September 2023 Newsletter

Financial planning

Welcome to the September 2023 Newsletter. This month, we’re discussing the economy, employment, financial terminology, and more.


Most of the time the U.S. economy is clear as to where it is heading, but not today. Many economists have been predicting a recession that should have started mid-year, but it is nowhere in sight. GDP has been trending up, but not every sector of the economy is following that trend. Let’s take a look at our list of the current positive and negative economic indicators we have right now.

The Negative Side

  • The Federal Reserve is probably not done raising interest rates.
  • Student loan monthly payments are resuming. This will reduce consumer’s discretionary income.
  • 30-year mortgage rates have jumped up to 7.25%.
  • Consumer spending has begun to soften.
  • Some entry level jobs have had their salary offers drop 10% in the last 12 months.

The Positive Side

  • Inflation has definitely started to come down.
  • Second quarter corporate earnings were not as bad as feared.
  • GDP expectations continue to increase.
  • Unemployment remains very low.
  • Productivity has had some surprisingly good gains.
  • A new & long-lasting opportunity has opened up in technology – artificial intelligence.
  • A new & long-lasting opportunity has opened up in pharmaceuticals – weight loss drugs.

As we have said before, almost anything can happen in the short-term. But we remain optimistic about the benefits of being invested in the stock market for the long term.

We recommend employees continue to save every pay period in their employer’s retirement plan and in a Roth IRA for their spouse and themself. Everyone should confirm they are at a minimum capturing 100% of their employer’s match. And most importantly of all, everyone should be spending less than they make and reducing debt.


Quote of the Day

Paul Volcker was an American economist.

Paul Volcker

“It’s a whole different attitude towards public service than it once was. I tell you, we can all sit around in our old age and moan about it, but I think the administrative processes and the effectiveness of management of the federal government are terrible.”

Paul Volcker, 1927 to 2019, was an American economist who served as the 12th chairman of the Federal Reserve from 1979 to 1987. Volcker graduated high school in 1945 in New Jersey and went on to undergraduate school at Princeton University. As a senior at Princeton, Volcker was already on the attack with his senior thesis, “The Problems of Federal Reserve Policy since World War II.” After Princeton, Volcker attended Harvard where he earned a M.A. in Political Economies. Volcker also attended the London School of Economics from 1951 to 1952.

During the next 20 years Volcker worked at the Federal Reserve, the U.S. Treasury and Chase Manhattan Bank. In 1975 he became the President of the Federal Reserve Bank of New York and then Federal Reserve Chairman in 1979. His greatest accomplishment was fighting the 14% inflation rate in the early 1980’s by raising the Federal Funds rate to 20% in 1981. At the same time, mortgage rates went to 16%. It worked but the economy went into a recession and unemployment rose to 10%. But by 1983 inflation was 3% and the economy was growing again.


Pop Quiz

How does the market capitalization (the market size) of Apple compare to the size of the total German stock market?

The answer is at the bottom of the newsletter.


The Economy


Total U.S. nonfarm payroll employment rose in July by a surprising low 187,000 while the official unemployment rate, U-3, decreased 0.1% to 3.5%. The May 2023 and June 2023 combined employment numbers were revised down by 49,000.

The Job Openings & Labor Turnover Survey (JOLTS) edged down to 8.8 million open jobs across the country as of the last business day in July. This compares to 9.2 million open jobs the month before. The 10-year chart below shows the recent downward trend in open jobs:

The Job Openings & Labor Turnover Survey (JOLTS) edged down to 8.8 million open jobs across the country as of the last business day in July.

The seasonally adjusted Total U.S. Unemployment Rate, U-6, decreased in July to 6.7% vs 6.9% last month. There were 6.4 million people unemployed in June, age 16 and older. This was unchanged since last month.

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

Unemployment rate, seasonally adjusted, July 2021-July2023


July Unemployment Rates by Education Level

Less Than High School Diploma5.2%
High School Graduate, No College3.4%
Some College or Associate's Degree3.1%
Bachelor's Degree or Higher2.0%

Average hourly earnings of all employees on private nonfarm payrolls were up 4.4% in July compared to a year ago. This was unchanged since last month.


