These are my thoughts and comments and not necessarily the opinion of anyone else including employees of Williams Wealth Management or Advisory Services Network.
The Bond Market is Interesting
(for the first time in a decade)
We know you haven’t enjoyed this year in the markets. But one good effect of bad markets is better pricing and better opportunity for future return. Bad markets are good for long term investing.
This is the most interesting bond market we’ve had in more than a decade. Here are the changes in treasury yields this year- and over the past decade.
Since the financial crisis, insurance companies, pension funds, regular folks — anybody trying to achieve some return with lower risk had to accept either very low returns or higher risk levels than they were comfortable taking. It’s tough to generate retirement income when interest rates are 1%; other investments also trade at higher prices and lower yields in a low interest rate environment.
The market has spent a good portion of the year guessing where interest rates will peak, and as a consequence where all other asset prices “should” be in light of the rates and economic side effects.
However, today November 10, we got the best news on inflation we’ve had all year. The information is that used car prices are falling, rents have stopped rising and may fall, home prices are falling and “core inflation,” which excludes the short term volatility of food and energy prices- is down to 6.3%, according to Bloomberg.
As a result, stocks are having the best day we’ve had since the covid rally in 2020. At the moment, both stocks and bonds appear attractive, but bonds offer potentially good returns at lower risk levels.
Here’s a rate chart right off of Schwab’s advisor platform- an average of where rates stand for different types of fixed income, with differing credit quality, over different maturities. These rates aren’t guarantees, but averages.
You can see that A rated corporate bonds – high quality bonds- pay around 6% – for taking on only 5 years until maturity. At this point, a good bit of the downside risk is out of that investment. Yes- rates can go higher and these prices may go even lower. But now you are entering territory where it’s easier to calculate the risk.
Buying an A rated corporate bond that matures in 5 years, an investor stands to have a cumulative return of over 30% on a fairly low risk investment. What’s the downside risk? If held to maturity- it’s very little—the very small risk that the issuers of some of those bonds will default, a risk you can offset through diversification.
What’s the downside price risk in the short term?
- If market interest rates rise another 1%- the bond price should be expected to decline a bit over 4%.
- Or if rates rise another full 2%, the price decline could be over 8%.
If that happened in the next year, what can you do? Hold the bond to maturity. Your internal rate of return should be close to 6%. The price will fall first and later rise as you approach the maturity if the bond is priced at or below par.
There’s a fair chance you can get an even better deal in the next few months. But it’s time to start working money into fixed income and then extending the maturities if rates rise further.
Politics and Florida
Well, the election came and went. And it was pretty boring and normal, thank God. American politics is a spectator sport with only two teams, a soap opera with ugly people having very little sex. So, you know, hold your nose and pick a color or vote for the people you know.
Hooray for peaceful transitions of power! Brazil is setting a good example for the US… sheeesh.
The election didn’t give me a lot of information except that people voted predictably, that being the craziest wasn’t generally a winning strategy and that governors got credit for competence during the pandemic. That seems pretty good.
Take the case of Ron DeSantis. He got Florida through covid no worse than other states without closing down as much. Similarly, Brian Kemp won handily in Georgia, despite opposing the Trump campaign’s attempt to illegally overturn the election results in Georgia. Kemp won by being capable, by maintaining good personal relationships and by choosing not to engage Trump in a personality conflict. He did his job and kept quiet, and Republicans in his state rewarded the effort.
DeSantis is setting up to run against Trump in the next Presidential election.
Uh, no thanks. Can we have neither? DeSantis does a lot of demagogic fearmongering, political theatre to prove that he and he alone can defend the West against a diversity of pronouns, just like Vlad the Impaler Putin. Good ideological company! I can just hear some of my relations arguing Putin isn’t wrong about everything. SMH
Florida is the new morality capital? Florida is real, real Florida most of the time. It doesn’t suit. If I were you know, doing market research on blonde mullets, STI’s, fake boobs, financial scams, and beach cocaine: Florida, research capital of the Atlantic! What’s the gameplan? Get real dirty on Saturday and scrub up real good on Sunday morning? You’re going to need soap AND antibiotics, Florida. You can’t get all that off at megachurch. You cannot pray away the cooties, just the guilt.
It’s pretty funny that people who don’t believe in climate change are buying a lot of property in Miami! I get it. I love Miami! It’s gorgeous and exciting and fun.
I mean I don’t subscribe to environmentalISM, but the water has been rising for 20,000 years. There’s probably 1,000 Atlantises a mile out to sea on coastlines all around the world. I think the real response to climate change is that you’re going to have to move up hill. Maybe Miami condos should be built on rails so you can just winch them inland a few feet each year like lighthouses. Pretty strange that state taxes are moving people south when the weather ought to be moving them north. People are picking taxes and politics *as culture.
