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18 Aug 2025

An Off-Broadway Guide to AI

By glen

The explosion of artificial intelligence or AI over the last several years has been extraordinary, and the reality versus the expectation has ranged from jaw dropping wonder to cynical disappointment.  The reality is that AI is with us to stay and will profoundly shape our future in ways you might not have considered.

In this note, I’d like to encourage you to begin using AI if you haven’t already started.  We will consider some of the long term implications for society, because things will change fast in the coming years.  And, of course, we will touch on investing in AI, so a bot doesn’t run off with your money!

Give it a Shot!

If you use the internet, chances are you’re already using AI on a regular basis, whether you realize it or not, since it now underpins even basic searches.  If you haven’t already, I encourage you to try a free popular model such as Claude, ChatGPT, Gemini, or Perplexity.

One fun experiment might be around recipes, ask an AI for a recipe that uses certain ingredients, reflects a certain cuisine or both.  Don’t be afraid to be bold or silly, you won’t break it.  Another fun use is for travel planning, tell it where you might want to go, and ask for itineraries, places of interest, places to stay, where to eat, flights, etc.  Engage in a dialogue about a subject that interests you.  Don’t expect perfection.

Simply engaging with the technology will help you understand how it behaves or “thinks,” how it might be useful, and how it might be limited.  For those of you who are old enough to remember, this is a lot like when the internet started becoming popular.  You might remember the reluctant adopter finally giving into the hype and becoming a heavy user.  It’s at that point that AI technology might seem less mysterious and “scary.”

How big will this get?

To give you a sense of scale, a recent article in The Economist notes Meta’s plans to build an AI data center the size of Manhattan that consumes the same amount of electricity as New Zealand.  The same article notes that Open AI, the creators of ChatGPT, plan to spend $500 billion in the U.S. just to keep up with demand.  Other players in this space are launching similar plans, and this is already happening globally.

To give you a sense of what’s already possible the same article notes: “Earlier this month the Forecasting Research Institute (FRI), another research group, asked both professional forecasters and biologists to estimate when an AI system may be able to match the performance of a top team of human virologists. The median biologist thought it would take until 2030; the median forecaster was more pessimistic, settling on 2034. But when the study’s authors ran the test on OpenAI’s 03 model, they found it was already performing at that level.”

It’s getting so big that promising young programmers are accepting that AI might wipe them out professionally.  Even the most basic models will write computer code for you in whatever popular programming language you select, such as Python.  If you want to get into the “app” business there are companies claiming an ability to take your plain English idea, create the code, and ultimately an app you can launch in an app store, all done by AI.  What if we ran the AI software on a robot?

The military has been using AI and robots for decades in the way of drones and things we probably don’t have the clearance to know about.  We already see AI in the self-driving taxis offered in some cities by companies such as Waymo.  Some restaurants are using robots to prepare and deliver food, and robots are being used in place of traditional security guards for office space.  Humanoid robots are also becoming widely available.

Unitree, a Chinese company, offers impressive humanoid robots.  They already have back orders on these machines.  Amazon has been rapidly expanding its use of robots in warehouses.  Because computers are relatively seamless these days thanks to wireless technology, the integration of AI and very capable robots is not hard to imagine.

Trying not to scare Boomers, but robots are already taking off in elder care in Japan with impressive results.  Japan has been suffering from a shrinking workforce, and the robots are able to fill some of these gaps.

It’s not hard to imagine home humanoid robots running cutting edge AI and doing everything from yard care to cooking and cleaning.  Imagine shopping at the grocery store next to someone else’s robot out running errands.  Yes, we’re on the verge of science fiction becoming reality.

How Can I Invest?

Chances are you’ve already been investing heavily in AI for years.  The largest technology firms have been part of the AI revolution from the start.  If you have an investment account that holds something like the S&P 500, you probably already own names like: Nvidia, Microsoft, Google (Alphabet), Amazon, Meta, and Apple within that portfolio.  The performance of these stocks has been a major driver of recent stock market gains.

If you are looking for smaller firms that will be the next big Google, good luck, it’s a very challenging undertaking for several reasons, such as private equity, acquisitions, and a crowded field.

