February 2023 Newsletter

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


We have a variety of good economic news that we're counting on to avoid a recession, but we have two indicators which are screaming a recession is barreling down upon us. Those two “negative” indicators are:

1) the Leading Economic Indicator (LEI)

2) the inverted yield curve.

First, the LEI has now dropped for ten consecutive months. See the chart.

The trajectory of the US LEI Continues to signal a recession.

The second indicator of a pending recession is the current U.S. Treasury inverted yield curve as shown below.

Treasury Yield Curve in February 2023.
The curve should show higher interest rates for the long-term bonds. Instead—an inverted yield curve such as this one—shows lower interest rates for the long-term bonds. A typical yield curve is low at the left and rises to the upper right.

It’s unlikely we can ignore these two warning signs.

The good economic indicators continue to be:

  • The two previous quarters both show good GDP growth beyond inflation.
  • Inflation is coming down nicely.
  • Very low unemployment.
  • China is reopening.
  • Consumer confidence is slowly increasing. See the chart.

The Consumer Confidence Index spanning from 2006 to 2023.

  • Fourth quarter corporate profits continue to be OK or better than expected.
  • Gasoline and natural gas prices are down—giving the average family a little more money to spend each month.

Therefore, we believe we'll have a recession later in 2023 or early 2024. We believe this will not be a severe recession but a mild one. Remember the stock market is always forward looking which means the stock market will hit bottom 6 to 9 months before the economy bottoms. If so, we believe a stock market bottom will occur during the first half of 2023, but only if we have a recession. If we have a soft landing, we do not expect to go back down and retest the October lows.

At this time, all portfolios are fully invested and based upon each investor’s objectives, risk tolerance, and time frame. We recommend employees continue to save monthly in their employer 401K type retirement plan and in a Roth IRA for their spouse and themselves.


Quote of the Day

Humorist, journalist, lecturer, and novelist Mark Twain.

Mark Twain

“The two most important days in your life are the day you were born and the day you find out why”.

Twain, 1835 to 1910, was an American humorist, journalist, lecturer, and novelist who acquired international fame for his books Roughing It, Life on the Mississippi, The Adventures of Tom Sawyer, and The Adventures of Huckleberry Finn.

Twain, whose real name was Samuel Langhorne Clemens, was born two months premature and quite a sickly child for his first 10 years. When his mother was 80 years old, Twain asked her, “I suppose that during the whole time I was in poor health as a child you were uneasy about me.” His mother responded, “Yes the whole time.” “Afraid I wouldn’t live?” “No”, she said, “Afraid you would.”


Pop Quiz

Lorenz Financial will never suggest a client purchase a mutual fund or ETF from Fidelity, Wells Fargo, or PIMCO. Why?

The answer is at the bottom of the newsletter.


The Economy


Total U.S. nonfarm payroll employment rose in December by 223,000 while the official unemployment rate, U-3, decreased to 3.5%. The October 2022 and November 2022 combined employment numbers were revised down by 28,000.

The Job Openings & Labor Turnover Survey (JOLTS) increased to 10.5 million open jobs across the country as of the last business day in November. This compares to 10.3 million open jobs the month before.

The seasonally adjusted Total U.S. Unemployment Rate, U-6, decreased in December to 6.5% vs 6.7% last month. It was 7.3% in December 2021. There were 5.4 million people unemployed in December, age 16 and older, compared to 5.5 million last month.

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

Unemployment Rates by Education Level, December 2022

Less Than High School Diploma5.0%
High School Graduate, No College3.6%
Some College or Associate's Degree2.9%
Bachelor's Degree or Higher1.9%







Average hourly earnings of all employees on private nonfarm payrolls were up 4.6% compared to a year ago.

Leading Economic Indicators (LEI)

The LEI for December dropped by 1.0% — the tenth consecutive monthly decline! Below are the previous monthly LEI results:

  • November -1.1%
  • October -0.9%
  • September -0.5%
  • August -0.3%
  • July -0.5%
  • June -0.7%
  • May -0.6%
  • April -0.4%
  • March -0.1%

These ten consecutive declines in the LEI signals a recession is likely in our future.

