December 2022 Newsletter

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




The economy remains stronger than expected and inflation is definitely starting to subside. Employment remains robust. To find workers some large companies are dropping the requirement for a four-year college degree for some of their open jobs. Retail sales for the holiday season remain stronger than expected even though the Leading Economic Indicators are down for the eighth straight month in November.

We continue to stand by our statement, “the stock market is attractive for purchase” that we announced in our October newsletter. Should the market retest the September / October lows of 3580 to 3600, we would again support this as a buying opportunity. But we do not expect the market to make such a drop.

Looking ahead, we predict 2023 S&P 500 Index earnings will total $235 per share and $245 in 2024. With a PE Ratio of 18 to 20, we anticipate the second half of 2023 will see the S&P 500 Index make new highs reaching 4,800.

All portfolios are fully invested and based on each investor’s objectives, risk tolerance, and timeframe.


John J. Ray III

Ray said last month, “Never in my career of over 40 years of legal and financial restructuring have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight to the concentration of controls in the hands of a very small group of inexperienced, unsophisticated, and potentially compromised individuals – this situation is unprecedented!”





Pop Quiz

Which states have an inheritance tax?

The answer is at the bottom of the newsletter.













Unemployment Rates by Education Level, September 2022

Less Than High School Diploma6.3%
High School Graduate, No College3.9%
Some College or Associate’s Degree3.0%
Bachelor’s Degree or Higher1.9%

Average hourly earnings of all employees on private nonfarm payrolls were up 4.7% compared to a year ago.



Leading Economic Indicators (LEI)

The LEI for September dropped by 0.8%—the eighth consecutive monthly decline. Below are the previous monthly LEI results:

  • September decreased 0.5%
  • August decreased 0.3%
  • July decreased 0.5%
  • June decreased 0.7%
  • May decreased 0.6%
  • April decreased 0.4%
  • March decreased 0.1%

These eight consecutive declines in the LEI signal a potential recession.


Gross Domestic Product (GDP)

The Bureau of Economic Analysis said the “second” estimate for GDP in the third quarter of 2022 was 2.9%. This was an upward revision from the 2.6% last month. The increase was due to higher consumer spending. GDP results in 2022’s first two quarters were a decrease of 0.6% in the second quarter and a decrease of 1.6% in the first quarter.


Q3 Real GDP graph featured in Lorenz November newsletter.

Annual inflation decreased in October to 6.0% as measured by the Personal Consumption Expenditures (PCE) index. Core PCE index, which excludes food and energy, decreased to 5.0% in October from 5.2% in September.

Here is a little bit of PCE core inflation history this cycle:

  • October 5.0%
  • September 5.2%
  • August 4.9%
  • July 4.7%
  • June 5.0%
  • May 4.9%
  • April 5.0%
  • March 5.2%
  • February 5.3% (peak PCE core inflation this cycle based on January’s data)
  • January 5.2%

It seems we have not made a lot of progress from the 5.3% peak in February to 5.0% in October.

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 MaturitiesFuture Annual Inflation Expectations
5 Year2.41%
10 Year2.34%
30 Year2.34%

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


The Public Debt as Issued by the U.S. Treasury, November 30, 2022



Last month it was $31,251,356, 000,000.

Our national debt is dangerously high, produced by political pork, and is an inescapable liability. How can this be turned around? First, we must elect new politicians with the courage to stop kicking the can down the road and then cut spending.



Important Dates in November

December 7, 1941 – Pearl Harbor Day

December 13-14 – The eighth and final Federal Open Market Committee (FOMC) meeting of 2022

October 15 thru December 7 – Open enrollment for medical insurance that is to begin January 1, 2023

December 16 – The U.S. House members begin their Christmas break and are scheduled to return on January 3, 2023.

December 16 – Quad Witching Day when individual stock options, stock index options, stock index futures, and options on stock index futures all expire

December 21 – The first day of winter, the winter solstice, and the shortest day of the year

December 23 – Festivus, For the Rest of Us

December 24 – Christmas Eve

December 25 – Christmas Day, a Sunday this year

December 26 – The stock and bond markets will be closed on Monday in observance of Christmas.

