August 2023 Newsletter

40964654 - bull vs bear stock market concept

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


The economic picture in the U.S. has significantly improved with inflation dropping recently and employment staying steady at a high level. Americans have grown more confident as measured by the University of Michigan’s consumer sentiment survey. Results jumped in July to 72.6 from 64.4 the prior month. That is the highest reading since September 2021.

Retail stock investors have noticed and have been moving their cash into the stock market. Bullish sentiment—represented as the expectation that stocks will rise in the next six months—has hit the highest level since 2021 according to surveys by the American Association of Individual Investors.

The bull-bear spread—the difference between investors who see the stock market moving higher versus those expecting a rout—has had the bull momentum increase in a positive direction for six consecutive weeks. The longest stretch since November 2021.

But in the very short term, we could have a 3% to 5% downdraft in August, September, or October. If so, our recommendation is to hang on and do not sell, as we expect investors will throw money into a down market and thereby minimize the depth and duration of the downturn.

We continue to recommend investors achieve and maintain their full weighting in the U.S. stock market with a highly diversified and low-cost portfolio. Each investor will have a different target of stock ownership as based on their own objectives and timeframe. Likely investors will select their stock market target ownership between 50% and 95% of their total portfolio with the rest in cash or bonds. Whatever an investor's target is, now is the time to be at that level of stock ownership.

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're 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

David F. Swensen was a pioneering investor who ran Yale University’s endowment fund.

David F. Swensen

“Millions of mutual fund investors sleep well at night, serene in the belief that superior outcomes result from pooling funds with like-minded investors and engaging high-quality investment managers to provide professional insight. This wisdom ends up hopelessly unwise, as evidence shows an overwhelming rate of failure by mutual funds to deliver on promises. Most active mutual funds are more interested in collecting fees than in boosting returns for investors.”

Swensen (1954 - 2021) was a pioneering investor who ran Yale University’s endowment fund. He is widely regarded as one of the greatest investment managers of all time. Case in point, he grew Yale’s endowment fund from $1.3 billion in 1985 to $42.3 billion in 2020. Swensen’s most popular book for individual investors is: Unconventional Success – A Fundamental Approach to Personal Investment.

But as an institutional investor, Swensen pursued something other than just buying broad mix of stocks and bonds. Instead, he sought out the very best boutique investment managers, and through them invested in all kinds of assets: real estate, timber, consumer staple companies in Asia, and industrial companies all over the world. He also put seed money into technology startup companies. His great insight was making more money with less risk by hiring very talented and experienced money managers to invest in many different types of assets around the world. Basically, he built a table with 10 legs: very stable even if a few legs get wobbly or fall off.


Pop Quiz

What do financial advisors say are the top two most significant financial shortcomings of a typical American family?

The answer is at the bottom of the newsletter.


The Economy


Total U.S. nonfarm payroll employment rose in June by a surprisingly low 209,000, while the official unemployment rate— U-3—decreased 0.1% to 3.6%. The March 2023 and April 2023 combined employment numbers were revised down by 110,000.

The Job Openings & Labor Turnover Survey (JOLTS) edged down to 9.8 million open jobs across the country as of the last business day in May. This compares to 10.1 million open jobs the month before. The chart below shows the recent trend down in open jobs.

Seasonally adjusted April 2008 to April 2023 job openings chart.

The seasonally adjusted Total U.S. Unemployment Rate—U-6—increased in June to 6.9% vs 6.7% last month. There were 6.4 million people unemployed in June, age 16 and older, compared to 5.7 million last month.

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

Seasonally adjusted June 2021 to June 2023 unemployment rate chart.


Unemployment Rates by Education Level, June 2023

Less Than High School Diploma6.0%
High School Graduate, No College3.9%
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 June compared to a year ago. This compares to a 4.3% increase a year ago last month

Leading Economic Indicators (LEI) sponsored by The Conference Board

The LEI for June continued its strong decline with another -0.7% drop. See the LEI performance in the blue line in the chart below.


Annual growth rate of the LEI from 2000 to 2023.

With 15 consecutive monthly readings negative, the LEI continues to signal a recession in the near term. The Conference Board said, “June’s data suggests economic activity will continue to decelerate in the months ahead.”

