Thoughts From the Finance Factory

What Do Top Gun and Yield Curves Have In Common?

Let’s talk about recessions!

All bull markets die! It’s a fact of life that eventually this epic run for stocks will come to an end and the economy will go into a recession.  By the time you read this you will have no doubt have heard that the yield curve has inverted, and this indicator has correctly indicated the last 7 recessions. 

What does an inverted yield curve really mean?

Every time I hear the term I think of the famous scene in Top Gun where Maverick discusses his foreign relations with the Russian MiG pilot.


Charlie: Well, if you were directly above him, how could you see him?

Maverick: Because I was inverted.

Iceman: [coughs whilst saying] Bullshit.

Goose: No, he was, man, it was a really great move.

Charlie: You were in a 4G inverted dive with a Mig 28?

Maverick: Yes, ma’am.

Every time I hear Inverted Yield Curve, I think of 4G dives with Russian fighter planes.  But an Inverted Yield Curve isn’t a fancy flying maneuver it happens when the amount you get paid for owning a longer-term bond is less than the amount you get paid for owning a shorter-term bond.  In this case the 2-year treasury is inverted compared to the 10-year treasury. When the 2/10 yield curve has inverted it has successfully indicated the last 5 recessions.  But this inversion is not a good indication of when the recession is going to occur.  As my friend Ryan Detrick at LPL shows in this chart

As you can see from the chart this is not good for telling us when the recession will start.  It also is not good at telling us the severity of the recession.  What I tell all clients is to keep things in perspective and not panic.  Data shows the U.S. economy is on solid footing, and corporate debt spreads have remain contained in this latest bout of volatility. Financial conditions are still historically loose, yet there are few signs of excess in the financial system. U.S. stocks have also been resilient against yield curve inversions in the past: Historically, the S&P 500 Index has rallied an average of 22% from the first inversion to the eventual economic peak. Recessions are not the end of the world.  They are part of normal markets and if you stick to your plan you will reach your goals.  I am not a great pilot, so I won’t be doing 4G inversions with Russian MiGs and I don’t suggest you do them either.  Stay the course, know your plan and don’t overact to miscellaneous market events.

5 Years Down, 95 to go

5 Years In

It is hard to believe that I opened the doors to Thorium Wealth 5 years ago on May 24, 2014.  Looking back, it was the scariest and most exciting thing I have ever done.  Starting a business is not for the faint of heart.

Thorium Wealth was a logical next step for my professional career even though my timing was probably too early. I had spent the entire first part of my career working with business owners and Thorium Wealth has been built as a firm designed for business owners.

In honor of reaching our 5 year anniversary I am going to share some lessons I have learned the hard way related to being a business owner with a little help from some of my favorite rappers. (more…)

Episode 26: The Journey From The CIA To Hydrating Humanity

In 2005 after spending time in the CIA and becoming a Pastor Matt Peterson founded a non-profit called Hydrating Humanity. Hydrating Humanities mission is to see the poorest areas of the world realize REAL and lasting transformation at every level: economically, socially, spiritually and in physical health. They believe the most impactful spearhead into these communities is clean, safe water projects and hygiene education. Their mission is to eradicate the water-borne disease crisis, save lives, love people, build relationships and reveal Christ. (more…)

Legends and Legacy

Last month investors everywhere lost a legend. Jack Bogle the founder of Vanguard died at the age of 89.  I never had the chance to meet him, so I am not going to attempt to write some forced memorial.  But I am going to write about is legacy.

Jack Bogle made it his life and career to serve the best interest of investors.  He believed in creating a low cost investment vehicle for the general public to put their savings into.  He popularized the idea of low cost index funds and made investing accessible to millions while sacrificing 100s of millions if not billions in personal wealth.

Don’t get me wrong he died a wealthy man by most people’s standards but in the investment community where there are tons of billionaire investment and hedge fund managers he was not anywhere near as wealthy.  What he has is a legacy of service.  He served investors around the globe.  He drove down fees to a point where investors can create a fully diversified investment portfolio for just a few basis points not several percent.  This allows people to keep their money.

His legacy is not creating the $4 trillion dollar investment giant Vanguard his legacy is being a selfless servant.  So as we celebrate a life that has affected the lives of almost every one of us take a moment and think about what you want your legacy to be and begin doing that if you aren’t already and if you are do more.