December 30 – The last day of the year for buying or selling a security— the stock and bond market exchanges might close early on December 30, so do any trading early in the day

December 31 – New Year’s Eve

January 1 – New Year’s Day, a Sunday this year

January 2 – The stock and bond markets will be closed on Monday in observance of New Year’s Day.



The Stock Market


This month we have quotes from a former Fed Governor and an important Wall Street executive.

Roger Ferguson

Roger Ferguson, an American economist, attorney, and corporate executive served as the 17th vice chair of the Federal Reserve from 1999 to 2006. Afterward, he served as the President and CEO of the Teacher Insurance and Annuity Association of America (TIAA).

On November 29, 2022, Roger was asked on CNBC, “When we hear from company CEOs, they say the Fed is not looking at real-time inflation data.  What is your response?”

Roger said, “The Fed hears directly from large and small companies and from consumers on a continuous basis.  Federal Reserve Bank Presidents (there are 12 of them across the country) interview many people and get face-to-face feedback between each Fed meeting.  For example, consumers are telling the Fed how much more it takes to buy a basket of groceries and to fill up their gas tank.  The Fed acknowledges consumers are saying, “High inflation is a clear and present danger!”

“The Fed has said they are getting close to reducing interest rate increases below 75 basis points per meeting and eventually will end this interest rate increase campaign.  Recently the New York Fed President, John Williams, talk about reducing rates in early 2024.”


Charlie D. Ellis

Charlie Ellis is an American investment advisor who earned a BA in art history from Yale, an MBA from Harvard, and a PhD in Economics from New York University. 

Charlie Ellis is an American investment advisor who earned a BA in art history from Yale, an MBA from Harvard, and a PhD in Economics from New York University. In 1972 Charlie founded Greenwich Associates. His company grew to serve over 130 leading financial firms around the world with Greenwich Associates’ widely recognized proprietary stock market research.

In 1998, Charlie first published his now-famous book, Winning the Loser’s Game. This book has become the go-to guide for serious investors seeking long-term success through stock index investing. Charlie updated his book with the 8th edition in mid-2021.

Last year Bob Pisani, of CNBC, asked Charlie, “Why is index investing becoming more and more successful?”

Charlie said, “The evidence for index investing is stronger than ever. When I started investing years ago, active investing (which is the opposite of index investing) was really fun, easy to do, and for people who were very bright and willing to work hard, it was something they could consistently accomplish. But all the advantages we had then are now gone. For example, we used to get inside information by going to private meetings, but now that is illegal. We used to have research that no one else had, but now everyone has access to good research. We used to be one of the few companies with Bloomberg terminals but now everyone has them.”

“The flow of information is available to nearly everyone so that makes us all equal. Because stock advisors are now all equal, no one has an advantage. That is why 80 to 90% of active investment managers do not beat the indexes once their advisor’s fees are subtracted out.”

Bob Pisani asks, “What about investing in bonds?”

Charlie responds, “I don’t invest much in bonds. Now that I am 85, I am in fact investing for my grandchildren. Therefore, I have 100% of my portfolio in the stock market.”

“Even someone at age 35, when they are deciding how to allocate their financial assets, they should put most of their portfolio in stocks. But if someone is close to making a large purchase such as a house, then that money must be kept very safe so put that money into a money market account, a short-term Treasury Bill or short-term CD.”



Stock Market Valuation

If S&P 500 Index companies have a total profit of $226 per share this year, then with the index at 4080, the trailing PE ratio is 18.0. If we assume profits next year will be $235 and $245 in 2024, then with a forward PE of 18 to 20, we should end next year around 4,800, or 18% higher than today.

But what about the risk of the market crashing down to S&P 500 3,000 in the next few months as companies report significantly lower profits in the first and second quarters of 2023?

We at Lorenz Financial cannot make any guarantees but we believe a very significant stock market drop is possible but unlikely. We say this as we have had four S&P 500 Index closes that were very close together. See below.


September 30, 20223,585.62 (a Friday close)
October 11, 20223,588.84
October 12, 20223,577.03
October 14, 20223, 583.68 (a Friday close)


The most important S&P numbers are closing numbers and the most important closing numbers are Friday closes. Because these four closing numbers are so close together, our conclusion is this level represents a very strong level of support. We believe it will take a very extraordinary event for the stock market to drop significantly below these numbers.