Gross Domestic Product (GDP)

The Bureau of Economic Analysis said the first estimate for GDP in the fourth quarter of 2022 was 2.9%. The increase was due to increases in corporate inventories, consumer spending, and government spending. GDP results in 2022’s first three quarters were a decrease of 1.6% in the first quarter, a decrease of 0.6% in the second quarter, and an increase of 3.2% in the third quarter.

Real GDP spanning from 2019 to 2022.




Annual inflation decreased significantly in December to 5.0% as measured by the Personal Consumption Expenditures (PCE) index. The previous month was 5.5%. The core PCE index, which excludes food and energy, decreased to 4.4% in December from 4.7% in November.

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

  • December 4.4%
  • November 4.7%
  • 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)
  • January 5.2%

Core inflation has dropped significantly from 5.2% in September to 4.4% in December. This is great!

But average new car transaction prices continue to escalate as below:

20192020202120222023 YTD


Long-term inflation expectations can be estimated by calculating the differences between Treasury bond yields & TIPS (Treasury Inflation Protected Securities) real yields of the same maturities. Results are:

Bond MaturitiesFuture Annual Inflation Expectations
5 Year2.27%
10 Year2.24%
30 Year2.22%


This month’s estimated annual inflation numbers above are 7 basis points lower on average compared to last month. That means Treasury buyers are expecting lower inflation as compared to last month.


The Public Debt as Issued by the U.S. Treasury, December 31, 2022

$31,457,247,000,000 .

Last month it was $31,326,303,000,000.



In Washington DC, where 535 bureaucrats work in the U.S. House and Senate with no term limits, about 50% are in one political party and 50% in the other.

It appears that members of one of those political parties would have you believe:

  • $31 trillion of debt doesn’t matter.
  • $400 billions of annual interest payments on that $31 trillion debt, all paid for by taxpayers, doesn’t matter.
  • That transferring billions of student loan debt from the borrowers to taxpayers, doesn’t matter.
  • That even though Social Security is not on a firm financial footing, it doesn’t matter.
  • And that spending more money every year than the amount of revenue that comes in, doesn’t matter.

Isn’t it time that it begins to matter?


Important Dates in February

February 2 – Ground Hog’s Day

February 12 – Abraham Lincoln, the 16th U.S. President, was born on this date in 1809.

February 14 – Valentine’s Day

February 21 – Presidents' Day is celebrated on the third Monday in February to honor the birthdays of Presidents Washington and Lincoln.

February 22 – George Washington, the first U.S. President, was born on this day in 1732.



What is the difference between reindeer and caribou?

A reindeer is a domesticated caribou.

Reindeer are simply domesticated caribou.


The Stock Market


This month we will hear from two distinguished money managers and Professor Siegel from the Wharton School.

Jim Lebenthal is the Chief Equity Strategist at Cerity Partners located in New York city.

Jim Lebenthal

Jim is the Chief Equity Strategist at Cerity Partners located in New York City.

A bull case:

Jim said on CNBC on January 13, “The odds of a soft landing have gone up over the past week with the better-than-expected average hourly earnings on January 6 and the CPI inflation numbers this week.”




Steve Weiss is the Chief Investment Officer and Managing Partner of Short Hills Capital Partners in Maplewood, New Jersey.

Steve Weiss

 Steve Weiss is the Chief Investment Officer and Managing Partner of Short Hills Capital Partners in Maplewood, New Jersey.

A bear case:

Steve said on CNBC on January 13, “I think the stock market situation this week has worsened. I am focused on the fact that yes, we are closer to the end than the beginning of the Fed’s rate tightening cycle, but we are closer to the beginning of the effects of the tightening cycle. I believe the economy is declining with corporate profits headed lower and unemployment headed higher."




