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  • Writer's pictureJulie Skye

This 2nd Week of February 2023 Thoughts

Our Client Portal has different links, based on whether you are using a

or a

Note: once you log on your tablet or phone, look at the bottom of the page to find your Vault)

Several clients had missing Quarterly Reports. Today you received 2 emails from me: one was letting you know I hopefully have fixed that problem; the other was a rather long 2022 Year End Performance, Income and Fee report. Thank you for always asking questions when something doesn't look right!

Send me topics you want to see in my Friday Thoughts: clients have great ideas about what makes a good read!

Do you like signing affidavits, filing police reports, and changing the account number for your direct deposits? Three times in the last year clients had checks stolen from their mail-box: twice in the out-going: the other was a check stolen from their mailbox. The days of mailing checks may be coming to an end.☹

Read more about My FavBond Fund

What is your impact assessment? Pick 4 areas of interest in the first round!

The market is underestimating the Fed's determination to defeat inflation. This could present a good second chance to increase the yield on income portfolios without having to take on excess credit risk. It may also be worth considering longer bonds with higher yields.” Kathy Jones, Chief Fixed Income Strategist at Charles Schwab.

Kathy Jones said that investors who think the FED will cut rates later this year might have to eat those words: an economy that adds 517,000 jobs in a month is probably not on the brink of a recession. This wild week ended with a closely scrutinized Federal Reserve meeting and as I read Kathy’s piece today, I smiled: the 10-year bond had already moved back up to 3.73%. We have another chance, and more time, to add to your bond portfolio with higher yields. The end result will be more dividend income.

I have been befuddled by the six-week decline in rates from 4.2% to 3.45%: I just could not see how it could last. Sources I trust maintained that inflation was not declining as the market expected and the FED would be forced to keep rates higher, for longer: maybe as high as 6%. If that occurred, the 10-year bond HAS to move higher and it will be smart to hold out for higher rates.

Why does it matter to you? Remember my 2019 “9th Inning Investing Series”? Back then, it was with the stock market, but this time, it is with interest rates. We are in the later innings with interest rates and FED Chair Jerome Powell stands on the pitcher’s mound throwing heat at us. At bat is the market, like the mighty Casey, and it is ignoring the fastballs, thinking each will miss the plate. While acknowledging that there is disinflation in some parts of the economy, “we see ourselves as having a lot of work to do,” says Chair Powell. I believe I’ll take him at his word and keep some cash for higher yields…and slowly add to your stock holdings, too.

2023 has been a welcome relief to the ugly 2023. Last year I wrote often about Cathy Wood’s ARKK Innovation Fund, which plunged by 67%, as it was the perfect example of putting your eggs in one small basket: tech-innovation stocks. She recently said that while 2022 was a horrific year as the fund was not positioned for the rapid rise in interest rates, today she feels it might be clearer sailing. All Wood needs is for FED Chair Powell to cut rates at some point in 2023. I’m afraid Cathy’s luck might not be turning any time soon…see page 1, Cathy.

Why does it matter to you? The #1 characteristic I sort by when considering a fund for one of my model portfolios is the “maximum -draw-down:” how much the fund declined in previous bear markets. While past performance is no indicator of future performance, it is important look at how the fund behaved in previous bear markets.

I don’t care as much about the upside because you don’t have to make as much, if you don’t lose as much. While I have a pretty strong stomach for volatility, I have to tell you…I don’t know what it would take for me to add ARKK to my Skye Capsule Equity Portfolio. What do you think? Would you be able to sit tight with a 67% loss in one year? Would you buy this chart?

In 1965, the ratio of CEO pay to the average worker was 20:1. Last year, the CEO-to- Median-Worker Pay Ratio was 235:1 and the math shows this would be $14,100,000 to $60,000. The average pay increase for CEOs from 2020-2022 was 31%, compared to 11% for the median worker.

I was pleased to see the recent spate of CEO pay cuts at Alphabet, Apple, Goldman Sachs, Intel, and JPMorgan Chase. Just Capital’s Martin Whittaker polling and focus groups revealed that Americans are unhappy with this huge pay gap. 90% have told Just Capital they believe the growing pay gap is unfair and 73% said CEO’s compensation should be capped, regardless of their performance. Read more about Who is Just Capital

Stock options make up a large portion of CEO compensation: they benefit when their stock price goes up and get a pay cut when stock prices go down. At Intel, following a difficult fourth quarter in 2022, CEO Pat Gelsinger’s salary was cut by 25%; the executive leadership team’s salaries were cut by 15%; VPs’ salaries by 10%, and mid-level managers’ salaries by 5%. There were other pay cuts across the company and more than 500 employees were cut. Kudos, Intel!

What if executive compensation was tied to, say, the proportion of their workers earning a living wage? What if paying for health insurance; giving workers family home leave; providing for sick time and paying profit sharing, factored into executive comp? I can tell you, there would be many happy, productive, employees if executives shared the wealth.

Why does it matter to you? Today’s workers have the leverage today to hold out for better wages, affordable health care and a secure retirement. Remember when Wal-Mart’s low wages qualified hourly employees for food stamps?

Executive Compensation falls under Governance…the G in ESG. Executive comp is one

issue I build into portfolios. I’ve presented resolutions at annual meetings on “Say on

Pay”…where shareholders get to voice how they feel about current executive comp. Over

the years some of the salaries of the highest paid executives got a “shame vote” and we

saw executive comp decline.

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