August 2021 Newsletter

money and a plant in a jar, representing economic growth

Welcome to the August 2021 Newsletter. This month, we’re discussing the economy, employment, COVID-19 vaccine deployment updates, and more.


In July, the stock market continued its upward march with the occasional short-term period of consolidation. As the COVID-19 Delta variant has proven highly contagious, states with low vaccination rates have unfortunately seen a rapid increase in hospitalizations and deaths. In late July, these same states saw a significant increase in demand for vaccinations.

The Federal Reserve voted to keep interest rates low and maintain their high level of purchasing U.S. Treasuries and mortgage-backed securities. During the second half of the year, the economy is predicted to perform well, with increases in hiring along with higher wages.

Employees should continue to make their weekly, biweekly, or monthly contributions to their employer’s retirement plan and personal and spousal IRAs. At this time, additional money can be added to an investor’s stock market allocation, but only on a dollar-cost-average basis spread over 12 months. All portfolios remain fully invested.

Quote of the Day

Walter Morgan

“The fundamental principles of successful investing are proper balance, good diversification, strong investor discipline, low costs, and all guided by personal long-term objectives”

– Walter Morgan (1898 – 1998), Founder of the Wellington Mutual Fund in 1929.

Pop Quiz

Who died on July 4, 1826?

The answer is at the bottom of the newsletter.

The Economy

saving and investing in a piggy bank


Total U.S. nonfarm payroll employment rose by 850,000 in June, the largest gain in 10 months; the unemployment rate edged up to 5.9% from last month’s 5.8%. The Job Openings & Labor Turnover Survey said there were 9.2 million open jobs in the U.S. as of the last business day of May, compared to 9.3 million openings the last day of April.

The seasonally adjusted, all-encompassing unemployment rate (U-6) declined in June to 9.8% from 10.2% last month. It was 18.0% in May 2020. There are 9.9 million people unemployed in the U.S., age 16 and older, compared to 8.8 million last month as more people are now seeking work. Those people not working and not seeking work are not considered to be in the labor force.

June 2021 Unemployment

Unemployment Rates by Education Level, May 2021

Less Than High School Diploma10.2%
High School Graduate, No College7.0%
Some College or Associate’s Degree5.8%
Bachelor’s Degree or Higher3.5%

The rolling three-month payroll average increased to 567,000 this month from 541,000 last month.

Gross Domestic Product (GDP)

The Bureau of Economic Analysis said the advance estimate of the 2021 second-quarter GDP increased by 6.5%, compared to a revised 6.3% increase in the first quarter.

2021 Q2 Real GDP

For the third quarter, JPMorgan expects economic growth in the U.S. will ease from the breakneck pace of the second quarter, as it expects China to slow. However, it projects the eurozone economy to grow at an even faster pace than the U.S. JPMorgan expects India to rebound strongly from its second-quarter contraction. Worldwide economic growth is expected to have its strongest showing this year in the third quarter.


Annual inflation remained at 4.0% in June as measured by the Personal Consumption Expenditures (PCE) index. The core PCE index, which excludes food and energy, increased in June to 3.5% from 3.4% in May.

In late July, the nationwide S&P/Case-Shiller Home Price index rose 16.6%, compared to one year ago.

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

Bond MaturitiesAnnual Inflation Expectations
5 Year2.56%
10 Year2.40%
30 Year2.24%

This month’s estimated annual inflation numbers are 4 basis points on average higher than last month’s (1 basis point is 0.01%).

Stock Market

stock exchange background


On July 9, Tom Lee — co-founder of Fundstrat Global Advisors — said he expects the U.S. stock market to rally into the second half. His first-half prediction was for the S&P 500 Index to reach 4,400 (on June 30, the index reached 4,297). For the second half of 2021, Tom has predicted the S&P 500 Index will reach 4,700.

Also in July, JPMorgan’s U.S. Head of Equity Strategist, Dubravko Lakos, raised his 2021 year-end S&P 500 Index target from 4,400 to 4,600. His favorite sectors are consumer discretionary, financials, semi-conductor manufacturers, and energy.

