December 2021 Newsletter

Christmas saving concept with piggy bank wearing christmas hat and calculator on white table

Welcome to the December 2021 Newsletter. This month, we’re discussing the economy, employment, financial terminology, and more.



Although the performance of the stock market this year has been well above the historical average, the inflation debate continues. There are indications peak inflation will be reached during the upcoming winter season. For example, the Baltic Dry Index, which tracks the cost of shipping dry bulk items such as coal, iron ore, and grains, fell over 50% from October to November.

The Conference Board Leading Economic Index gained 0.9% in October. Also, building permits gained 4% in October. The Federal Reserve has begun to taper (reduce) their monthly purchases of government bonds. This “bond purchase program” has kept long-term interest rates lower than normal but has also fueled asset price inflation of homes and the stock market for example. The reduction of bond purchasing is likely to be increased and end sooner than previously announced.

These indicators tell Lorenz Financial that our economy will have a successful 2022. The stock market should be OK to good in 2022 but will remain volatile.

We continue to recommend a dollar-cost-average approach for investors looking to add to their equity holdings. All of our model portfolios remain fully invested.

Quote of the Day

“Rule No. 1: Never lose money.
Rule No 2: Don’t forget rule No. 1”
Warren Buffett 

Warren Buffett is the Chairman and CEO of Berkshire Hathaway.

As a long-term investor, Mr. Buffett puts a high value on capital preservation. Mr. Buffett is also the portfolio manager of the pension funds at companies owned by Berkshire Hathaway. In those pension accounts, Mr. Buffett has 100% of the assets in the stock market! So, Mr. Buffett strongly believes in being a long-term investor, preserving capital, and putting 100% of a portfolio in stocks. This is a unique and wildly successful investment philosophy.


Pop Quiz


Question: For 2021, what are the federal personal income tax brackets? Do not include the Obama Care tax of 3.8%, FICA taxes, or state / local income tax rates. Circle all that apply.


The answers are at the bottom of the newsletter.

The Economy

Abstract blue graphs



Total U.S. nonfarm payroll employment rose by 531,000 in October while the unemployment rate dropped to 4.6% from last month’s 4.8%. The Job Openings & Labor Turnover Survey (JOLTS) said there were 10.4 million open jobs in the U.S. as of the last business day of September – the same as 10.4 million openings the last day of August.

The seasonally adjusted, all-encompassing unemployment rate, U-6, declined in October to 8.3% from 8.5% last month. It was 12.1% in October 2020. There are 6.9 million people unemployed in the U.S., age 16 and older, compared to 7.4 million last month.

Unemployment Rates by Education Level, September 2021


Less Than High School Diploma7.4%
High School Graduate, No College5.4%
Some College or Associate’s Degree4.4%
Bachelor’s Degree or Higher2.4%

The average hourly earnings of all employees on private nonfarm payrolls were up 4.5% compared to a year ago.


Gross Domestic Product (GDP)


The Bureau of Economic Analysis said the second estimate for GDP in the 2021 third quarter increased by 2.1% compared to 6.7% in the second quarter.




Annual inflation rose to 5.0% in October as measured by the Personal Consumption Expenditures (PCE) index. The core PCE index, which excludes food and energy, rose to 4.1% in October, as compared to the adjusted 3.7% in September.

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 Year2.80%
10 Year2.50%
30 Year2.29%

This month’s estimated annual inflation numbers above are unchanged on average compared to last month.


Important Dates in December


Dec 31 deadline


December 7 – Pearl Harbor Day

December 11 – The House and Senate will begin their Christmas break and are scheduled to return on January 3.

December 14 & 15 – The last meeting of the Federal Open Market Committee in 2021.

December 23 – Festivus, for the Rest of Us

December 24 – Christmas Eve

December 25 – Christmas Day

December 31 – New Year’s Eve and the last trading day of the year.


Stock Market



Tom Lee, Managing Partner and Head of Research at Fundstrat Global Advisors, said on November 5 on CNBC, “We believe the current market situation is:

• Corporate profit margins will continue to grow in 2022.