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

Jeremy Siegel

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

Another bull case:

Professor Siegel said on CNBC, “I am not yet convinced we are going to have a recession. I believe inflation is dropping dramatically especially when recent housing data is substituted for the much-delayed housing data that is in the CPI and PCE inflation data. I think we are on the cusp of a new bull market.”


Stock Market Valuation

Ed is the President of Yardeni Research in New York.

Ed Yardeni

Ed is the President of Yardeni Research in New York.

Ed said on CNBC on January 12, “I believe the market lows we saw in October 2022 were this bear market’s lows. I see S&P 500 earnings will end this year at $225 per share. Our 2023 targets for the S&P 500 Index are:

  • At mid-year: 4300 to 4500
  • At year-end: 4600 to 4800”




Brian is the Chief Investment Strategist for BMO Capital Markets.

Brian Belski

Brian is the Chief Investment Strategist for BMO Capital Markets.

Brian said on CNBC on January 13, “The private companies we talk to say they expect their business is headed much higher this year. Here are our current S&P 500 Index predictions:

  • Bull case 4,800
  • Base case 4,300
  • Bear case 3,600”


We are now very early into 2023. Lorenz Financial believes the market will end 2023 between 4,300 and 4,600 on the S&P 500 Index. We might retest the lows of 3,577 to 3,588 but only if we have a recession.

The S&P 500 Index closed on January 31, 2023, at 4076.60

Monthly Performance of the S&P 500 Index

















Recommended Action for Your Stock Portfolio

So, your financial life is getting better and better. Great! You are spending less than you make. You have an emergency fund for at least three—preferably six—months of spending should you lose your job. You have either eliminated all your bad debt or you will very soon. You are aggressively saving for retirement as you know you will not be able to live on Social Security alone. You also recognize that you or one of your children, could live 40 years in retirement — so everyone must be saving for retirement!

But what do you do with your retirement savings? Your primary savings is likely at your place of employment in your employer’s retirement plan. Hopefully your employer offers a 401K or similar retirement savings plan. Depending on your timeframe and risk tolerance, most of your retirement savings will be in the stock market. And don’t forget about Roth IRAs. You and your spouse can have a Roth IRA each even if only one of you is employed.

Don’t let the last 12 months scare you away. Even after the bear (down) market in 2022, the S&P 500 Index is at 4076. In March 2009, it was 676. Well, that has been a nice long-term return!

Since 1926, the stock market is up slightly over 10% on average per year – and that includes the Great Depression in the 1930’s, the nasty inflation in the 1970’s, the back-to-back recessions in the early 1980’s, the Dot Com Bubble of 2000 to 2003, the Great Recession of 2008 & 2009, and COVID in 2020. The stock market goes up, but it does not go straight up. So, keep relying on your patience and courage.

There are many keys to stock market long-term success.

  • Keep investing every month.
  • Diversify – don’t put all your money into one or two stocks.
  • Keep your costs very low.
  • Even when starting out, capture 100% of your employer’s match.
  • Target saving 15% of your family income for retirement. This will take a few years.
  • Don’t look at your account every day or even every week.
  • Understand your personal risk tolerance so you can determine: “Should I be 80% in the stock market or 40%?”
  • Use patience and courage to maintain a long-term outlook.

If you are uncomfortable with some of these details, look for a low-cost fiduciary to help you with these decisions. Mark is available any time to have a no-cost, no-obligation face-to-face discussion or to exchange emails regarding your financial questions and concerns.


Financial Markets Vocabulary

There are several dates involving the announcement of a stock paying a dividend. The explanation of these dates is below.

First, individual stocks, stock mutual funds, and stock ETFs can pay dividends, but it is not required. Dividends are mostly distributed quarterly, but can be monthly, semi-annually, or annually. Each dividend payment must be approved by the company’s Board of Directors.

Declaration Date is the date a company’s Board of Directors publicly announces the next dividend. No money changes hands on this date, but the details and restrictions of the payment are part of the announcement including the Record Date and Payment Date.