On the other hand, Mike Wilson — Morgan Stanley’s Chief U.S. Equity Strategist —said on July 22 that he expects a 10 to 15% correction with the S&P 500 Index ending 2021 at 3,900. Mike said, “Corporate earnings will decelerate more than expectations, and the economy will be worse than what most people think. We are in a bull market (an upmarket), but we see a correction in the next 6 months.” If Mike is right, what should investors do? We recommend, “Just ride it out. We do not recommend jumping in and out of the market.”

Stock Market Expectations

The U.S. stock market has returned 10.3% annually on average since 1926, according to Vanguard. After subtracting inflation, the real return drops to 7.1% annually. After subtracting inflation and the average tax bill, the average annual stock market return drops to 5.3%.

Let’s go back to the average annual return of 7.1% after inflation. What are people expecting this year? According to a survey of 750 individuals by Natixis Investment Managers, U.S. investors expect to earn a 17.3% return this year, after inflation.

High recent returns are contagious. In 2017, the S&P 500 Index returned before inflation 21.8% and 31.2% in 2019. But over a long period of time, how reasonable is 17.3% after inflation? The Wharton Research Data Services analyzed the 3,790 stocks and ETFs that have traded continuously over the 10 years that ended May 31, 2021. Only 14% earned a total return that exceeded 17.5% annually while another 22% earned a negative average annual return. Ouch!

We have had an exceptional stock market over the past 10 years. The Total U.S. Stock Market Index, VTI, during this same time has earned an average annual return of 14.8% as of July 26, 2021. The next 10 years will probably have a lower return than the 10.3% average annual return since 1926.

So, if annual stock market returns are going to moderate, what is an investor to do? We believe it is most appropriate to follow the broad action plan based on the comments by Walter Morgan at the top of this newsletter. See our comments below.

  • Each investor should understand their risk tolerance and allocate their financial assets among U.S. stocks, international stocks, U.S. short-term bonds, and cash at a minimum. For example, very few people over the age of 45 should have 100% of their money in the stock market.
  • Within each part of an investor’s portfolio (stocks, bonds, etc.), a high level of diversification should be the rule. If you have 12 eggs, put them in 12 baskets.
  • Every investor should maintain discipline by focusing on using courage to buy low and rely on patience as markets rise.
  • Each investor should know their costs. There are two broad types of costs. First is the cost of the products purchased (mutual funds, exchange-traded funds, etc.), and second is the cost of an advisor.
  • Each investor should focus on their long-term objectives with specific saving and investing objectives.

Stock Market Valuations

Based on our forecast of strong economic growth in 2021 and inflation eventually returning to the Fed’s 2% target, we estimate S&P 500 operating earnings will increase to $190 this year and as high as $215 next year. With a price/earnings ratio of 22 times, the S&P 500 Index has the potential to reach the 4,700s during 2022.

The S&P 500 Index closed Friday, July 30 at 4,395.26. That is up 2.27% since the close last month.

Recommended Action for Your Stock Portfolio

For the remainder of the year, our favorite S&P 500 sectors are Financials (VFH), Technology (QQQ or VGT), Consumer Discretionary (VCR), Industrials (VIS), and the semiconductor manufacturers (SMH). An additional sector that has a conservative but long-term potential is Health Care (VHT).

For those who want the diversification, low cost, tax efficiency, and market returns of the total U.S. stock market, our favorite investment vehicle is VTI. 

Our least favorite sectors right now are Utilities and Consumer Staples. Due to the lack of a vaccine in many countries, stock in emerging markets should also be avoided.

International Day of the Tiger


The number of tigers in the wild has dropped 95% in the past 150 years. Only 3,500 tigers remain in the wild, with most in India. Some of you know, Mark is a big fan of big cats – tigers, lions, cheetahs, mountain lions, leopards, and jaguars.

Three Cheers for Ohio Taxpayers!

During the last week of June, the residents of Ohio received a double victory. First Federal Judge Douglas Cole ruled in Ohio’s favor in their challenge to the American Rescue Plan Act. This law did two things. First, it granted $350 billion in aid to all states following the pandemic but also said the money could not be used by states to “either directly or indirectly reduce state tax revenue.” In blocking this new order, the judge wrote, “This law would let the federal government challenge essentially any reduction in the rate of any state taxes.” The Judge went on to say this federal order violated the core principles of separation of state and federal powers.