Leading Economic Indicators (LEI) sponsored by The Conference Board

The LEI for July continued its strong decline with another -0.4% drop. See the LEI performance in the blue line in the chart below.

Annual growth rate of the LEI from 2000 to 2023.

With 16 consecutive monthly readings negative, the LEI continues to signal a recession in the near term. The Conference Board said, “July’s data suggests economic activity is likely to decelerate and descend into a mild contraction in the months ahead.”


Gross Domestic Product (GDP)

The Bureau of Economic Analysis said the second estimate for GDP in the second quarter of 2023 rose at an annual rate of +2.1%. That was a slight decline compared to last month’s 2.4%. The downward revision was due to a decrease in inventories.

Gross Domestic Product for the first quarter 2023 was 2.0%.

Gross Domestic Product percent change from preceding quarter



Annual inflation increased in July to 3.3% as measured by the Personal Consumption Expenditures (PCE) index. The previous month was 3.0%. Core PCE index, which excludes food and energy, increased less aggressively to 4.2% in July from 4.1% the previous month.

Perhaps when Core PCE inflation drops below 3.0%, the Federal Reserve will start to talk about cutting rates at some point in the future. But we believe them when they say interest rates will be “higher for longer”.

The peak Core PCE inflation this cycle was 5.4% in February 2022.


The Public Debt as Issued by the U.S. Treasury, August 31, 2023


Last month it was $32,672,000,000,000.


Important Dates in September

September 3, 1783 – The Treaty of Paris was signed between representatives of King George III of Great Britain and Ben Franklin, John Adams, and John Jay of the United States.  The treaty officially ended the Revolutionary War.  The treaty recognized the United States as a free and sovereign nation, all British land east of the Mississippi was granted to the United States and the U.S. was granted fishing rights off the Newfoundland Grand Banks.  This was a very lopsided treaty to the benefit of the United States.

September 4 – Labor Day

September 6, 1901 – William McKinley, the 25th US President was assassinated in Buffalo, New York.  He died eight days later.  McKinley was the third US President to be assassinated in office.

September 11, 2001 – Patriots Day

September 16 – Quad Witching Day when individual stock options, stock index options, stock index futures, and options on stock index futures all expire.  This day could bring significant stock market volatility.

September 17, 1787 – Constitution Day commemorates the formation of the United States Constitution as signed by 39 out of 55 delegates at the Constitutional Convention in Philadelphia.  The country endured four years of debate and compromise after the signing of the Treaty of Paris.  The resulting document formed a strong central government with three separate branches of government.

September 19 & 20 – The sixth Federal Open Market Committee (FOMC) meeting of 2023.

September 22 – The First Day of Fall or the Fall’s Equinox for the northern hemisphere.  An equinox is defined as the time when the plane of the earth’s equator passes through the center of the Sun.  The earth has two equinoxes:  typically, March 20 and September 22.


The Stock Market


Dr. Siegel is a Professor of Finance at the Wharton School in Philadelphia.

Jeremy Siegel, PhD

On August 17, 2023, Dr. Siegel said on CNBC, “Last year we hired almost 5 million new workers, GDP growth was 1%, and we had the worst productivity performance in over 70 years. This year we are hiring at less than one half the pace of last year and we have 2X to 3X the GDP growth we had last year. Why? Because we have had one of the biggest bounce backs in productivity growth that I have ever seen. This high productivity growth is providing a significant deflationary force to our economy – which is a very good thing.”

From Mark: When economists use the word “real”, they mean after inflation and “nominal” means before inflation. For example, if we have 4% nominal GDP growth that sounds great until we factor in, for example, 5% inflation. Then real GDP growth is a disappointing -1%.

Back to Professor Siegel, “One of the basic things we teach in economics is real interest rates are very linked to real GDP growth. The recent acceleration of real GDP growth means higher real interest rates are reasonable and therefore higher nominal interest rates are tolerable.”

“Why are today’s higher interest rates not tanking the stock market? Because real increases in both productivity and GDP growth will increase corporate profits. As profits increase, PE ratios will tend to stay level even as stock prices go up. To me, the stock market is holding its own."


Stock Market Valuation

Marko Kolanovic, the Head of Quantitative Research at JP Morgan in New York City

Marko Kolanovic

Marko is the Head of Quantitative Research at JP Morgan in New York City.