• There is a large pent-up demand by consumers for a variety of goods and services.

• Broadly examining PE ratios for stocks and bonds, we find stocks are still attractive as their PE ratio is lower (cheaper) than bonds.

• So many stock market investors continue to have very large cash positions. We feel this money will eventually flow into the stock market.”


Then on November 8, the Piper Sandler Technical Research team said, “Fear of inflation and supply chain headwinds have been replaced by FOMO (Fear of Missing Out). The market has exceeded our year-end 2021 S&P price target of 4625. We are introducing our year-end 2022 S&P price target of 5150.”


Stock Market Valuations


Finally, the Federal Reserve has begun tapering its asset purchases in November. We feel confident they will start to raise short-term interest rates in mid-2022. Also in 2022, supply chain bottlenecks will slowly dissipate, and we believe inflation will drop below 4%.

Even so, we are hesitant to count on a PE ratio for the stock market to approach 23, so we have lowered our PE estimate to 22.5 in the data below. We anticipate the S&P 500 Index to reach 4725 by the end of this year and into the 5,000’s next year.

YearEarnings/SharePE RatioApprox. S&P 500 Index High


During 2022, it is possible we will have a stock market correction where the S&P 500 Index PE ratio temporarily drops to 17 or 18 and the S&P 500 Index drops to 4,000. After the establishment of the correction low and likely a retest of that low, we are confident a stock market recovery will then follow and reach new highs. A recession is not on the horizon, but a correction can happen at any time.

The S&P 500 Index closed Tuesday, November 30, at 4567.00. That is down 0.83% since the close on Friday, October 29 at 4605.38.


S&P 500 Index

Recent Monthly Performance







Recommended Action for Your Stock Portfolio


Please review the first item in the Vocabulary category below – The three Russell indexes. As Lorenz Financial focuses on diversification, low costs, and achieving market performance, these three indexes are appropriate for a variety of portfolios. Here are the broad details of these three exchange-traded funds offered by Vanguard that are designed to match the performance of the Russell Indexes.












* All data presented above is as of November 30, 2021



Just as the medical and legal fields have their own vocabulary, so do the financial markets. Each month we will offer various financial market definitions.


The Russell Stock Indexes


The FTSE Russell company has three very broad-based U.S. stock indexes. The Russell 1000 Index is made up of the largest 1,000 U.S. public companies. The Russell 1,000 Index is a large and mid-cap blended index. Blend means the portfolio includes both value and growth-oriented companies.

The Russell 2000 Index is the next smaller 2,000 U.S. companies. The Russell 2,000 Index is a small-cap blend index.

The Russell 3000 Index is the combination of the Russell 1,000 and the Russell 2,000 indices. The Russell 3,000 Index is a very good approximation of the Total US Stock Market Index.



Summary Prospectuses


The SEC requires mutual funds and exchange-traded funds to make available to investors both a prospectus and a summary prospectus. A prospectus can run 80 or more pages. Realizing few people will read that much material, a few years ago the SEC created a Summary Prospectus which is typically only eight pages long.

Lorenz Financial highly encourages investors to read at least the summary prospectus of their fund holdings. A Summary Prospectus includes the following fund details:

  • Investment Objective
  • Fees and Expenses
  • Annual Expense Ratio
  • Portfolio Turnover
  • Principal Investment Strategies
  • Principal Risks of Investing in the Fund
  • Past Annual Total Returns
  • Investment Advisor
  • Portfolio Managers
  • How to Purchase or Sell the Fund


OK, Now What Do I Do? 

This first month we are going to start at the very beginning.

Rule 1 is, “Spend less than you make.” It doesn’t matter if you make $20,000 or $200,000 a year, you must spend less than you make! If you spend everything you make, you will never get out of debt and never be able to save enough for retirement.

An addendum to rule 1 is: “Appreciate and embrace delayed gratification”. The worst example of a family not following this advice is the story of a mother and father coming to see their son’s high school counselor so their 16-year-old could quit school and become a roofer and start making money right now! We all want our standard of living to increase each year and that means as a young adult, we must graduate from high school and then continue education and training by graduating from a trade school or a two- or four-year college. Another long-term option for a high school graduate is to enter the US military, the Peace Corps, or the AmeriCorps. Long-term happiness seldom occurs unless gratification is delayed.