Immediately the Ohio legislature passed, and Governor Mike DeWine signed the state’s 2021 budget, which lowered income tax rates for all Ohio taxpayers. For example, the highest state income tax bracket had its rate lowered from 4.8% to 4.0%. There are also rate cuts for each of the lower tax brackets.

Two Corporate Bad Boys This Month

Columbia University, New York City

Source: Page A1, The Wall Street Journal, July 9, 2021

Recent graduates from Columbia University with a master’s degree in Fine Arts (MFA) who took out federal student loans had a median debt of $181,000. Yet two years after graduation, half of the borrowers were making less than $30,000 a year!

Matt Black graduated from Columbia in 2015 with an MFA in film and $233,000 in federal loans. He signed up for an income-based repayment plan that in leaner years requires no remittance from him. In a good year, he earns $60,000 — but less than half that in a dry year. His loan debt with interest is now $331,000. Mr. Black said personal goals such as marriage, children, and owning a home are out of reach. “Financially hobbled for life,” he said. “That’s the joke.”

Since fall 2011, Columbia has increased published tuition for most master’s programs by a greater margin than it did for its undergraduates. In the most recent academic year, it kept tuition flat for undergraduate students because of the pandemic but raised charges for nearly every master’s degree.

Although Columbia created an emergency fund for international students, Americans “were just told to go and take out more loans,” said Paul Carpenter, a 2018 Columbia MFA graduate.

At least 43% of the people who recently took out loans for master’s degrees at elite private universities hadn’t paid down any of their original debt or were behind on payments roughly two years after graduation. Universities that receive their tuition upfront have an economic incentive to expand graduate degree programs and face no consequences if students can’t afford to pay their federal loans after they leave. Grandchildren of current taxpayers are destined to pick up the tab of this federal program that is, for some degrees at some schools, out of control.

Various Florida Condo Associations Fail to Maintain Their Buildings but Manage to Conceal the Truth

The city of North Miami Beach closed the 156-unit, 10-story Crestview Towers Condominiums on July 2 due to fire, safety, structural, and lighting code violations. Dozens of families had to be immediately evacuated to hotels or move in with friends and relatives in other facilities. The building was erected in 1970 and was overdue on its recertification as required by the Miami-Dade County building code for buildings over 40 years old.

Crestview residents said they did not know that in January 2021, an engineer had deemed their building uninhabitable, but the condo board hadn’t turned over that information to the city or residents until July 2 – the same day the city ordered the building evacuated. In a letter dated July 16, the city listed almost 40 violations of the building that needed to be made.

North Miami Beach chief of staff, Willis Howard, says condo associations get away with delaying their recertifications by applying for permits to fix the problems, but then simply letting the permits expire with no repairs.

Residents of another Surfside building, the Regent Palace, began evacuation on July 9, a day after an engineer hired by the condo association found problems with the structural integrity of the three-story building.

Not only are condo association boards failing to achieve their 40-year building recertification on time, but they’re also keeping key engineering reports secret from government authorities and building residents. Real estate brokers also say key structural information is never shared with potential condo buyers.

To Florida legislators in Tallahassee, it’s time for strong and immediate action!

Additional Financial News

Why are ALL the automotive companies rushing to build electric vehicles (EVs)?

It would be pleasing if the world’s automotive company CEOs, their board of directors, and the entire executive office of each company were at least somewhat enthused about the environment. If so, that would be a good justification for the rush to EVs. But as Lorenz Financial has predicted, it’s much more of a basic business reason – EV vehicles are cheaper to produce than vehicles powered by internal combustion engines with 6- to 10-speed mechanical transmissions. Now on page A1 of the July 24-25 edition of the Wall Street Journal, this logic is confirmed.

Steven Penkevich spent 36 years at Ford as part of an army of engineers who perfected the internal combustion engine. Mr. Penkevich developed gasoline engines for family sedans as well as thunderous NASCAR racing machines. “It has recently become to feel like you’re just on a maintenance crew,” he said as he announced his early retirement.

Electric vehicles are simpler mechanically than gas-powered ones. EV drivetrains employ fewer than 20 moving parts, compared with hundreds for the gas-powered versions.

