April 2022 Newsletter

Welcome to the April 2022 Newsletter. This month, we’re discussing the economy, employment, financial terminology, and more.


We continue to expect a choppy and erratic stock market during the first half of 2022 as investors come to grips with the new monetary tightening policies and the unstable geopolitical reality in Eastern Europe.

Broadly, we expect the U.S. economy to do okay to good this year with GDP increasing 2.5% to 3.5%, low unemployment, and the leading economic indicators pointing so far to continued growth. But the stock market has speed bumps in its way that include rising interest rates, high valuations, supply chain troubles, and the unknown extent of the war in Ukraine.

Although additional stock market weakness will be required in order to set up an attractive mid-term, off-presidential election year buying opportunity, we would not be surprised to see such an opportunity develop during the summer or autumn season this year.


Quote of the Day

Ben Bernanke is a distinguished American economist who served two terms as Chair of the Federal Reserve.

“Smart financial planning — such as budgeting, saving for emergencies, reducing family debt, and preparing for retirement — can help households enjoy better lives while weathering financial shocks. Financial education plays a key role in getting to these outcomes.”
Ben Bernanke

Ben Bernanke is a distinguished American economist who served two terms as Chair of the Federal Reserve. During his tenure as chair, Bernanke oversaw the Federal Reserve’s response to the 2007-2009 financial crisis and “Great Recession.”

Bernanke was raised in Dillon, South Carolina and graduated valedictorian from Dillon High School. Since Dillon High School did not offer calculus at that time, Bernanke taught it to himself. Bernanke scored 1590 out of 1600 on the SAT and went on to attend Harvard College in 1971. He earned a Ph.D. in economics from MIT in 1979.

In his 2015 book, The Courage to Act, he revealed the world’s economy came close to collapse in 2007 and 2008. Bernanke asserts it was only novel efforts by the Federal Reserve cooperating with other U.S. agencies and foreign central banks that prevented an economic catastrophe greater than the Great Depression. In 2009, Time magazine named him Man of the Year.



Pop Quiz


With oil over $100 a barrel, perhaps we should better understand what is refined from a standard 42-gallon barrel of oil. (First, a little thermodynamic magic allows 45-gallons of refined products to come from a 42-gallon barrel of oil.) Below, match up each oil product with the correct quantity derived from a barrel of oil.


Gasoline?1 Gallon
Diesel?2 Gallons
Other Products?4 Gallons
Kerosene / Jet Fuel?1 Gallon
Hydrocarbon Gas Liquids?20 Gallon
Home Heating Oil?6 Gallons
Residual Fuel?11 Gallon
Total45 Gallons 


The answer is at the bottom of the newsletter.

The Economy

Financial advisor studying the current economy.



Total U.S. nonfarm payroll employment rose substantially in February by 678,000 while the official unemployment rate, U-3, decreased to 3.8% from last month’s 4.0%. Equally meaningful, December 2021 and January 2022 employment numbers were revised upward by a total of 92,000.

The Job Openings & Labor Turnover Survey (JOLTS) said there were a record 11.3 million open jobs in the U.S. as of the last business day of January — compared to 10.9 million openings the last day of December.

The seasonally adjusted, Total U.S. Unemployment Rate, U-6, increased in February to 7.2% from 7.1% last month. In February 2021, it was 11.1%. There are 6.8 million people age 16 and older unemployed in the U.S. compared to 7.2 million last month.

The following chart is based on the Bureau of Labor Statistics’ official unemployment rate, U-3.






Unemployment Rates by Education Level, February 2022

Less Than High School Diploma4.3%
High School Graduate, No College4.5%
Some College or Associate’s Degree3.8%
Bachelor’s Degree or Higher2.2%

Average weekly earnings of all employees on private nonfarm payrolls were up 5.6% compared to a year ago.



Gross Domestic Product (GDP)

The Bureau of Economic Analysis said the final estimate for the 2021 fourth-quarter GDP increased by 6.9% compared to 7.0% in the previous estimate for the fourth quarter.


A graph of the real GDP from 2018 to 2021.


The slight decrease in real GDP reflects decreases in inventory, exports, and personal consumption expenditures. We’re lowering our 2022 GDP forecast to 2.5% from 3.5% to reflect the ongoing supply chain challenges.




Annual inflation rose 6.4% in February as measured by the Personal Consumption Expenditures (PCE) index. The core PCE index, which excludes food and energy, rose 5.4% in February, as compared to the adjusted 5.2% in January.