Episode 23: Digital Marketing Advice for Business Owners

How should your business think about Digital Marketing?

In this episode I discuss what business owners need to know about digital marketing, how to develop a strategy for their digital marketing and what to expect from working with a digital marketing agency. My guest is Walt Spence owner of Enlab, a digital marketing agency in Richmond Virginia. (more…)

Prognosticators Suck At Predicting Stuff! So Why Listen?

We’re all going to die! I know that’s shocking but according to the headlines I read in December on CNBC we were heading to the worst December returns for the stock market since the Great Depression. You would think we were heading for impending doom.  Oh no! Not the Great Depression.  Let’s create all sorts of panic and despair. That’s what the media does.  They want to create fear, turmoil and despair. Fear sells plain and simple.  No one likes to read about all the great things going on in the world.  And trust me there are lots of amazing things going on.  Advances in science, technology, food, and medicine are literally changing the world as you read this.  So why all the doom and gloom about the markets and why do people care what they have to say.

Here is a dirty little secret:

I have no idea what direction the market is heading. There I said it! I am glad I got that off my chest. Now I am going to let you in on a dirty little secret. No one else knows if the market is going to go up or down either.  Really smart people will go on TV with plenty of charts and graphs and they will talk about Death Crosses and Moving Averages and will pretend to know which way the market is going to go. Investing requires taking a risk. There is a 50/50 chance the market will go up or down on any given day. But based the so called experts of prognostication they can tell you what to own, when to own it and when to sell it.  The reality is they can’t.

They are guessing!

They are taking an educated guess but at the end of the day they don’t know what direction the market is going to go over any short period of time much less any longer period of time.  And that is no more apparent than when you look back at stock market predictions from the prior year.  Barrons had 10 experts predict their returns for the S&P 500 for 2018 and all 10 were wrong.  And wrong by a lot.  The average of the 10 predicted approximately a 11% return for 2018. The S&P 500 returned -6%. The closet person predicted about a 4% gain.  No one predicted it to be negative.  And the experts were looking really good going into September and early October and then circumstances took over and this is what happened.  The markets dropped a lot.

2018 peak-to-trough drawdowns: (As of 12/24/2018)

S&P 500 -19%

Russell 2000 -25%

EAFE -25%

Emerging Mkts -29%

What are they saying this year!

The same 10 experts all say the markets may rally 10% in 2019.  Should we believe them? I am inclined to agree that conditions are pretty favorable for decent returns in 2019 especially if the trade war with China gets resolved and the Fed remains reserved in their interest rate hikes.  No one and I mean literally no one knows if the markets are going to go up this year.  If we look at it over the long term and you say yes, you are going to be right 75% of the time.  75% is a high probability so why is predicting so hard? Because predicting by how much it will rise is nearly impossible to get.  That makes predicting the markets a fool’s errand.  So, do yourself a favor and turn off the CNBCs of the world and stop listening to “experts” on TV because they don’t know if the markets are going to go up any better than you do.

Episode 22: Will The Night King Get His Wall? Talking Markets w/ David Lentz

Its 100 days until the start of Game of Thrones and its time to call your shot. Who ends up on the Iron Throne? Also, will President Trump get his wall like the Night King tore down the Wall with his Ice Dragon? Is the government being “shut down” a bad thing? Are we going into a Recession? Is This Bear Market gonna get worse?

We Tackle all of these topics and a few more as we discuss the recent market volatility.

Episode 21: Talking Markets With Arun Chopra, CFA, CMT

In this episode of the Finance Factory Podcast I talk with Fusion Point Capital Founder Arun Chopra about what is going on in the equity markets.  We talk about the recent volatility and what the Fed may do.  We also discuss tariffs and there impact on the markets.

Be sure to rate the podcast and subscribe on your favorite podcasting app.

The 10 Days of Tax-mas

With less than a month left in 2018, time’s running out for you to finish your wealth management and tax planning to-dos. Many tax opportunities have an annual expiration date of Dec. 31, and this year presents unique possibilities. Here are 10 items you can check off your lists before the ball drops on New Year’s Eve.