Ex-Dividend Date is the day on which a stock trades without the benefit of the stock buyer receiving the next dividend payment. A stock seller on this date will still receive the next dividend. The ex-dividend date is the business day before the Record Date. For example, if Bill owns 100 shares of IBM stock and sells them to Jerry on this date, Bill will get the next IBM dividend. A stock’s price usually drops by the amount of the declared dividend on the ex-dividend date.

Record Date is the day all investors who own the company’s stock on this date will receive the next dividend even if the investor sells the stock before the Payment Date. For example, if Bill sells his 100 shares of IBM to Jerry on this date, Jerry will get the next IBM dividend.

Payment Date is the date the dividend is paid to eligible shareholders.

Payments can be either cash paid into the investor’s settlement fund (typically a money market fund), or the dividends are used to buy more shares of the company. But not all companies allow dividends to buy additional shares. Mutual funds are the most common security that allows dividends to buy more shares, even fractional shares, with the fund’s dividend.

All dividends, whether paid in cash or in additional shares, are considered taxable income by the IRS. If additional shares are purchased with dividends and the stock price increases after the purchase of additional shares, capital gains taxes must be paid when the stock is sold.

Most stock dividends are considered “qualified” dividends. This means they receive a lower federal tax rate than federal income tax rates. Other dividends are considered “ordinary” and are taxed at income tax rates, which are typically higher than qualified dividend tax rates.


OK, Now What Do I Do?

This month we are starting a four-part series on, “Know Your Financial Numbers”. We acknowledge everyone does not need to have all the financial numbers floating around in their head as we do, but it can be reckless if you ignore all the numbers, all the time.

Know your Financial Numbers

Here are the first five financial questions for you and your spouse. You both should know these numbers. If you don’t, Lorenz Financial suggests, please investigate!

Income & Expenses

1. How much is our family’s monthly take-home pay?

2. How much are our family’s average monthly expenses?

Now subtract item 2 from 1 and the difference is your monthly savings. If this is a negative number, you are spending more than you make. That will have dire consequences! To fix this you have three choices: increase the family’s income or cut expenses or a little of both.

3. What federal and state income tax brackets are you in? Hint for local residents, Indiana state income tax for 2023 was recently reduced to 3.15%, plus your county income tax rate.

4. What is the interest rate on your home’s first mortgage and in what year will you have it paid off?

5. How much are you paying your financial advisor annually in % and $?

How did you do? You said you got four out of five, right? Great. No, oh, you got four out of five wrong! Well, it’s appropriate to assemble an action plan so you can become more engaged in your financial life.

Next month we will have five more numbers everyone should know in our category, Annual Savings, Emergency Fund, and Net Worth.


Our Financial Bad Boy This Month

FAA System Outage Triggers Flight Cancellations

Source: The Wall Street Journal, January 12 & 13, 2023, pages A1 & A3

Pete Buttigieg the Secretary of Transportation.

Pete Buttigieg, Secretary of Transportation

Billy Nolen the Acting FAA Administrator

Billy Nolen, Acting FAA Administrator

An outage of the federal airline pilot alert system cascaded into a nationwide logjam at U.S. airports on January 11 snarling thousands of flights and temporarily stranding travelers across the country. The breakdown of the Federal Aviation Administration’s Notice to Air Missions System (NOTAMS), which provides safety information to pilots, led the agency to issue a nationwide “ground stop” that halted domestic departures for nearly two hours. This stoppage caused 1,300 flights to be canceled and more than 10,700 flights were delayed.

NOTAMS is used to notify commercial airline pilots, cargo planes, and military officials about restrictions to flight operations that emerge in real time such as airport runway closures and nearby airspace activity. By law, commercial airline pilots are prevented from taking off if they have not read the latest NOTAMS.

For years, federal aviation regulators, lawmakers, and air safety advocates have warned about outdated technology, hardware, and other problems with NOTAMS. The FAA has been working to overhaul NOTAMS, but the upgrade isn’t expected to be completed for another two years.