On July 22, Mercedes-Benz said it is gearing up to go all-electric by the end of the decade. General Motors has said it aims to convert nearly its entire vehicle lineup to fully electric by 2035. Volkswagen and Stellantis (Chrysler and Fiat) said they’re no longer setting aside money for developing new gasoline or diesel engines.

A Morgan Stanley report in 2019 estimated that a full transition to electric vehicles could lead to three million lost automotive jobs (including auto supplier & dealer jobs). The United Auto Workers have said the move to EVs will require roughly 30% fewer assembly line workers to produce EVs.

Why does Lorenz Financial spend so much time talking about COVID-19 and the vaccines?


We’re interested in helping investors achieve above-average returns in the stock and bond markets over a lifetime, so an investor’s retirement can be financially comfortable. We believe:

  • Stock market returns are dependent on corporate profits.
  • Corporate profits are dependent on economic growth.
  • Economic growth in the short- and mid-term is dependent on the recovery from the pandemic.

Therefore, and for a while longer, we will keep a close eye on the pandemic as it is not yet over.

Why is there hesitancy with COVID-19 vaccines?

This month, we begin a three-month series with statements from some who express a strong hesitancy to get the COVID-19 vaccine. Each month, we will discuss a few reasons given for the hesitancy and the proper response as to why each reason has no validity.

The COVID-19 vaccine was developed too quickly. I just don’t trust it.

Here is the history behind messenger RNA (mRNA) technology. Katalin Kariko, born in 1955, is a Hungarian biochemist. Kariko spent a great part of her life pioneering mRNA technology. With her Ph.D., she moved to the United States in 1985 and worked three years as a postdoctoral fellow at Temple University in Philadelphia. In 1990 as a research assistant at the University of Pennsylvania, Kariko submitted her first grant application to further her new focus: mRNA.

In 1997, Kariko met and began working with Drew Weissman, professor of immunology at the University of Pennsylvania. Together, they published a series of articles on mRNA in 2005. They received patents for their mRNA work in 2006 and 2013.

In 2019, Kariko left the university and became a Senior Vice President of BioNTech Pharmaceuticals, where she helped in developing the COVID-19 vaccine in 2020 based on mRNA. The BioNTech vaccine is distributed worldwide by Pfizer.

Derrick Rossi, born in 1966, is a Canadian Ph.D. biologist who has performed research at Stanford University and Harvard Medical School. In 2010, he founded the biotech firm Moderna in Massachusetts to continue his own research. After reading about the early enthusiasm and success of Kariko and Weissman, Rossi switched his research to mRNA. In 2010, Rossi published his own paper on mRNA. In 2020, Moderna announced their mRNA vaccine for COVID-19 within a month of the Pfizer / BioNTech vaccine announcement.

The technology behind the mRNA COVID-19 vaccines began over 31 years ago. The excuse that the COVID-19 vaccines developed by Moderna and BioNTech were developed “too quickly” has no validity as professor Kariko’s mRNA work began in 1990 at the University of Pennsylvania in Philadelphia.

The vaccines were never tested on the most susceptible population: the elderly.

Not true! Moderna’s Phase 3 clinical trial included 1,300 participants between the ages of 75 and 84, and 90 participants aged 85 and older. The Pfizer Phase 3 clinical trial included 1,700 participants aged 75 and older.

The COVID-19 vaccines are only approved for emergency use authorization. They are not fully FDA-approved. Why should I be a guinea pig?

The Pfizer vaccine was approved for emergency use authorization on December 11, 2020, after their Phase 3 clinical trial data from 43,661 participants demonstrated the vaccine was safe and effective. Pfizer submitted additional data and requested their vaccine be fully FDA approved in May 2021.

The Moderna vaccine was approved for emergency use authorization on December 18, 2020, after their Phase 3 clinical trial data from 30,420 participants demonstrated the vaccine was safe and effective. Moderna submitted additional data and requested their vaccine be fully FDA approved in June 2021.

The timeframe for the FDA to grant full approval of a drug currently with emergency use authorization can take six months. The FDA has released this statement: “The FDA recognizes that vaccines are key to ending the COVID-19 pandemic and is working as quickly as possible to review the applications for their full approval.”

The excuse that those who take the vaccines are guinea pigs is totally false. In the most extreme, the participants in Phase 1 clinical trials might be called guinea pigs, but we have moved far beyond the Phase 1 trials.  We now have 165 million Americans fully vaccinated. These people are not guinea pigs.