Kolanovic gave a short-term prediction on CNBC this month saying, “There is no more fear (in the stock market) – only complacency. We think equity markets will move lower in the short term.”




David Kostin, Goldman Sachs Chief U.S.

David Kostin

David Kostin is the Goldman Sachs Chief U.S. Equity Strategist based in New York City.

It was reported on CNBC on August 14, 2023, that David Kostin wrote in a letter to Goldman Sachs shareholders stating his intermediate-term prediction, “We are maintaining our expectation for 2023 S&P 500 earnings per share (EPS) at $224 and 2024 EPS at $237 after the better than feared second quarter results.”

In his final newsletter, Bob Brinker said his 2024 EPS projection was $245.

If we take an average and say 2024 EPS will be $241, then if the market ends up supporting a PE ratio 20, we should see the S&P 500 Index break through 4,800 in early to mid 2024.  On a closing basis, this would represent a new all-time high for the S&P 500 Index.


The S&P 500 Index closed on August 30, 2023, at 4514.86.

Monthly Performance of the S&P 500 Index



Recommended Action for Your Stock Portfolio

Last month we recommended Berkshire Hathaway stock as a good choice for an investor’s conservative portion of their stock portfolio.  Berkshire Hathaway, ticker symbol BRK.B, totally owns many companies and partially owns others.  As we have described Berkshire Hathaway as not just a stock but as a diversified mutual fund, we’ve been asked to share more detail on exactly what do they own:


Berkshire Hathaway owns 100% of the following companies with each company having at least 3,000 employees:



Burlington Northern Santa Fe Railroad


MidAmerican Energy

BHE Pipeline Group

HomeServices of America


Clayton Homes


Forest River

Fruit of the Loom

IMC International Metalworking Companies

John Manville




Precision Castparts

Shaw Industries

Berkshire Hathaway Automotive

Flight Safety

McLane Company

Nebraska Furniture Mart



Buffett’s company also owns 100% outright another 38 companies but each of these companies have less than 3,000 employees.


Berkshire Hathaway’s partially owns a variety of very large companies.  Ninety percent of those dollars are invested in the following 10 companies listed here in descending order of dollars invested:



Bank of America

American Express

Coca Cola


Occidental Petroleum

Kraft Heinz


HP Inc.



Berkshire Hathaway is a U.S. corporate conglomerate owning a substantial variety of conservative and well-run U.S. companies.  Berkshire Hathaway’s average annual return over the past 15 years has been 10.85% according to Morningstar.  We believe this stock is a good long-term hold within an investor’s conservative stock portfolio.


Financial Markets Vocabulary

Instead of a vocabulary lesson this month, let’s take a broad look at how much our federal government is spending annually vs tax receipts and how that is contributing to a dramatic increase in the total national debt.  We feel one of the dangers is the spectacular increase in annual interest payments on our debt.  By 2028, interest payments alone are expected to double from today’s $476 billion to $960 billion per year!  $960 billion is over 50% of the total federal government spending in year 2000!



Federal Government Income and Spending Since 2000

We believe, there is only one option:  our federal government must begin immediately to curtail spending.


OK, Now What Do I Do?

What size of withdrawals do I need to make as I just inherited a non-spousal IRA?

Roth IRAs

If the Roth owner died before 2020, the heir must take annual payouts.  But these tax-free payouts are often small and can run for decades which is why they’re often called Stretch IRAs.  Meanwhile securities inside the Roth are growing tax free.

If the Roth owner died in 2020 or after, the heir has 10 years to drain the account of its tax-free funds but there are no annual RMDs required.  If funds are not taken out for the first 9 years, all the money needs to be taken out in year 10.


Traditional IRAs

It’s a little more complex for these heirs.  If the IRA owner died before 2020, the heirs must take annual payouts, which can go on for decades under the Stretch rules.  The payouts will typically be taxable, and there is no waiver for RMDs for 2023.

If the traditional IRA owner died in 2020 or after and was already required to take RMDs, then heirs typically have 10 years to drain the accounts.

If the IRA owner was not yet required to take RMDs, the heirs don’t have to take annual payouts – but they may want to make withdrawals to avoid a tax hit in year 10 when the account must be taken down to zero.