Small firms typically seek venture capital funding in early stages.  We live in a world where private equity firms may step in prior to or in lieu of a public offering. Large firms, such as Apple, may acquire valuable, small AI firms directly from founders or from venture capital and private equity firms, bypassing public markets.

AI firms that do go public may have astronomical valuations compared to what they may actually be worth because the venture capital and private equity firms are attempting to cash in on their investments with the public providing the cash.  It could also mean a firm was not interesting enough to attract venture capital or private equity, and the founders decided to go it alone.  The reality is that if you slap the letters “AI” on anything right now it’s going to seem sexy to someone.

This is not to say that there are not great opportunities out there in the public markets, but the takeaway is that you must be extremely careful with what you decide to buy.  Buying shares in small, stand-alone AI firms is an exercise in speculation, not investing, and it’s important to always be clear about where you’re investing and where you’re speculating.  With speculation, you should always be prepared for a total loss.

If you are a long term investor holding a portfolio or large, diverse, high quality stocks, there is no need to engage in Fear of Missing Out (FOMO).  You’ve already been investing in AI since the beginning.  As this technology evolves and changes, new companies will rise and become part of these blue chip indexes.

It’s important to accept that not only will things be changing rapidly in the coming years, but that acceleration will accelerate too.  There will be bumps and painful lessons as we learn to live with this powerful new technology, but hopefully it will be tremendously beneficial in the long run.

If you haven’t tried AI, it might be time to dip your toe in the pool.  It will make it less mysterious, and you might even have some fun in the process.

 

 

 

Buoyant Financial, LLC is a registered investment adviser located in Charlotte, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request. This note is for informational purposes only, and should not be construed as investment advice, or a recommendation to buy or sell securities. 

11 Mar 2025

Market Turbulence and Recession Fears: What You Need to Know

By glen

As stock indexes plummet from record highs, many investors are left wondering what’s next.  US stock indexes have been dropping over the last several weeks, causing investors much pain and consternation.  Suddenly, a possible recession is making headlines too.  Are these related?

Stock Market Decline

The stock market became way overpriced last year.  You can look at how “cheap” or “expensive” stocks are by considering what companies have earned or expect to earn.  This is commonly measured by comparing stock price to profit, which answers the question:  how much profit am I buying for each dollar of stock price?  Looking at the popular S&P 500 at the beginning of February, $22 bought you $1 of earnings.  The ten year average is $18 for $1 of earnings.  Through this lens, stocks were very expensive.

The stock market can gyrate between cheap and expensive regardless of what the overall economy might look like.  It’s normal for stock prices to “correct” after becoming too expensive, and that can happen even when the underlying economy is healthy.

The last several weeks have brought an unfortunate run of bad economic news.  At the beginning of February, the only thing holding up stock prices were “thoughts and prayers” because $22 is simply too much to pay for $1 of profit.  On February 28th a giant crack showed up in the economy, and suddenly the temperature had dropped, the wind picked up, and storm clouds were forming.

Economic Concerns Emerge

How much the US economy grows is measured by this thing called the Gross Domestic Product or GDP.  This measure has nothing to do with stock prices and looks at how much the US economy makes: factories, restaurants, construction, real estate, defense spending, the whole shebang.  The Atlanta Federal Reserve publishes a popular, and typically accurate, model of what the GDP number for the current quarter might be, since we don’t know the actual number until the quarter has long ended.

On February 28th the Atlanta Fed’s GDPNow model unexpectedly swung from a very healthy 2.5% to a negative number.  The fact that it fell off a cliff overnight was staggering and unusual.  The model is currently predicting first quarter GDP will be -2.4%.  This is one of the primary reasons we’re suddenly discussing a recession.

A recession is usually considered two consecutive quarters (six months) of a negative GDP number.  According to the GDPNow model we may already be at the beginning of a recession, and before February 28th this wasn’t on anyone’s radar.  Sometimes the model can be off, some data may not be accurate, there can be noise; however, as new data has been coming in, the model has stayed negative.

This creates a bigger problem for the stock market.  We discussed the value of stocks in terms of what companies are expected to earn.  With the economy suddenly shrinking unexpectedly it’s harder to know what companies might earn this year, which means it’s hard to know if stocks are cheap or expensive.  It will take some time for things to settle down and profit estimates to reflect changes in the economy.