Most of this culture war is semantic nonsense- people trying to program other people by insisting they use the right words to describe reality. To prescribe a world as they wish it to be.
- DeSantis prosecuted “illegal voters” in his state, some of them wrongfully, tacitly supporting- and campaigning on- the lie that the last presidential election was stolen.
- He lied to people seeking refuge in the United States and lured them on a plane to another state as a political stunt.
- He painted public school teachers as pedophiles or groomers of the young and prohibited discussion of gay stuff. Freedom! But not to think or talk about that.
- He wrapped up his decisive victory last night by saying (at 8 minutes in): “I have fought the good fight. I have finished the race in this first term, and I have kept the faith!”
Gross, gross, gross and gross. Ron DeSantis is not the Apostle Paul bringing Christianity to the world, dying in prison in Rome. Jesus would overturn these money-changers’ tables and drive them off with whips for leveraging people’s spiritual needs into political power.
This culture war is pretty effective politics, but it’s a pretty gross religion. Count me out. If you’re a Christian, profanity is not primarily curse words. It’s taking God’s name in vain. This is that, goshdarnit.
People who want power often inflame natural prejudices to rationalize control or marginalize their opponents. Just say Nope! Nopedy, nope, nope, nope. Leaders should call out the best in us and hold themselves and us to higher standards.
Crazy Talk and the Covid era
There’s still some political nut-jobbery, but my sense of things is that normal Americans are tired of crazy partisanship. It’s boring and stupid and implausible that the other team is going to end the world as we know it and that I, Elected Official of this or that and I alone(!) will fight the good fight against the impending darkness and stave off the forces of evil and preserve the American Way of Life.
Who believes that?
I think the end of covid bodes well for culture. People who spend time with other people are less crazy and less prone to personal flights of fancy. The internet can cook up and ladle out a Crazy Stew a lot easier than a few humans eating dinner together.
It’s harder to support conspiracy theories if someone says a crazy thing to you and the look that plays across your face is “that sounds crazy to me, that doesn’t sound crazy to you? Oh, ok it doesn’t? Good to know.”
That look is good feedback, because it’s not pre-meditated, and people are trying not to be confrontational but you know, maybe google that and maybe don’t say that again if you value your good name. Do we have pizza-gate and democrats that drink the blood of child virgins if someone got that look the first time they said it?
The more I think about QAnon Theories- I wonder: was that Russian Propaganda Mad Libs? That stuff had serious political impact in that those ideas somewhat trickled into the belief systems of even normal people who never even heard of Q. A parallel piece of mischief: is president Obama an American citizen? I think this was the first piece of complete, disprovable nonsense that a lot of people partly believed. Some of you still have *doubts and introducing doubt is enough to rationalize other beliefs and actions.
Conspiracy theories are propaganda, a whole bunch of red herring dragged across your path. Stay on target.
Being done with the Covid era is one of the best things that can happen for our civilization—a big boost to friendship, happiness, productivity and sanity.
In hindsight on Covid:
- Early measures to contain the spread made sense because the risk of death and serious disease was much higher in the first year.
- One million+ Americans died—most in that first year. Some people died who might not have, had everyone taken it seriously. Some people in my family.
- After the vaccines came out, the calculus changed tremendously.
- Children’s educations were seriously harmed by being out of school- for so long. Screens don’t substitute for personal presence. Conservatives were right about the cost/ benefit on this.
- The disease mutated over time and became less dangerous. Delaying exposure was rational and effective- the difference between life and death for some people.
- As Americans we did not force people to take the vaccine. We accept risks that other countries might not in the name of freedom.
- Yes, some people had to get vaccinated to keep their jobs. A job is not a human right. There are conditions. Still, it’s better to offer incentives rather than pressure.
- Choosing not to be vaccinated meant bringing greater risk of sickness or death into to other people’s lives, not just to yourself.
- Freedom means we accept those risks as a culture, even if we disagree personally.
The lesson is that neither of the political positions accurately described the real world. There was not a right “position” to hold on Covid. Covid is not a concept, it is a changing fact of the natural world. How to navigate it intelligently changed over time. Also- there are no “red” or “blue” states. Americans of all kinds of races and beliefs live all over this country. Better to describe a place by its natural features, culture and food than by political parties. Politics is a tiny part of life. There are more profound ways to describe the world.
Politics is probably the least real thing about a person’s character. You know, we’re easy to fool, but we try to do the right thing.