The S&P 500 Index closed on November 30, 2022, at 4080.11.


Monthly Performance of the S&P 500 Index















Recommended Action for Your Stock Portfolio

Mark has been thinking about, “What are the top priorities for everyone planning their retirement.” Here are our conclusions.

Point 1 – Recognize your retirement cannot be financed solely by Social Security. In 2022, the average annual benefit is only $29,800.

Point 2 – Spend less than you make! Save and invest the difference.

Point 3 – If your employer has a retirement plan with an employer match, every employee must capture the maximum match. It’s free money! Don’t let it slip through your fingers!

Point 4 – Strive to save more each year until you and your spouse are saving 15% of your total income.

Part 5 – Permanently eliminate all bad debt. All debt is bad debt except a fixed-rate first mortgage on your primary residence.




    Tulip Mania was the period during the Dutch Golden Age when prices for tulip bulbs reached the moon.  Tulips arrived in Holland, now the Netherlands, around 1593.  As tulips became more and more popular, the prices for seeds and bulbs skyrocketed to astronomical levels.  By 1636, the tulip bulb had become the fourth leading export of the Netherlands.  At the peak of Tulip Mania in early 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman!

    The price collapse began in February 1637 when in the city of Haarlem, the Netherlands, no buyers showed up for a routine bulb auction.  The reason was most likely due to the citizens of Haarlem suffering from an outbreak of the bubonic plague.

    As the realization “there are no new buyers!” set in across the country, the demand for tulips collapsed, and prices plummeted – the speculative bubble had burst!  The phrase, Tulip Mania, has now come to describe any highly speculative bubble.

    Can you name one or more current asset classes that are suffering from Tulip Mania today?


    OK, Now What Do I Do?

      Our advice this month is directed toward seniors on Medicare, or soon-to-be on Medicare.  The medical insurance Open Enrollment period ends on December 7, 2022, for insurance beginning on January 1, 2023.

      We have two important comments.

      First, it’s not a simple process when signing up for Medicare.  There are four parts to Medicare:  Parts A, B, C, and D.

      Part A covers hospital services.

      Part B covers physician services.

      Part C if chosen, replaces Parts A & B and covers managed care programs called Medicare Advantage.  Part C puts seniors into a specific network of doctors and hospitals.  Not all doctors or hospitals participate in Part C.  If a Part C participant ventures outside their defined network, expect to pay for all costs out of pocket!

      Part D covers prescription drugs.

      Regular Medicare, or Parts A and B, have 10 different types of plans that vary the amount of coverage and premiums.  But no matter which of the 10 plans is selected, Medicare does not cover all medical expenses.  Therefore, private insurance companies offer Medi-gap, also called Medicare Supplemental policies, to pay for things that Medicare does not pay for.

      So where can a person go to get honest advice on which plan is best for them?  We at Lorenz Financial have found an excellent source at no cost.  They are Medicare Simplified.  They are a company based in Cincinnati, Ohio, and serves Ohio, Indiana, and Kentucky.

      Their 90-minute meetings are free, so how do they make any money?  They take zero money from governments, and insurance companies, and take no money from Medicare.  They only make money if a seminar participant wants one-on-one counsel and advice as to what is best for that person or couple.  Their website is: 

      Our second topic regards Medicare Part D.  Part D is different than other parts as a senior can change plans every year!  We strongly encourage everyone to check the price of their Part D plan every year.  If a cheaper plan is found, change plans!

      Mark has now been on Medicare for a couple of years and has noticed he gets a Part D plan, a lowball total price (monthly premiums plus monthly refill deductibles).  Then when a year rolls around, the price for the same policy nearly doubles.  What is going on?  We believe the Part D insurance company is making no profit with the low-ball first-year price but makes its normal profit every year after that.  As we believe 90% plus of seniors do not compare plans every year, the insurance companies make out great when people just stick with the same plan every year.

      Mark has noticed when he compares Part D plans annually, he can always find another plan for approximately the same price as his current plan.  Therefore, ever since he turned 65, Mark has had a different insurance policy every year for Medicare Part D.  Where does one check Part D plan prices?