What happened?  Let’s look at some other economic signs.  Inflation was almost back to normal; however, in January some readings stopped dropping and began to tick upward, and some measures of job growth began to slow unexpectedly.

The overall health of the US economy is rooted in inflation and employment staying in healthy territory, both of these appearing to slip at the same time is not a good sign, and the model quickly picked up on these changes.  That was all the stock market needed to “correct” or return prices to a more historically reasonable level.

Policy Uncertainty

While stocks were overpriced, the problems with the economy are rooted in tariffs, threatened and real, introduced by the new administration in Washington, D.C.  It’s important to note that businesses and financial markets (and many humans) hate uncertainty, and tariffs, threatened or real, created a tremendous amount of uncertainty.

It would have been foolish for businesses not to respond to real threats, and these responses caused a chain reaction as US and global companies positioned themselves for a tariff war.

If you owned shares in XYZ Corporation, and XYZ saw the tariffs coming to eat their business model, and management, knowing this, did nothing, you would call for management to be fired.  It’s not hard to see how this spreads.

In today’s world, tariffs are only useful in very specific situations, for example, when a country needs to protect a niche industry. It makes no sense to use tariffs on a large scale when you’re already the biggest and most powerful economy on the planet.

The other issue facing the economy are the large scale terminations of Federal workers.  It appears that little thought has gone into these initiatives, and we’re already seeing unintended consequences as civil servants are terminated.  These efforts will increase unemployment and create further drag as vendors and companies that supported these workers are impacted.  Consider the simple example of a “mom & pop” lunch counter near a shuttered office: now “mom & pop” are out of a job, their employees are out of a job, and they are no longer purchasing the goods and services used to keep their lunch counter going.

What This Means for Investors

The only silver lining for investors at the moment are bonds.  Bond prices have risen as investors seek safety, and bond holdings in portfolios have enjoyed a small boost.  If the Federal Reserve is forced to cut interest rates in the coming months, it will give bond prices another small boost.  In the meantime, investors can enjoy the continuation of elevated yields, which are the result of post pandemic inflation control measures.

It’s still possible for the US to avoid a recession.  The economy could find some lift, leaders could proactively take steps to stop making harmful policy changes, or some combination of factors, but at this point the damage has been done to people who own stocks, and that damage could worsen before we turn the corner.

If your portfolio has taken a beating, you are in good company; however, if you were unclear about how your portfolio is constructed, how it aligns with your goals, or if the answers you’re getting from your financial advisor don’t align with reality, this is a great opportunity to do some housekeeping and realign for the long run.

We’re here to help.

 

 

Buoyant Financial, LLC is a registered investment adviser located in Charlotte, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request. This note is for informational purposes only, and should not be construed as investment advice, or a recommendation to buy or sell securities. 

25 Jul 2023

Why You Should Check Your Social Security Account

By glen

Social Security is often an afterthought for many people when it comes to planning for retirement.  Claiming Social Security can sometimes feel like a long way off, and it’s always something you plan to look at when you get closer to retirement; however, it’s important to stay aware of Social Security during your working years for several reasons.

It’s Worth What?

While Social Security pays out monthly, once you decide to start taking benefits, those payments over time can also be seen as a single asset by asking the question: what is the sum of those payments assuming we live to a ripe old age?

The answer for most of us ranges from hundreds of thousand dollars up to almost $1.3 million for some workers.  While we can’t simply request a lump sum check, those payments are equivalent to that kind of value!

Compared to your other retirement accounts, this is probably a piece of your retirement picture that merits attention.

When To Take Benefits

The question of when to take Social Security can be tricky.  The textbook answer is becoming 70 to maximize the benefit.  If your full retirement age is 66, your payment will be 32% higher if you wait until 70.

This may not be the right answer for everyone.  Do you want to work until 70?  If you want to retire before 70, do you have the savings to carry you until 70?  Are there health concerns that impact how long you expect to live?

The planning software we use at Buoyant Financial allows us to model various scenarios with clients to help optimize this decision based on their entire financial picture and goals; however, if you review your expected benefits periodically, you can begin to see how timing impacts this important decision.

Did They Get It All Right?