Every stock market investor knows the daily volatility of stock prices can be intimidating. That raises the question, should a stock market investor have their emotions prepared for the volatility? YES! OK, which emotions? Lorenz Financial believes every stock market investor should first be a “long term investor” (3-5 years or longer). Second, every stock market investor should always have their courage and patience under control.

Another topic to consider in late 2021, as interest rates are expected to rise in 2022, do homeowners need to refinance their first mortgage? Start by speculating when the homeowner might begin retirement. Some might pick 65 years old. If so, then it would be perfect if 35-year-old signs up for a 30-year mortgage now. But if the homeowner is 45, maybe they should consider a 15 or 20-year mortgage. Lorenz Financial broadly recommends having no debt and no mortgage at retirement.


The IRS increases the savings maximums for retirement plans, but no changes for IRAs


But for IRAs, there were no changes for 2022 as compared to 2021.



Our Corporate Bad Boy This Month

Activision Blizzard (ATVI)

Source: Page A1 The Wall Street Journal, November 17, 2021


Activision CEO, Bobby Kotick, has repeatedly failed to inform the Board of Directors of the volume of sexual harassment incidents, including rape, that have been alleged across the firm. Activision has been thrown into turmoil in recent months by multiple regulator investigations into alleged sexual assaults and mistreatment of female employees dating back years.

The SEC has opened an investigation into how the company has handled reports of misconduct and disclosure to the public. The California Department of Fair Employment and Housing has filed a lawsuit in July alleging the company ignored numerous complaints by female employees of harassment, discrimination, and retaliation. Since the California lawsuit, Activision has received more than 500 reports from current and former employees alleging harassment, sexual assault, bullying, and pay disparities.

Mr. Kotick is one of the highest-paid CEOs of a U.S. publicly-traded company, with a 2020 pay package valued at $154 million.

In a written statement, Activision spokesperson, Helaine Klasky said, Activision sometimes “fell short of ensuring that all of our employees’ behavior was consistent with our values and our expectations.”


Bond Market



President Biden announced his decision to nominate Fed Chair Powell to another four-year term. Economic indicators are all showing improvement over 2020. The Chemical Activity Barometer three-month average is up 3.5% year over year in September 2021. The Association of American Railroads traffic is up 6.9% compared to last year. The American Trucking Association reports truck tonnage has increased 1.8% on a year-over-year basis. The port of Long Beach says total volume is up 21% year to date compared to 2020. We expect U.S. GDP to increase 3% to 4% next year.


Federal Reserve


The Federal Open Market Committee (FOMC) is scheduled to meet on December 14 and 15. We do not anticipate any change to the Federal Funds rate. On November 30, the Fed Chair, Jay Powell, told a Senate committee that inflation was likely to persist well into next year and that the Fed would consider tapering its purchases of government bonds “perhaps a few months sooner” than previously expected.

U.S. Treasury


The debt ceiling needs to be raised or suspended in December according to U.S. Treasury Secretary Yellen. Congress will be busy in December as they need to pass a military spending bill, fund the federal government by December 3, and reach a debt ceiling agreement by December 15.

Recommended Action for Your Bond Portfolio


Most bonds are not appropriate today because it is 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 mutual fund recommendations have not changed and only include:

  • Ultra-short-term U.S. bond funds
  • Short-term U.S. 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. Lorenz Financial suggests keeping a bond fund’s duration under 2.5 years. 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 six to nine 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.” Every family should have an adequate, safe, and liquid emergency fund before investing in a stock and bond portfolio.


Pop Quiz Answer

Question: For 2021, what are the federal personal income tax brackets?

Answer: See the seven Federal income tax brackets circled below that began in 2018.


Unless the federal tax laws are changed, these will also be the tax brackets for 2022 and through the end of 2025. Income tax brackets are currently scheduled to increase in January 2026.