      For Caterpillar retirees, use:


      For everyone else, use


      If you don’t yet have a Medicare account, open one up.  And please everyone on Medicare, check your Part D policy price during every Open Enrollment period each year.




      FTX’s Digital Coin, FTT, was at the Heart of the Fiasco

      Source: The Wall Street Journal, November 15, 2022, page B1

      Sam Bankman-Fried, former CEO of FTX

      On Monday, November 7, 2022, Sam Bankman-Fried took to Twitter to reassure his customers: “FTX is fine,” he wrote. “Assets are fine.” By Friday of the same week, FTX announced it was filing for bankruptcy for all 134 crypto companies in the Bankman-Fried universe. Also on Friday, November 11, Brinkman-Fried resigned as CEO and walked away from his companies leaving others to clean up his mess.

      FTX’s liabilities are considered to be between $10 and $50 billion. For reference, Bernie Madoff defrauded his clients $65 billion. As FTX had no board of directors and no Chief Financial Officer (CFO), Bankman-Fried could do whatever he wanted.

      One of Brinkman-Fried’s primary assets was his ownership of Alameda Research, which also collapsed. Early information appears to show U.S. clients’ assets at FTX were loaned to Alameda to enable Alameda to use those assets as collateral to get hundreds of millions of dollars in loans.

      The U.S. Attorney’s office in Manhattan has opened a criminal investigation. So has the SEC and Commodities Futures Trading Commission (CFTC). FTX and Alameda are both based in the Bahamas, a Caribbean tax haven that offers significant business and financial privacy. There are over 270 licensed banks and trust companies in the Bahamas. Those banks are not there to service the Bahamians. It is no coincidence that Bankman-Fried chose the Bahamas for his home base. Unfortunately for Mr. Bankman-Fried, the U.S. has had an extradition treaty with the Bahamas since 1990.



          The Bond Market


          Fed Chair Powell confirmed on November 30 that smaller interest rate increases are likely (50 basis points instead of 75) and could start in December. Assuming this is true, the next question is, what will the Fed do at the January 31-February 1, 2023, meeting – another 50 basis points or 25 basis points, or zero?

          We believe the best clues will be the PCE inflation data published on December 1, the end of December report, and the end of January report – all before the February 1 Fed meeting. If the data shows consecutive and significant declines in inflation, it is possible the Fed will say, “We are finished raising interest rates.” But the other extreme could also be true if these three inflation reports show a minimal decrease in inflation. If so, then we will be back to 75-point increases.


          The Federal Reserve and its Federal Open Market Committee (FOMC)

          Fed Chair Jay Powell said on November 30, monetary policy is likely to stay restrictive for some time. He said, “We will stay the course until the job is done.” The Chair also confirmed that smaller interest rate increases are likely to begin in December. 


          The U.S. Treasury

          The Treasury has offered for the first time a 4-month T-Bill. Previously nothing was offered between a 3-month and 6-month T-Bill. The new 4-month T-Bill will be auctioned weekly. 


          Recommended Action for Your Bond Portfolio

          We have made another addition to our safe money recommendations this month: Short-Term U.S. Corporate or Securitized bond funds. Our recommendations, in order, only include the following:

          • Certificates of Deposit (only if FDIC or NCUA insured)
          • U.S. Treasuries (state and local income tax-free)
          • U.S. Savings I-Bonds (max savings is $10,000 per account per year)
          • Cash (in a money market account)
          • Short-Term U.S. Corporate or Securitized bond funds




                      Pop Quiz Answer

                        Which states have an inheritance tax?


                        Only six states have an inheritance tax.  They are:

                        Iowa                      Nebraska

                        Kentucky               New Jersey

                        Maryland               Pennsylvania

                        An inheritance tax is a tax on the person receiving the inheritance – it is not a tax on the whole estate.  There is no federal inheritance tax, but the above six states have an inheritance tax.  Each of these six states has set a different exemption level and has defined its inheritance tax brackets.  There are severe penalties and accumulated interest when inheritance taxes are not paid in full and on time.

                        Typically, the spouse of the person who has died is exempt from paying any inheritance tax.  If you live in one of the states above, check with your CPA or tax specialist for the exact details of your state’s inheritance tax liability.