When reviewing your Social Security account, you can see the earnings used each year to calculate your benefit.  If something doesn’t look right, you may want to take action.  Did you have an employer withhold for Social Security, but you don’t see any earnings during your years with that employer?  If something doesn’t look right, you may want to reach out to the former employer or consult a CPA specializing in Social Security.  Yes, Social Security can get complicated enough that there are people who do nothing but specialize in assisting with benefits; however, these are pretty uncommon situations.

Review Your Social Security Account Annually

The easiest way to review your Social Security account, including your most recent statement and summary of expected benefits, is to create an online login.

Simply go to: https://www.ssa.gov/myaccount and create an account.  Once you do this you’ll also begin receiving an annual statement via email, which is great time to login and look at the account.

Wrapping it Up

Social Security is an important part of your retirement plan.  While there may not be a lot of decisions to make prior to retirement, it makes sense to give it some attention each year to review your expected benefits, and make sure your information is correct.

When retirement time comes, you’ll be glad you did!

 

 

 

 

Buoyant Financial, LLC is a registered investment adviser located in Charlotte, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request. This note is for informational purposes only, and should not be construed as investment advice, or a recommendation to buy or sell securities. 

29 Mar 2023

Banks: Canary in the Coal Mine?

By glen

We’ve been through a lot over the last three years.  It began with a once in a century pandemic that we were fortunate to survive.

To protect against another Great Depression, the Federal Reserve and Congress made it rain money, which helped keep homes and businesses afloat.  These actions had many unintended consequences.

It feels like we’ve been through a generation of crises in only three years.

  • Inflation become unhinged in a way we haven’t seen in forty years
  • The drop in stocks and bonds last year rivaled the worst bear markets in history
  • Falling real estate values in many areas was on par with the housing crisis
  • A strange speculative bubble came and went in crypto currency madness

Any one of these events in the financial world, in a vacuum, would have been a catastrophe, but in this era it’s been par for the course.

We’re now heading into what may be the last chapter of pandemic era financial stress.  The Fed has been aggressively increasing interest rates to combat runaway inflation, which slows growth by making it more expensive to borrow.  Three months ago we were expected to be in a recession by now, yet we’ve had a stellar first quarter, a testament to the strength of this economy.  But cracks are finally beginning to form, and those cracks are in banks.

To be clear, this is not a situation where you should pull your money out of banks despite two recent failures.  It rarely makes the press, but small town banks do fail, and the FDIC steps in to unwind them.  We have a lot of banks in the US.

A recent Bloomberg op-ed notes: “Canada has fewer banks than the state of North Dakota.”  Recent events have been eye popping because of the size of the banks that failed.  The US Treasury and FDIC have basically guaranteed all deposits at this point to assuage everyone, meaning everyone globally, our banking system is that important.

Silicon Valley Bank and Signature bank were victims of poor management and classic runs.  Deposits were pulled in a panic, and the banks were forced to sell bonds at losses on a massive scale to meet the demand for cash, which crushed them.

While deposits are implicitly protected, all banks are under similar stresses.  They must hold a certain amount of very safe bonds as capital, these requirements were bolstered coming out of the great recession.  These bonds have dropped in value with increasing interest rates, which means many, if not all, are holding massive amounts of bonds at a loss.  This gets ugly if they are forced to sell, which is how runs feed on themselves.  Either way, bank balance sheets are in a fragile state because they all face similar requirements.

Regulators were certainly aware these issues were festering across the board, but between the capital requirements and increasing rates, everyone is holding the same bad hand.

Regulators, facing public glare, will insist they improve balance sheets as quickly as possible, which means lending standards will tighten.  Over the next several months this will create another drag on the economy.  Banks lending less means businesses of all sizes will have less working capital.

The ironic upside, this dynamic will cool inflation.  Inflation still needs to drop by at least 50%, and the bank balance sheet contortion will mark the beginning of the end of rate increases for the Fed because it can’t afford to trigger another full-blown crisis.

The bottom line: the bank balance sheet issue could mark the catalyst for the long-anticipated slowdown.  Over the last several months expectations for a serious slowdown or recession have shifted to midyear, and this aligns with that timing.  While stocks will not like this, they haven’t gotten too far ahead of themselves coming out of last year’s brutal market.

 

 

Buoyant Financial, LLC is a registered investment adviser located in Charlotte, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request. This note is for informational purposes only, and should not be construed as investment advice, or a recommendation to buy or sell securities. 