Gross Domestic Product (GDP)

The Bureau of Economic Analysis said the advance estimate for GDP in the second quarter of 2023 rose at an unexpectedly high annual rate of +2.4%. That was a significant increase over the estimate of 2.0%. The upward revision was due to increases in consumer spending, government spending, and nonresidential fixed investments.

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

Percent change of the Real GDP from 2019 to 2023.



Annual inflation decreased in June to 3.0% as measured by the Personal Consumption Expenditures (PCE) index. The previous month was 3.8%. That was a significant and welcome decrease. Core PCE index, which excludes food and energy, finally started to show an improvement by dropping to 4.1% in June from 4.6% across the previous three months.

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

The peak Core PCE inflation this cycle was 5.3% in February 2022.


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


Last month it was $32,205,000,000,000.


Important Dates in August

August 2012 – Voyager 1, launched on September 5, 1977, became the first man-made object to leave our solar system and pass into interstellar space—approximately 12 billion miles from our sun in August 2012. Pluto, a dwarf planet, is approximately 6 billion miles from the sun and the Earth is 0.093 billion miles from the sun.

August 6, 1945 – Uranium gun-type (Little Boy) bomb was dropped on Hiroshima.

August 9, 1945 – Plutonium implosion-type (Fat Man) bomb was dropped on Nagasaki.

August 14, 1945 – VJ Day or World War II’s Victory over Japan Day (August 14 in the U.S. & August 15 in Japan).

This black leopard, Panthera Pardus, is eagerly waiting for his morning hug.

August 17 – National Black Cat Appreciation Day

August 24 & 26 – The Federal Reserve Bank of Kansas City hosts the Jackson Hole, Wyoming, 2023 Economic Policy Symposium.


The Stock Market



Source: The Wall Street Journal, page B12, July 5, 2023

The Commerce Department reports construction spending on new manufacturing facilities is up 76% in the U.S. as compared to a year earlier. In 2002, corporate annual spending on new manufacturing facilities was $25 billion. Today, it is quickly approaching $200 billion.

The driving force comes from two federal government programs—The Chips & Science Act and the Inflation Reduction Act (IRA)—both passed in August 2022. The Chips Act includes incentives for investing in semi-conductor production while the IRA includes incentives for items such as the production of electric vehicles and using domestically produced content.

For now, even as demand for manufactured goods remains in a post-pandemic hangover, the investment that manufacturers are making in new capacity is a clear positive for the economy.


Source: The Wall Street Journal, page A1, July 6, 2023

Nearly 50% of Vanguard’s 401K investors over the age of 55 held more than 70% of their portfolios in the stock market. In 2011, only 38% held that much stock. At Fidelity, 40% of investors ages 65 to 69 hold two-thirds or more of their portfolios in stocks.

And it’s not just boomers. At Vanguard one-fifth of investors age 85 and older have nearly all their money in stocks—up from 16% in 2012. Now most of these seniors are not just invested in any stocks, but those that pay a high dividend. These stocks tend to be less volatile than the average stock.

This trend started with the 1978 tax law that ushered in the 401K and other types of tax-deferred retirement accounts. Many older investors remain bullish on stocks for one simple reason: higher returns.

Jan Hatzius is Head of the Global Investment Research Division at Goldman Sachs based in New York city.

Jan Hatzius

Hatzius is Head of the Global Investment Research Division at Goldman Sachs based in New York City. He is also the firm’s Chief Economist.

Hatzius said on July 18, “We are cutting our probability that a U.S. recession will start in the next 12 months further from 25% to 20%.”


Stock Market Valuation

Ed Yardeni, President of Yardeni Research.

Ed Yardeni

President of Yardeni Research.

Yardeni spoke on CNBC on July 17 when he said, “For those waiting for a recession, I used to think we were in a rolling recession with economic indicators and stock prices dropping first in one segment and then another. But now I think we are in a rolling recovery. For example, the commercial real estate market is the latest sector to now be in a recession. I am still targeting 4,600 in the S&P 500 Index by year end.”

“Overall, the bear market ended in October 2022. Inflation today is much more transitory than persistent. Fortunately, the stock market is broadening out – it’s not just the largest seven companies with stock prices going up. Beyond 4,600, I believe the S&P 500 Index will reach 5,400 in the next 18 months due to:


  • we will have no recession
  • the stock market is broadening out
  • corporate earnings will pick up
  • inflation will continue to decrease


The S&P 500 Index closed on July 31, 2023, at 4588.96.


