even this recent rally has only pushed stocks back to where they were this summer. I am watching for a catalyst to break markets free from this sideways trading, whether that be higher or lower. Again, with such mixed data caution is warranted, and I am reluctant to recommend committing strongly to one direction or the other.

The Details

I watched a docuseries on Netflix this past weekend called Live to 100: Secrets of the Blue Zones.

The series follows bestselling author Dan Buettner as he travels to various blue zones around the world and discusses what they can teach us about living longer and also living better (a blue zone is an area where people live much much longer than the global average).

Buettner finds that there are four basic things that the longest-lived humans have in common, and these are things that can help us not just increase our lifespan, but also lower our healthcare costs through retirement.

First, they live in a way that exercise comes naturally. In some places, a village is nestled into a hillside or mountain making a simple walk to church or friend’s house an exertion. In other places, food from gardens is an important component of their food supply. In all places, however, constant natural movement is an important part of their lifestyle.

Second, they eat well. Long-lived folks tend to have a diet heavy in complex carbohydrates (things like yams, potatoes, sourdough breads) and vegetables. Wine seems to play an important role, as well. In all cases, moderation is the name of the game: only eating until you are about 80% full seems to make a big difference.

While diet and exercise are not surprising, what I found most interesting were the final two:

Having a relaxed and positive outlook on life appears to have a significant effect on living longer. Additionally, long-lived people tend to have a purpose that drives them, a real and expressible reason to live. This is something I can confirm in my own experience, a point I have discussed here before.

Last, the longest-lived people tend to have meaningful friendships, faith, and family connections. Having people around you who care about you, and for whom you care, is a very important component in both quantity and quality of life. Volunteering, faith, part-time work, even exercise leagues, can be simple but profoundly important ways to build and maintain your connection to other people.

For those of us who find our lives out of alignment with these principles, simple and small changes are probably our best bet for getting on a different track. Change one small thing, then another, then another. Before too long you’ll find that your life is different in a very positive way.

Chart of the Week

This week we see data on US GDP, and analysts expect it to post around 5% (annualized) for Q3. That would be a fantastic figure, to be sure especially when one considers that China and the Eurozone are both in a downward GDP growth trend. Can the US continue its stellar performance without other major economies? Markets are celebrating a successful soft landing by the Federal Reserve. However, history is not on our side here. Typically, recessions are global phenomena, and central banks have yet to engineer a soft landing. Yet I must admit that there is a first time for everything. Will this be it?

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.

What I Care About This Week | 2023 Nov 20

Posted by on in Uncategorized

by Franklin J. Parker, CFA

The Summary

  • Inflation posted lower than expected last week, and markets now believe the Fed is done raising rates. In fact, markets expect the Fed to begin lowering rates sometime around May of next year. We also saw data last week on retail sales and industrial production, both of which were pretty mediocre. Despite being a short week, we see important data on home sales, durable goods orders, and consumer sentiment.

  • Investors have taken the Fed’s commentary suggesting an end to rate hikes and slower inflation figures as an “all clear” signal. I am, however, still cautious. The economic data is still mixed — there hasn’t been a firm signal to suggest taking a strong stance in either direction. Besides, the market’s expectation that the Fed begin cutting rates in May of 2024 is itself a recessionary signal. The Fed tends to cut rates just before a recession. In the end, we need to see a firm change in the economic data: expanding corporate profits and employment, or a strong signal that things are weakening. Until then, unfortunately, we are stuck in what one client called “the longest recession watch in history.”


The Details

With Thanksgiving approaching, family is on our minds. And with family gathering, it is a good time to review your estate plan.

Estate planning is not something that most people want to think about regularly: What happens after I die? can be a morbid question to dwell on. Estate planning, however is about more than just that, and with family gathering, this is a good time to discuss your plans and expectations with them.

First, an important part of estate planning is detailing what you want to happen while you are still alive. Putting some basics in place, like medical and financial powers of attorney, are important to do because they are useful in moments where you are unable to make decisions.

It is also worth noting that much estate planning today involves adjusting the ownership of your assets while you are still alive in order to take advantage of tax rules and liability issues that center around how you own an asset. This kind of planning also aids in a smooth transition of those assets after your death.

The technical components of an estate plan are obviously critical (and should be handled by a good estate planning attorney), but it is also important that you communicate your plans and expectations to your family. Not to mention the value of simply showing family members where the documents are and who to call if something happens!

These little details can also help put family members at ease. And, if you need to start a conversation about putting something together, please reach out. While Directional Advisors does not provide tax or legal advice, we can certainly discuss what to expect and help you connect with the right professional for you.

Chart of the Week

Industrial production is one of the data points that I watch on my recession dashboard. Production tends to decline ahead of recessions (though not always). As the chart shows, we have had an extended period of weakness in US production, and this week’s data is not expected to change that trend. While not itself definitive (take 2015 – 2016 for example — production contracted, but there was no recession), it is a sign of weakness.

This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction, nor is it a commitment from Directional Advisors to participate in any of the transactions mentioned herein. Any examples used are generic, hypothetical and for illustration purposes only. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professionals, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results.