The vaccine is too expensive for my family.

Not true! There is no cost to those who receive the COVID-19 vaccine. The more of us who get vaccinated, the healthier we will all be, and the sooner our lives and the economy will return to normal.

Vaccine Deployment

U.S. Data by the CDC – July 31, 2021

Percent of the Total U.S. Population Fully Vaccinated49.5%
June’s Fully Vaccinated Percentage46.7%
May’s Fully Vaccinated Percentage40.7%
April’s Fully Vaccinated Percentage30.5%
March’s Fully Vaccinated Percentage15.0%


Many Americans remain unvaccinated or only partially vaccinated. Cases are rising as states relax restrictions and the highly transmissible Delta variant spreads. This is leading to the potential of tens of thousands of new cases of “long COVID.”

“Long COVID is real,” said Dr. Duggal, professor of epidemiology at Johns Hopkins School of Public Health. “Now we have a whole group of individuals who have survived COVID who are going into a chronic long-term state that will likely be with us for a really long time.”

Most people with long COVID report symptoms of fatigue, muscle aches, difficulty sleeping, and shortness of breath. Others have identified cognitive issues or “brain fog.” According to a study by the Imperial College of London, large numbers of people who had a mild case of COVID have suffered from persistent symptoms. The Imperial study of a half million people found that among those aged 18 to 24, about 30% of those who had caught COVID reported at least one symptom lasting 12 weeks or more.

Harry Boby, a 23-year-old former member of the British judo team, worked out at the gym five times a week before coming down with a mild COVID infection in September. Now, a few pull-ups can floor him for days!

Unfortunately, there is no treatment for long COVID, but the U.S. and British medical communities are pouring a billion dollars into studying it.

Bond Market

money and the economy


Even though the 6.5% second-quarter GDP increase did not meet all expectations, the internal data looks quite strong. Third and fourth quarter data will have a tailwind as the low inventory levels today will continue to be built up during the year.

The shape of the U.S. Treasury yield curve looks healthy, with the 30-year bond yielding 183 basis points more than the 3-month bill. This is 72 more basis points than one year ago.

Our forecast is for economic growth to remain strong this year so long as our population continues to increase its acceptance of the vaccines.

Federal Reserve

The Federal Open Market Committee (FOMC) voted unanimously to keep the federal funds rate at the zero to 0.25% target range at the July meeting. FOMC members also voted to continue the asset purchase program at the current pace of $120 billion per month. In the post-meeting statement, FOMC officials observed “indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have shown improvement but have not fully recovered.” In the post-meeting media conference, Federal Reserve Chair Jay Powell said the Committee is discussing how the Fed’s asset purchase program might be adjusted in coming meetings.

U.S. Treasury

The debt ceiling was reinstated on August 1 at the current debt level of $28.5 trillion, an increase of $2 trillion over the past 12 months. Congress must act to either increase or suspend the debt ceiling for the Treasury to issue new U.S. securities.

A bipartisan group of Senators appears to have reached a deal with the White House on an infrastructure package. The bill includes $550 billion in new spending for a range of items including roads, bridges, rail, airports, seaports, and rural broadband.

Recommended Action for Your Bond Portfolio

Most bonds are not appropriate today because in the mid-term to long-term, interest rates are expected to rise significantly above today’s levels. As bond yields increase, existing bond prices decline. We’ve reduced our bond market mutual fund recommendations to the list below:

  • Ultra-short-term U.S. investment-grade bond funds
  • Short-term U.S. investment-grade bond funds
  • U.S. Savings I Bonds

The most important aspect in selecting a bond fund in this market is to keep the bond fund’s average duration low. We suggest keeping a bond fund’s duration under two years. The higher the bond fund’s duration, the faster the fund’s price will decline as interest rates rise.

**Please note: Everyone should maintain a safe, liquid emergency fund of at least nine to 12 months of family expenses in an FDIC-insured or Credit Union NCUA-insured checking account or money market account before investing in a stock or bond portfolio.**


Who died on July 4, 1826?

Answer: John Adams, our second U.S. President, and Thomas Jefferson, our third President, both died on July 4, 1826. Also, our fifth president, James Monroe, died on July 4, 1831.