Monthly Performance of the S&P 500 Index



Recommended Action for Your Stock Portfolio

This month, we want to suggest a stock suitable for an investor’s conservative portion of their portfolio—Berkshire Hathaway B shares. The CEO, of course, is Warren Buffett. The symbol is BRK.B or sometimes BRK-B.

Recently Warren Buffett said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

OK, why this stock?

  1. This is a stock, so it has no annual expense ratio like a mutual fund or exchange traded fund.

  2. Even though this is just one stock, it is highly diversified as they own all or part of Apple, Burlington Northern Santa Fe railroad, GEICO, Lubrizol, Benjamin Moore, Duracell, Dairy Queen, Occidental Petroleum, Proctor & Gamble, UPS, T-Mobil, VISA, and many more.

  3. Its average annual return over the past 15 years has been 10.85%.

  4. Its volatility index is only 0.88. The S&P 500 Index is 1.00, so this stock is 12% less volatile than the S&P 500.

We expect the annual return of this stock to be less than 10% going forward as we expect the whole stock market to see lower returns in the next 10 years compared to the previous 10 years.


Financial Markets Vocabulary

Investment Company Act of 1940 – is the federal law that regulates the management of investment companies and what they are required to publicize. This list includes financial statements, stated investment goals, personnel, debt insurance, and directors. The goal of the Act was to provide adequate disclosure to potential investors and to curb the abuses prevalent during the 1920s and 1930s. The law has received significant amendments especially in 1996 and 2010.

Investment Companies – is a firm where investors pool their funds to allow for diversification and professional management. Because individual firms often specialize in particular types of investment, the potential returns and risks vary considerably. Charges to investors—both to acquire shares in a firm and to pay management for operating the company—also vary significantly.

Both mutual funds and exchange traded funds are managed as “investment companies.”

Mutual Funds – is an investment company that continually offers new shares and stands ready to redeem existing shares from the fund’s share owners. Because the shares are purchased directly from and are sold directly to the mutual fund, there is no secondary market for mutual fund shares. Mutual funds can focus on stocks, bonds, a combination of the two, or other types of investments.

Very specialized funds include leveraged funds (called 2X or 3X funds) or long funds (fund price goes up when stock prices go up) or even short fund (fund price goes down when stock prices go up). Some specialized funds speculate in what are called “alternative investments.” Most mutual funds are considered open ended. However, close ended funds, which only had issued a limited number of shares, are also available. Close ended funds are also considered specialized funds. All of these specialized funds should be avoided.

Mutual funds are only traded at each day’s closing price. For example, if the closing price at 4 PM Eastern time of a given fund is $10.27 per share, all client orders—both buy orders and sell orders—are fulfilled at the $10.27 price. This is true except for funds with a front-end load or commission.

Mutual fund shares are bought with so many dollars. The number of shares bought is calculated to three decimal places. For example, if $10,000 is invested in a fund with a closing share price of $17.42 per share, the client purchased 574.053 shares.

Exchange Traded Funds – or ETFs, are low-cost mutual funds whose price per share trades whenever the stock market is open. ETFs trade like a stock so they trade in whole shares only. ETFs trade on a stock exchange in the secondary market. If a client is buying an ETF, the client is buying shares from someone who is selling the shares—just like a stock. ETFs have become very popular as their costs tend to be lower than mutual funds. ETFs typically contain stocks, bonds, or both.


OK, Now What Do I Do?

Good long-term financial advice tends to be boring as it does not change month to month. Let’s start with three questions and our answers:

How should I manage our family’s income?
Spend less than you make.

Eliminate all bad debt. All debt is bad debt except a fixed-rate first mortgage on your family’s primary residence. Eliminate all debt prior to retirement.

Empower yourself with delayed gratification. Don’t try to acquire everything by the time you are 35.

Participate in your employer’s retirement plan with at least the minimum amount to capture 100% of any employer’s match. Then increase your retirement plan contributions using 50% of every future pay raise.