 

25 Aug 2022

ESG Investing: It’s Not Easy to Invest with Heart

By glen

 

Environmental, Social, and Governance Investing, or ESG is a hot topic right now.  You may have seen ESG options in your employer’s retirement plan, or advertisements for this “style” of fund or index.

 

What the Heck is ESG?

ESG is a Wall Street trend that gets beyond just financials by looking at how corporations address broader societal goals.  It asks: how is this company functioning as a citizen?  This thinking evolved from the idea of corporate social responsibility.

The idea: a corporation has responsibilities beyond answering to shareholders, and shareholders should want to invest in companies that are good citizens because focusing on all stakeholders is good for society, and good for a sustainable bottom line that looks beyond just the next quarter.

This idea has been boiled down to three big categories: environmental concerns, social concerns, and governance concerns.  Let’s take a quick look at each of these:

Environmental Concerns

These include the topics of climate change and environmental sustainability.  It looks at the impact a company has on global warming and natural resources.  The thinking: current environmental trends are unsustainable.

Social Concerns

These include: diversity, human rights, consumer protection, and animal welfare.  If you’re thinking it sounds like this could get political, you’re right, and it’s more tedious than it sounds.

Corporate Governance Concerns

Topics are wrapped around management structure, employee relations, and compensation.  The question this gets to: how is the company managed, how does it treat employees, and how is everyone hired by shareholders paid?

What Does ESG Investing Look Like?

Without getting into the weeds, you can see how these topics may be important to an investor.  We have a classic situation, an investor need has been identified, and Wall Street has cooked up a solution for you!  Is this out of the kindness of their hearts, or out of grave concern for these topics?  Of course not, it’s to get paid.

Wall Street has been in the process of building ESG indexes, ESG funds, and ESG ratings.  Here is a simple example.  They will take something like the S&P 500, the 500 largest stocks in the US, an important bellwether, remove stocks based on “ESG factors”, and then sell you an ESG fund that costs more than an S&P 500 fund.  Now, the thinking goes, you are a responsible investor, and now you can sleep better at night knowing your investments are making the world a better place.

Of course, it’s too good to be true.  Let’s look at why.

The Problems With ESG

In May Tesla was removed from a popular ESG index because of issues with “rampant racism,” and crashes associated with autopilot technology.  Racism is never justified, and faulty safety technology that kills people is never a good thing; however, it’s hard to debate that Tesla has been significantly moving the needle on auto carbon emissions with it’s own vehicles, and by forcing competitors to quickly come up with electric vehicle offerings.

If you take this one example, and imagine how environmental, societal, and corporate governance issues may intersect through a single lens that tries to boil a very complex ocean, the entire proposition becomes dicey, especially for an investor whose primary goal is to earn a good return, which is all of us.

From a recent Harvard Business Review article: “It’s long past time we faced a hard truth: despite a historic surge in popularity, ESG investing will not tackle our generation’s urgent environmental and social challenges…Yet it’s hard to blame casual observers for believing that investing in an ESG investment fund is helping to save the planet.”

From The Economist: “although ESG is often well-meaning it is deeply flawed.  It risks setting conflicting goals for firms, fleecing savers and distracting from the vital task of tackling climate change.  It is an unholy mess that needs to be ruthlessly streamlined.”

These examples go on, and of course in the current political climate ESG is painted as a vast left wing conspiracy.  There have been a slew of op eds in the Wall Street Journal to this point.

Another related issue that is seldom discussed, bonds.  Most of the ESG discussion focuses on the stock holder perspective; however, a diversified investor owns bond funds as well.  A bond holder is still providing capital to corporations.  There are far fewer ESG bond funds, and this type of analysis in the world of bonds is even more complex.

In a time of low yields, bond investors have less flexibility given the performance required from the bond side of a portfolio.

Considerations for a Concerned Investor

The important point here is to not simply invest blindly in an ESG fund, and believe you are somehow achieving a personal goal related to what’s important to you under this broad ESG umbrella.

The ESG funds are twisted and contorted when it comes to the goals they are trying to achieve; therefore, any single goal that is important to you may or may not actually be achieved.  To make matters worse, your returns may suffer compared to conventional funds, and those differences add up over time.  Don’t forget, you’re also paying higher fees for this privilege.