The nationwide median price of an existing home sold in February 2022 was 15.0% higher on average than in February 2021 according to the National Association of Realtors. The median price was $357,300. Last month prices were up 15.3% year over year.

Long-term inflation expectations can be estimated by measuring the differences between Treasury bond yields & TIPS real yields of the same maturities. Results are:

Bond MaturitiesAnnual Inflation Expectations
5 Year3.34%
10 Year2.84%
30 Year2.47%

This month’s estimated annual inflation numbers above are 21 basis points higher on average compared to last month.



Important Dates in April

Calendar displaying April 2022.

April 1 – April Fools’ Day

April 4, 1968 – Dr. Martin Luther King Jr. was assassinated in Memphis, Tennessee.

April 7 – Major League Baseball’s Opening Day

April 14, 1865 – Abraham Lincoln, the 16th U.S. President, was assassinated in Washington, DC.  He died the next day. Lincoln was the first U.S. President to be assassinated in office.

April 15, 2022 – Good Friday

April 17, 2022 – Easter

April 18, 2022 – Federal Tax Day is the last day to submit a 2021 federal income tax return or submit an extension that delays filing until October 15. In either case, any money due the IRS must be paid by April 18, 2022  to avoid a penalty.

April 22 – Earth Day

April 30, 1945 – Hitler commits suicide.



Stock Market

Stock trader studying the stock market.



Vanguard Financial Logo

Recently, Vanguard published its annual report on its expectations for the average U.S. and international stock performance over the next 10 years. This report says in part:

As we look toward 2022 and beyond, our long-term outlook for assets is guarded, particularly for equities amid a backdrop of rising interest rates, high inflation, lower predictions for GDP growth, reduced monetary and fiscal stimulus, the war in Ukraine, and stretched stock market valuations.

U.S. stock valuations are stretched at the highest levels since the early 2000s. The continued surge in broad equity markets following their robust recovery in 2019 through 2021 has pushed Robert Shiller’s cyclically adjusted price/earnings ratio (CAPE) for the Standard & Poor’s 500 Index further above our estimates of fair value. See the chart below:


Graph of U.S. equities since the dot-com bubble


The next chart (below) shows Vanguard’s expectation for a U.S.-based investor’s equity returns. The median returns in the chart are shown at the gap between each of the two vertically oriented boxes for each market segment.


Vanguard’s expectation for a U.S. based investor’s equity returns.


The expected average median returns over the next 10 years for each category are listed above. For example, “U.S. growth” is predicted to average only 0.1% per year over the next 10 years.



Stock Market Valuations

Earlier this year, we predicted S&P 500 Index corporate earnings to be as high as $230 per share and a PE ratio of 22. If so, the market high this year would reach 5,060. This is still possible but only if the war in Ukraine ends well, inflation is not stubborn and begins to moderate, and supply chain woes are unwound. Likely, the ideal scenario will not develop as we believe the stock market in 2022 will have increased volatility and frequent downward pressure.

Therefore, we have become less optimistic, especially in the first half of 2022. Our current 2022 year-end prediction is for a little less profitability at $225 per share and a PE ratio high of 21. If so, we will see the following:


YearEarnings/SharePE RatioApprox. S&P 500 Index High


Remember, the market’s all-time closing high was 4,796.56 on January 3, 2022.



Recent Monthly Performance of the S&P 500 Index















Recommended Action for Your Stock Portfolio

For those still working and who are long-term investors with an abundance of patience and courage, the next 10 years looks like it will be a great time to add to your retirement account as investors will frequently be “buying low.” Buying low is a very good thing! Safe money should be in cash, not bonds as interest rates are rising and will likely continue to rise for the next couple of years. As interest rates rise, existing bond prices drop.

For retirees and for those who become very anxious during times of a volatile stock market, it’s okay to move an additional 10% of their portfolio into a safe category such as cash. But, we strongly recommend everyone be a long-term investor by maintaining patience and courage.

Every investor should move a significant, but not the total portion of their portfolio, out of “growth” investments and put that money into “value” investments. Our four favorite “value” investments continue to be in alphabetical order:

  • Berkshire Hathaway (BRK-B)
  • Dodge & Cox Stock Fund (DODGX)
  • Oakmark Fund (OAKMX)
  • Schwab U.S. Dividend Equity (SCHD)


One important item, an investor’s portfolio should always remain diversified. If you have 12 eggs, be sure and put them in 12 baskets. This includes U.S. small-cap and U.S. mid-cap stocks. Our favorite investments in these categories are:

  • Vanguard Mid Cap Stock Index (VO)
  • Vanguard Small-Cap Stock Index (VB)




    Financial advisors analyzing the finances of clients.