Open and annually fund to the max a Roth IRA for you and your spouse. The max annual contribution for those under 50 is $6,500 each. The contribution max if age 50 or older is $7,500 each. A family can do this even if only one spouse has earned income. Young people, listen up! Do this for 35 years and each account will be $1.1 million, if invested at 8% per year! That is $1.1 million with no taxes owed!

How should I manage my own investments?
Have a diversified portfolio. Putting 30% or 40%—or even 50%—of your net worth into one stock is very high risk and is not diversified.

Make sure the products (mutual funds, exchange traded funds, etc.) that are in your portfolio are low-cost (less than 0.75% per year). This means, “No Annuities!”

Make sure your advisor is low-cost (less than 0.50% per year).

Only buy tradable, registered investment products and no private securities.

And if you have a taxable brokerage account, make sure your investments in that account are tax efficient.

Should I hire someone to manage my investments?
If you choose to hire someone to manage your investments, the most important consideration is to only hire a Registered Investment Advisor, a fiduciary—someone that is legally bound to put the client’s interests ahead of the advisor’s interests.


Our Financial Bad Boy This Month

Binance Lays Off Over 1,000 Employees

Source: The Wall Street Journal, Page B1, , July 15-16, 2023.

Binance, the giant crypto exchange, is cutting a big chunk of its workforce during a U.S. government crackdown. Over 1,000 people have been fired in recent weeks. This appears to be just the beginning as the total employee losses are projected to reach one-third of the company.

But how did a Binance spokesperson describe the recent events? The news conference contained the following quote, “As we prepare for the next major bull cycle, it has become clear that we need to focus on ‘talent density’ across the organization to ensure we remain nimble and dynamic.”

The company and its founder, Changpeng Zhao, have been sued by the Securities and Exchange Commission. Many are expecting the U.S. Department of Justice to bring formal charges at any time.

“Talent density,” well that’s a new one!

And You Thought Farmland Is Expensive

In 2019, before the pandemic, land in Manhattan, New York, was selling for $280 million an acre. But as so many people in New York are still working from home, whole office buildings are now vacant. Therefore, local commercial real estate is in a major recession as the current price for land has dropped to only $60 million an acre. And you thought the stock market was risky!

A Non-Financial Warning For International Travelers

A baboon taking a selfie

A world traveler known to Lorenz Financial was recently in Kenya on a camera safari. Bouncing around on the Serengeti plains in an old Land Rover, the traveler was focusing his Canon camera on a distant subject. But at the same time, he let his guard down regarding his iPhone. A baboon approached the truck, reached up, and stole his phone. Now what does a baboon do with an iPhone? Well, the traveler found out when he looked at his iCloud account. Apparently, baboons love to take selfies!


The Bond Market


On July 26, the Federal Reserve increased short-term interest rates by 0.25% to the range of 5.25% to 5.50%, a 22-year high. What does this mean for you? Now is the time to lock in intermediate-term bonds and CDs—that is bonds and CDs that mature in 3, 5 or 7 years.

Also, CNBC announced the top states for business in 2023. They are:
1. North Carolina
2. Virginia
3. Tennessee
4. Georgia
5. Minnesota
6. Texas
7. Washington
8. Florida
9. Utah
10. Michigan

Indiana is #13.

The bottom 10 are:
40. New Hampshire
41. Oklahoma
42. Alabama
43. New Mexico
44. Arkansas
45. Rhode Island
46. West Virginia
47. Hawaii
48. Mississippi
49. Louisiana
50. Alaska

Recommended Action for Your Safe Money

This month our recommendations for an investor’s “safest money” have changed by adding intermediate-term bond funds to our list. In no particular order, 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

What do financial advisors say are the top two most significant financial shortcomings of a typical American family?

The greatest shortcoming of American families is a lack of an adequate emergency fund. Investors should calculate their average monthly expenses, not income. Then determine their emergency fund size by multiplying their average monthly expenses times 6 to 12 months. Whether they choose 6, 9, or 12 months depends on how reliable their income is. With a high confidence in maintaining current income, an investor could choose only 6 months, but nothing less. But a sales rep paid only on commissions or a bricklayer in International Falls, Minnesota, which has a very short work season, might need 12 or more months of an emergency fund.

A second shortcoming of American families is excessive debt in the form of credit card debt, auto loans, student loans, home equity line of credit, and personal loans. All debt is bad debt except a fixed-rate first mortgage on a family’s primary residence.