 

The Economist, a very old and conservative British newspaper, had one conclusion: “ESG should be boiled down to one simple measure: emissions.”

If this topic is important to you, there are funds available that only address climate change, and this kind of laser focus can be successfully achieved for certain parts of a portfolio, namely indexes of large US companies.  Attempting to bring this focus to other areas such as small company stocks, international investments, and bonds quickly becomes a more complex proposition.

The bottom line is that your long term wealth is too important to risk the gamesmanship and conflicting interests in the current world of ESG funds.

Please reach out if you would like to discuss ESG funds, or funds that may tackle specific issues that are important to you.

 

 

Buoyant Financial, LLC is a registered investment adviser located in Charlotte, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request. This note is for informational purposes only, and should not be construed as investment advice, or a recommendation to buy or sell securities. 

09 Jun 2021

Strange Times: Where Do We Go from Here?

By glen

 

We’re at a fascinating crossroads in the world of investing, and in many ways, a truly unique place.  While the adage: “this time it’s different,” always gets burned by the markets, this time, we’ve never been here before.

The best news: we’re almost near the end of the pandemic.  The good news: the economy is screaming thanks to unprecedented monetary (the Fed) and fiscal (Congress) stimulus.  The strange news: things are really out of whack in the markets, and this has quickly become visible in everyday life.

Lumber and building costs have skyrocketed, some things are still hard to find in the grocery store, and there are plenty of job openings, yet a high unemployment rate.  There are also strange things like “meme stocks,” and skyrocketing crypto currencies nobody had heard of until three months ago.  Let’s peel back the onion a bit.

So Much Money

Eight TRILLION dollars is a lot of money, and that’s a rough estimate of what has been dropped on the US economy by the Fed and Congress since the pandemic started.

The US government has sent checks to individuals, boosted unemployment, and supported almost all businesses in a variety of ways.  The Fed has been printing money to the tune of an additional $120 BILLION every month.

While the pandemic raged, the nation attempted to keep everyone and everything flush with cash to minimize economic fallout, but this process set up some strange dynamics.

Inflation

As the economy recovers from the pandemic, shut downs, and lock downs, money is once again flooding into goods and services as life returns to a new normal, and pent-up spending plays out.  The economy is whipsawing from the tremendous drop in output we saw last year to something approaching pre-pandemic right now.  That wave has a tremendous amount of momentum.  Economists were aware this was happening, yet inflation still came in four times higher than predicted last month, raising many eyebrows.

We’re now seeing prices increase in everyday life, coupled with businesses raising wages and offering incentives to attract workers, which also stokes inflation.  What do the financial markets say about this?

The Bond Market

The bond market tends to be intelligent, the smartest money in the room.  The Fed’s message to the bond market has been: this wave of inflation is just a wave, and with the economy getting back to normal, inflation will return to long term averages soon.  The bond market has priced this in as the absolute truth, because it is the absolute truth.

If inflation gets out of hand, the Fed will increase rates quickly, and force inflation back to long term averages.  If you’re old enough to remember double digit mortgage rates from the 1980’s, you’ve seen the Fed do this in real time.

The risk: the Fed doesn’t react quickly enough, is forced to increase rates faster than anticipated, and chokes off the current expansion, possibly creating a recession.

The Stock Market

The stock market is “all in.”

In the world of “blue chip” stocks (think S&P 500 and Dow Jones Industrial Average), the market is behaving as if rates will stay low forever, and the current expansion will never end.  It’s overpriced by most historic measures, and more money is ending up here because it has no other place to go with bond yields so low.

Then we get to strange places like “meme stocks.”  The current example is AMC.  The price of AMC increased by around 400% in one month when nothing really changed in the business of movie theatres.  In the normal investing world this would have meant that AMC figured out some new technology, created a monopoly, or found tons of gold buried under a theatre.  We’ve seen examples of this blind speculation recently with GameStop and others.

We’re at one of those places that feels like the dot com bubble where everyone seems to be trading stocks online, and making a killing because everyone else is buying like mad too.  Remember companies like: Ask Jeeves, eXcite, and Geocities?