For more information, consult a CPA, an enrolled agent, a tax lawyer, or read IRS Publication 590-B.


So, what do you do with IRA withdrawals?

First pay state and federal income taxes unless the withdrawals are from a Roth account.  After that, the IRA beneficiary has a variety of options:

  • Save and invest the remainder in a taxable account.  Invest the proceeds in a tax efficient manner, or
  • Spend it, or
  • Give it to your favorite charity.


Our Financial Bad Boy This Month

Hawaiian Electric Knew Wildfires Were a Threat, but Waited Years to Act

Source: The Wall Street Journal, page A1, August 17, 2023

Stock price of Hawaiian Electric, year-to-date

52 week high:  $43.71

Low price the week of August 14, 2023:  $10.05

During the 2019 wildfire season, Hawaiian Electric concluded it needed to do far more to prevent its power lines from emitting sparks.  The utility examined California’s plan to reduce fires ignited by power lines and vowed to take steps to upgrade its equipment and protect customers from the threat of fires.  Now nearly four years later, the company has completed little such work.  Between 2019 and 2022, the utility invested less than $245,000 on wildfire-specific projects on the island.

Now the company is facing scrutiny, litigation, and a financial crisis over indications that their power lines likely played a role in the devastating fires.  The fire’s cause hasn’t been officially determined, but mounting evidence suggests the utility’s equipment was involved.

The growing risk of wildfire on Maui has been known for years.  The number of acres burned on the island soared to 39,000 in 2019, from 150 in 1999.

A 2020 management audit of the company found its enterprise risk analysis was largely focused on financial risk, with limited consideration of operational risk.

Prompted by the increase in wildfires, a Maui County government commission in July 2021 examined the local prevention and response system.  The investigation found the number of incidents from wildfires was increasing and posed a threat to citizens and property.  The report said not enough was being done to address the concerns.

When asked, county and state officials didn’t return calls seeking comment.  S&P did not hesitate to make their position known on Hawaiian Electric:  the utility’s credit rating was downgraded to junk status and stockholders sold so fast the stock price dropped 77% from its 52-week high.


CVS Health

Blue Shield of California announced they are dropping their current pharmacy benefit manager, CVS Health, and hiring Amazon and Mark Cuban’s Cost-Plus Drug Company to manage prescription drugs for Blue Shield customers. Pharmacy benefit managers create formularies, negotiate rebates from drug manufacturers, process claims, and create pharmacy networks. Blue Shield said their aim is to get rid of the complicated system that causes Americans to pay a high price for prescription drugs. CVS shares tumbled 8.1% on August 17.


The Bond Market


Starting in March 2022 through July 2023, the Federal Open Market Committee (FOMC) has raised the Federal Funds rate 11 times. This took the rate from the target range of 0% to 0.25% prior to March 2022 to the current target range of 5.25% to 5.50%. Most analysts believe the FOMC is either done or perhaps has only one more rate increase left in their quiver.

Broadly, retail interest rates are at their peak. Therefore, it’s time to lock in longer term securities by way of bond funds, bank CDs, U.S. Treasuries or U.S. Savings I-Bonds. See the list below.

There are 6.4 million people unemployed and 8.8 million open jobs. Both numbers have been dropping. If we go into a mild recession, the numbers will invert with the numbers of unemployed exceeding the number of open jobs.

The second largest economy in the world, China, has caught a cold. China’s President Xi has been very reluctant to offer incentives directly to the Chinese public to spend more to get their economy going. Keep in mind if China is weaker than normal, the worldwide economy is weaker than normal.


Recommended Action for Your Safe Money

Our recommendations for an investor’s safest money have not changed. Our recommendations include:

  • Short-Term Investment-Grade U.S. Corporate or Securitized bond funds
  • Intermediate-Term Investment-Grade U.S. Corporate or Securitized bond funds
  • Cash (in a money market mutual fund paying 4.75% to 5.25% per year)
  • Bank or Credit Union Certificates of Deposit (only if FDIC or NCUA insured!)
  • U.S. Savings I-Bonds (max savings is $10,000 per account per year)



Pop Quiz Answer

How does the market capitalization (the market size) of Apple compare to the size of the total German stock market?

The market capitalization of Apple is twice the size of the whole German stock market.