This 4th Week of January 2023 Thoughts
Bored hearing about the FED? I’ll find something else to put in this space, but page 2 will give you a FED FIX. SECURE 2.0, pushes out RMDs, but could push future retiree’s income into a higher tax bracket that increases what you pay in taxes for Social Security or for your Medicare premiums. It could also increase taxes on what you leave your kids. This matters! Vegans aren’t the only ones for this fund! veganlove
Take our Risk Assessment! "You and I would pour a gallon of water on a fire to put it out but the FED is going to pour five gallons of water on this inflation-fire, to be sure it is out.” That quote makes it sound like this march to higher rates is a bad thing for you and me! Considering the damage 0% interest has done to lower risk assets and retiree’s income, I say torch inflation. Money has been free for too long: you will benefit greatly from higher rates.
Have you seen the headlines about “Woke Investing” and now wonder if ESG is good for you and our world? If you have, then this week’s Week’s Thoughts is for you! A client asked me about the Governor of Florida’s war on the companies and investment firms who believe sustainable, ethical, impact investing should be punished, even outlawed.
You can assume I do not build portfolios based on a feel-good-political-agenda. I begin the journey socially responsible investing, almost 2 decades ago because ESG is about managing risks and spotting investment opportunities. “It should not be allowed to become a three-letter bad word," says CalPERS CEO Marcie Frost.
When you break down ESG it is about managing risks related to climate and managing risks related to poor human capital practices. It is about managing risks related to poor governance. No longer can Corporate America have a free reign on how to dispose of waste; whether to incentivize incarcerating those who have committed non-violent crimes or to lobby legislators to pass laws that benefit their campaign. The reality is that many executives’ compensation is tied to short-term profits and their incentive is NOT to do what is good for you, me, and our world. CalPERS is also integrating ESG into its investment decisions and engages with companies they invest in because they have seen it works…and it's the right way to work. Read the full article here: dont-let-esg-become-next-3-letter-bad-word-
Why does it matter to you? Our current mistrust of Wall Street and our Government is based on decades of abuse of the system, for personal benefit. How many investors have called investing “gambling?” We must join arms with others working to clean up this broken system and create a level playing field…a fair, honest way for you to build you wealth.
“Going soft on inflation will plunge economies back into the recessionary depths of the 1970s and have “adverse effect on working people everywhere,” former US Treasury Secretary Larry Summers warned. larry-summers-warns-1970s-crisis-if-central-banks-relent-rates
The remark is a response to suggestions from economists who have suggested lifting inflation targets from 2% to 3% to avoid recessions.
“To suppose that some kind of relenting on an inflation target will be a salvation would be a costly error, it would ultimately have adverse effect as it did in a spectacular way during the 1970s,” Summers, a professor of economics at Harvard and a Bloomberg TV contributor, told a panel at the World Economic Forum’s annual meeting in Davos, Switzerland.
Federal Reserve Chair Jerome Powell has repeatedly made clear that the US central bank has no plans to change its 2% inflation target.
Inflation peaked in double digits across much of the industrialized world but is expected to drop rapidly this year on the back of falling energy and commodity prices. However, core inflation will remain elevated as wage behavior and companies’ price setting has fundamentally changed.
Swiss National Bank Chairman Thomas Jordan said: “It will be much more difficult to bring inflation from 4% to 2%. We will see if that comes with a recession or not. Firms do not hesitate to increase their prices and that is different from two or three years ago.
Summers warned: “It would be a grave error for central banks to revise their inflation target upwards at this point. Having failed to attain the 2% target and having re-emphasized repeatedly the commitment to 2%, to then abandon the target would do very substantial damage to credibility. If you can adjust once, you can adjust again.”
“The counter-factual is not, ‘can we have more inflation and no recession, it is, ‘if we fail to deal with inflation, we are likely to have a more severe recession at some point.’” Central bank chiefs on the panel all agreed that tighter monetary was still needed to bear down on inflation, which still close to 10% in the US, the Eurozone, and the UK.
Summers also criticized central bankers’ operation of quantitative easing during the pandemic, which he said has added to the burden on taxpayers. The Fed is now carrying a mark-to-market loss on its balance sheet of around $800 billion, he said. “In retrospect, I think that was highly problematic,” Summers said. “We need in addition to thinking about the stimulative aspects of QE to focus on the balance sheet debt maturity aspects of QE.”
Why does it matter to you? My first thought when I read this article by Philip Aldrick was the saying, “Quit your crying or I’ll give you something to cry about.” Who doesn’t remember the 20% inflation, that seems like yesterday? Our interest rate system is broken…and it has to be fixed. Generations at Harvard will write case studies about this time in history.