Other Strange Things

The crypto currency space is frightening, and this won’t end well.  It’s difficult enough to justify Bitcoin, but these other crypto currencies, spiking almost randomly, make very little sense.  Much like the AMC example, people are dumping their freshly printed money into crypto currencies. What is the long term purpose of these strange coins?  They pay no interest, offer no dividend, and have no real utility.

The list of strange things goes on with things like tokenized art (non-fungible tokens or NFT’s), and SPAC’s, which are “blank check” companies, I give you money, and then you tell me what I bought.

Wrapping It Up

We’ve never been here, but some of these things look oddly familiar, and it’s strange to have them in the same room at the same time.  Inflation may or may not take us back to the 80’s.  Stocks may or may not take us back to the dot com bubble of the 90’s.  Strange things may or may not take us back to Beanie Babies, and Cabbage Patch Kids.

But, we’ve never been in a place where humanity is coming out of a gut wrenching pandemic with so much money to spend, and not enough places to put it.  This will surely end badly for some.

If you’re a regular reader of these blogs, you already know the punch line.  A balanced, diversified portfolio will weather whatever comes as this unprecedented wave in the financial markets passes, and serve you well in the post pandemic new normal on the horizon.

Not as exciting as a Dogecoin, but just as cute, and you’ll sleep well at night.  Please let us know if we can help, we’re here to help answer your questions.

 

Buoyant Financial, LLC is a registered investment adviser located in Huntersville, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request. 

 

18 Dec 2020

A Rocky Road to a Bright New Year

By glen

Despite the pain wrought by the virus, there is finally a light at the end of the tunnel.  The virus forced many of us in the investing world to become armchair epidemiologists since it’s nearly impossible to look at the economy without looking at the virus too.  

When I wrote about the pandemic in the spring, some of the models were showing numbers that seemed impossible, and by September those enormous numbers seemed even more impossible.  Unfortunately, we’re now living in a world where those painful numbers have become reality.  

The good news: we’re on a bright path forward thanks to effective vaccines being rolled out in real time.  A new normal finally seems within reach.     

We’re not looking at a setup for the greatest year the markets have ever seen.  As with the rest of our lives, we’re looking for a new normal, a post virus world that looks more like what we remember.  It will take at least two years for the economy to really move past the virus when you look at interest rates, unemployment, inflation, and volatility. 

Since the recession wasn’t driven by a financial meltdown, the monetary and fiscal stimulus measures were quite potent and effective.  But, these measures come with the price of having to be “unwound” over time.    

The stock market is currently overvalued by almost every measure, which was caused, in part, by irrational exuberance coupled with extremely low interest rates.  We’ll probably see a pull back, and that’s not all bad since we ultimately want assets priced rationally (there really is such a thing).  

As the virus is slowly brought under control, and our lives return to a new normal, there will be an increase in demand for products and services, which will be a source of economic strength.  This demand will push corporate earnings up, and at some point in 2021, stock prices and the underlying corporate earnings will meet closer to long term averages.  

A new normal will take longer in the world of interest rates.  The Fed promised that rates will remain low for years, and history tells us they will make good on that promise.  The downside: we could see real inflation for the first time in decades; however, it should be easy for the Fed to quickly tame any spikes above target.  

From a bond investor’s perspective, it’s important to keep in mind that if inflation goes up 1% and bond yields go up 1%, you’re in the same place, you’re not really enjoying a higher yield.  Inflation will be important to watch given the amount of money “printed” this year.  

After the tragedy of 9/11, things were never quite the same again.  There was a new normal, and with time, the trauma passed, receding into history and memory.  The post-pandemic world is likely to be similar, things will never quite be the same again, but with time we’ll reach a new normal, and this period will fade into memory. 

I wish you happy and boring holidays in the hopes that a subdued holiday season this year will give us many more in the future!  Please follow best practices around all things pandemic, such as avoiding large (or any) gatherings, wearing a mask when you’re out and about, and when the time comes, please get those shots.    

Buoyant Financial, LLC is a registered investment adviser located in Huntersville, NC. Buoyant Financial may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. A copy of Buoyant Financial’s current written disclosure statement discussing Buoyant Financial’s business operations, services, and fees is available at the SEC’s investment adviser public information website – www.adviserinfo.sec.gov or from Buoyant Financial upon written request.