- If everyone had a choice about the vaccine, women in the US should have a choice about how to navigate pregnancy. Duh. That’s freedom too.
- We should not criminalize what happens by nature perhaps 10% of the time- that is the loss of pregnancy in the first 13 weeks. If a woman loses a child will she also face a criminal investigation? Oh, only if she travels? Got it.
- Despite the rhetoric, there are very few late term abortions. In 2019, 93% occurred before 13 weeks, only 1% after 20 weeks.
- To extrapolate—in 2019 there were about 9,000 abortions after 20 weeks, out of 4- 5 million known pregnancies. In other words–the very the definition of an exception- .002 of all pregnancies.
- I speculate most were for reasons unknown to you and me but known to women and their doctors. Isn’t it plausible that 2 out of every 1,000 pregnancies has later term complications or that the mother’s health is a concern? It is to me.
- Abortions are down 40% since the early 90’s. Pregnant women aren’t murderers. There are very, very few pregnancies ended after a healthy child would be viable outside the womb. That’s a red herring. It’s a problem that doesn’t need solving.
- Because people are not heartless and crazy in general, they can be entrusted to make good decisions. This is the basic premise of a free society—that we can usually trust each other to do the right thing.
The implication of this difference between the data and the rhetoric is that the political topic “abortion” is about abortion but it’s more about control. This is a lever in a class war where certain members of society have had choices about who they had sex with and how they wanted to live their lives, while others felt they did not or actually did not have those choices.
Abortion is a synecdoche for whether women have choices about their lives in our society. Some people would prefer a simpler society with fewer choices. That is, less freedom to pick your life.
I would rather not raise my daughter in a state where almost exclusively older white men sit around managing their IBS, sweating and farting in the legislature and debating whether to allow their daughters and my daughter exceptions for rape and incest.
Who is debating that? Who are you the representatives of? Are we really debating things like this in the United States of America in 2022?
The implication is that a woman in South Carolina in the worst cases might not be able to choose the father of her children or to choose whether or not to have children. Are you serious, South Carolina?
Oppressive laws like these fundamentally change society.
If a woman is assaulted, would she come to her church for help? This has historically been a problem in our culture- the social pressure was to keep quiet and to not make your problem a public problem, providing cover for violent men, especially if they were organizational leaders.
How will that change the experience of pregnancy for young women, especially those not comfortably situated in an affluent marriage? Will women in South Carolina tell anyone they’re pregnant? Now you have potential legal or criminal risk. Will a woman tell her doctor when she’s pregnant? How will that change health care? Won’t complications go untreated?
Think about what this means for the standing of all women of childbearing age in our society. If getting pregnant is a legal and potentially a criminal risk, do you think this will improve relations between the genders? Do you think women will feel safe? Will people have more or less sex? I’m of the opinion that the society would be happier and more peaceful if sex were less of a marketing tool and more of a lived experience between people. People would do better with more sex and fewer products. Women’s safety is an important consideration in relations between the genders.
I bet 70% of Americans could begrudgingly live with codifying a right to abortion up to a cutoff of 15 or 20 weeks, with medical exceptions thereafter. I think that’s what most people think is normal. It’s been a human right in America for 50 years- 2 full generations. And yes, we have an uncomfortable relationship to this. And no- nobody is in favor of killing babies.
That a resolution has not been reached illustrates that the issue is a useful political lever if left unsolved. Very cynical on the part of both parties, if you ask me. For instance, why have the democrats not codified this in law, rather than allowing it to rest at the whimsy of the courts?
It’s a reason to vote, a weapon in the culture war, with human casualties.
So many apparent moralities like this one sacrifice real peoples’ real lives for an impossible ideal. It is the hallmark of literalistic religions that they oppress people by holding out an unrealizable morality—implicating nearly everyone in guilt over their inability to live up to a standard.
But true virtue lies in maintaining the ethical tension, the middle way.
It is the nature of “morality” that people make difficult choices, balancing complex factors. People without choices don’t have morals. They have servitude and lack agency. People who say they didn’t have a choice about their actions are the most immoral of all, in my experience. They disclaim responsibility.
There is no right resolution that eliminates all the other considerations. That’s exactly what extremism is: promoting one moral, one set of beliefs as the only virtue, eliminating complexity, ignoring other concerns that should be kept in balance. There is no perfect answer on abortion, but there are right and wrong approaches to the question.
Politicians promote conflicts to advance personal interests. But leaders bridge conflicts so that people can come together to solve problems. Now that you are elected, offer some leadership, some compassion, some decency and consideration for the human condition.
Jeremy L. Strickler, CFP®