    If an investor wants to hire a financial advisor, where does one start? First, there are three broad categories of advisors:

    • Stockbrokers – The Financial Industry Regulatory Authority (FINRA) refers to these as Registered Representatives of the Brokerage House.
    • Insurance agents with a stockbroker’s license are the same as above.
    • Registered Investment Advisors – A fiduciary.


    So, what are the differences?

    A stockbroker, whether also an insurance agent or just a stockbroker, can have a multitude of fancy titles to impress a potential client. Some brokers are no more than order takers from the client while others make recommendations that may or may not be in the best interest of the client.

    The stock brokerage industry is regulated by FINRA. FINRA receives its financing from the companies and brokers they regulate. Did someone just say conflict of interest?

    Some brokerage houses take money from some mutual fund companies for promoting specific mutual funds to the brokerage house’s clients. The quality of the fund is not part of the decision to recommend a fund to a client — the fund company has paid for their funds to be recommended! An example of this charade is Edward Jones’ list of “Preferred Mutual Funds”.  In 2005, Edward Jones lost a suit and paid $75 million in penalties for failing to disclose to clients the “Preferred List of Mutual Funds” existed only because mutual fund companies were paying Edward Jones to have their funds on the list.

    Some brokerage houses require their brokers to maintain a monthly quota in terms of the number of shares traded or assets under management in order to keep their job. Stockbrokers are not required to disclose anything to clients, but most will answer questions if asked.

    On the other hand, Registered Investment Advisors are fiduciaries — legally bound to always put the interests of the client first. Registered Investment Advisors are regulated by the Securities and Exchange Commission or by their state’s Security Division. Who else are fiduciaries?  Doctors and lawyers.

    A financial fiduciary will seek out the best investments for each client after considering the client’s financial needs, objectives, risk tolerance, liquidity needs, tax status, and timeframe for the investments. With this knowledge, a financial fiduciary will create a portfolio that is highly diversified, low cost, and, for taxable accounts, tax efficient. Financial fiduciaries will always offer full disclosure to their clients on their fee structure and any conflicts of interest.

    Lorenz Financial always recommends that investors who want assistance to manage their money utilize a Registered Investment Advisor.



    OK, Now What Do I Do? 

      Last month, we explained the “background on FICO scores and how FICO scores are calculated”.

      There are three areas to totally avoid in this stock market:

      1. Select U.S. non-profitable companies. U.S. non-profitable companies that were very “high flying” in 2020 and most of 2021. These include Spotify now down 59%, Twilio down 68%, Teledoc down 73%, DocuSign down 76%, DraftKings down 78%, Rivian down 79%, Peloton down 84%, Stitch Fix down 85%, and Robinhood down 87% all from their 52-week highs. This is not the time to own companies with zero profits.


      1. China stocks. A 2020 U.S. law, the Holding Foreign Companies Accountable Act, bans trading in securities of any company whose audit papers for three years in a row can’t be verified. Who checks company audits? The U.S. Public Company Accounting Oversight Board. This board is the federal audit watchdog and is a part of the U.S. Securities and Exchange Commission. Referring to this new law, the SEC Chair has said publicly, “The clock is ticking”.


      1. U.S. Bonds and International Bonds. Math tells us, as interest rates increase, existing bond prices will decrease. How much will they drop? Bond price fluctuation is tied to the maturity date of the bond when interest rates are rising. If a person buys a 10-year bond and then 10-year bond interest rates increase 1%, the value of the existing bond will drop 10%. For individual bondholders, how do they avoid this catastrophe? Don’t sell the bond but hold it until maturity. But, this does not work for bond mutual fund holders as they always have Interest Rate Risk. Right now, put your safe money in cash.



      Our Corporate Bad Boy This Month

          One Reason Workers Quit: Too Little Work

            Source: The Wall Street Journal, March 1, 2022, page A1


              Colton Lewelling has cycled through seven jobs over the course of the pandemic — slinging burgers, making meatballs, and stocking shelves.  At interviews, prospective employers told him they could give him plenty of work, as many as 40 hours a week, he said. Then, managers scheduled him for only 8 to 25 hours. Colton said he couldn’t survive on that, so he quit and moved on.

              What is going on? Human resource consultants say some companies are overhiring by 40% to give themselves a cushion, later choosing to prune staff or employee hours. This aids in corporate stability but spells insecurity and frustration for hourly employees.

              When Joy Grey was hired at a pest-control firm last April, the man who conducted her online training class said it was twice as big as any class he’d taught before. Instead of the 40 hours she needed, the company assigned her as few as 28 hours a week. She promptly began job-hunting again and left within a couple of months.

              Justin Rosa, based in Wallingford, Conneticut, is a server at a Red Lobster. He said he regularly is assigned just 20 hours of work a week, despite his repeated requests for more. Yet, the restaurant continues to hire more servers, he said.

              After Benjamin McCoy was hired at a Dollar General store in Mansfield, Ohio last August, he couldn’t understand why the store was putting him on the schedule for only 10 hours a week, while continuing to hire more people. Mr. McCoy, 19, said he repeatedly asked the store to increase his hours and was told, “No.”

              Dollar General’s chief people officer, Kathy Reardon, said, “We have always worked to balance store and distribution center staffing needs, including the need for staffing to cover absences, with employee work hours and schedules.”

              Alienating the country’s hourly workforce is not an effective long-term strategy for corporate America. Costco has one of the country’s most loyal workforce. Their turnover is reportedly 6-7% while the fast-food industry is 130% to 150%.



                  Bond Market

                      Bear and bull market


                            In addition to a steady pace of interest rate increases, the Fed plans to begin the process of quantitative tightening (QT), which involves shrinking the size and scope of the Fed’s balance sheet. This process could start as soon as the May FOMC meeting. We expect the initial QT program will allow existing Treasury and mortgage-backed securities to roll off the balance sheet at a pace of up to $100 billion a month.

                            The Senate Banking Committee voted to advance four of President Biden’s FOMC nominations. They are Chair Jay Powell, Vice-Chair Lael Brainard, Governor Lisa Cook, and Governor Philip Jefferson. Nominee Sarah Bloom Raskin withdrew her name from consideration. If all the candidates are approved by the full Senate, the Board of Governors will have 6 of its 7 positions filled. The important position of Vice-Chair of Banking Supervision remains open.


                                Federal Reserve

                                  The Federal Open Market Committee (FOMC) voted to increase the federal funds rate 25 basis points to the target range of 0.25% to 0.5% at the March meeting. The post-meeting statement noted “economic activity and employment have continued to strengthen. Job gains have been strong in recent months, and the unemployment rate has declined substantially. Inflation remains elevated reflecting supply and demand imbalances.”

                                  The next FOMC meeting is on May 3rd and 4th. We expect another rate increase at that meeting with the possibility of a 50-basis point increase.


                                        The U.S. Treasury

                                          Congress passed a $1.5 trillion fiscal spending bill that funds the federal government through September when the fiscal year ends. The bill includes $730 billion in non-defense spending and $782 billion in defense spending. The Congressional Budget Office reports that through the initial five months of the fiscal year 2022, the federal deficit was $475 billion. This year’s deficit is less than half of the deficit last year.



                                            Recommended Action for Your Bond Portfolio

                                              There have been no bond fund changes to our recommendations this month. Most bonds are not appropriate today because it’s expected in the short to mid-term, interest rates will rise above today’s levels. As bond yields increase, existing bond prices decline. Our bond market recommendations only include:

                                              • Ultra-Short-Term U.S. bond funds
                                              • U.S. Savings I Bonds
                                              • Cash


                                              The most important aspect in selecting a bond fund in this market is to keep the bond fund’s average duration low. Lorenz Financial suggests keeping a bond fund’s duration around one year. The higher the bond fund’s duration, the faster the fund’s price will decline as interest rates rise.



                                                Before Investing

                                                Of course, everyone should maintain a safe and liquid emergency fund of at least 6 to 9 months of family expenses in an FDIC insured bank or an NCUA insured credit union. An emergency fund should be kept in a checking account, savings account, or money market account – it should not be “invested or tied up in any way”. Also, since rule one is: “Spend less than you make”, every family should strive to reduce debt to only having a fixed rate first mortgage. All other debt is bad debt.

                                                    PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.

                                                        Pop Quiz Answer

                                                          With oil over $100 a barrel, perhaps we should better understand what is refined from a standard 42-gallon barrel of oil. Match up each oil product with the correct quantity derived from a barrel of oil.


                                                          REFINED OIL PRODUCTCORRECT ALLOCATION
                                                          Gasoline20 Gallons
                                                          Diesel11 Gallons
                                                          Other Products6 Gallons
                                                          Kerosene / Jet Fuel4 Gallons
                                                          Hydrocarbon Gas Liquids2 Gallons
                                                          Home Heating Oil1 Gallon
                                                          Residual Fuel1 Gallon
                                                          Total45 Gallons