Somehow the press failed to ask Mr. Buttigieg or Mr. Nolan, “How much of the $1.2 trillion Infrastructure Bill that was signed by the President on November 15, 2022, will be re-allocated to create and implement a new and better NOTAMS as quickly as possible?”

There has been no word from the Administration, the FAA, the Secretary of Transportation, or Congress on the root cause of the total failure of NOTAMS on January 11.


The Bond Market


As per last month, we believe the Fed is nearing the end of its rate hike campaign. Although one or two more hikes are possible, there is increasing evidence the pace of inflation is decelerating. This gives confidence to the Fed that their actions are working.

Recent reductions in the Consumer Price Index are remarkable. Yes, over the past 12 months the inflation rate is only down to 6.5%, but when the past six months of inflation data is annualized, the inflation rate is only 1.8%.

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

The FOMC raised the federal funds rate by 25 basis points on February 1 to the target range of 4.5% to 4.75%. The decision was unanimous. They also said they are not done raising rates. The next FOMC meeting is March 21-22.

The U.S. Treasury

Treasury Secretary Yellen has notified Congress that the U.S. has reached its $31.4 trillion debt ceiling. The Treasury can manipulate spending through June, but by then spending must decrease or the debt limit must be raised.

In the 4th quarter 2022, the federal government’s tax receipts was $1.0 trillion but the spending was $1.4 trillion. Why can’t Congress live on spending only $1 trillion a quarter?

Recommended Action for Your Bond Portfolio

Our recommendations this month remain the same. In order, they only include:

  • Short-Term U.S. Corporate or Securitized bond funds
  • Certificates of Deposit (only if FDIC or NCUA insured)
  • U.S. Savings I-Bonds (max savings is $10,000 per account per year)
  • Cash (in a money market account paying 3.5% to 4%)



Pop Quiz Answer

Lorenz Financial will never suggest a client purchase a mutual fund or ETF from Fidelity, Wells Fargo, or PIMCO. Why?

Answer: Here are our reasons.

1. Fidelity
In 2013, current and former Fidelity employees sued Fidelity saying the company’s employee retirement plan was dominated with high-cost Fidelity mutual funds when lower-fee options were available but not offered. The suit also alleged the company was charging excessive fees. Fidelity settled the class-action suit in 2014 by agreeing to pay $12 million.

Apparently, Fidelity did not get the message the first time around. Employees sued the company again in 2018 for breaching its fiduciary responsibility by only including its own product in the retirement plan. The company settled this second suit for $28.5 million.

Therefore, why would any Fidelity clients expect to be treated better than Fidelity has treated their own employees? Lorenz Financial will not consider selling any of our clients a Fidelity security.

2. Wells Fargo
The Consumer Financial Protection Bureau fined Wells Fargo $100 million in 2016 for “widespread illegal practices of secretly opening unauthorized accounts for clients”. Retail banking employees were incentivized to open at least six accounts for every banking customer. Even though new customers were offered products such as checking accounts, savings accounts, money market accounts, first mortgage loans, home equity lines of credit, and auto loans, many customers just wanted a checking account. Well, that just would not do. Employees went ahead and opened other accounts in the customer’s name without notifying the customer. The more accounts each customer had, the more the bank sales teams were paid.

As part of the settlement, Wells Fargo was also required to hire an independent consultant to review the company’s incentive compensation programs. In 2020, the Department of Justice got involved and leveled a penalty of $500 million against the bank. Eventually, the CEO lost his job. Lorenz Financial will not consider selling any of our clients a Wells Fargo security.

PIMCO is the abbreviation for the Pacific Investment Management Company. They are based in Newport Beach, California, and specialize in bond mutual funds and bond ETFs.

An acquaintance of Lorenz Financial held a PIMCO bond mutual fund. Bond funds typically earn less than a stock fund in a normal year. Also, bond funds tend to be less volatile. On a given day a few years ago, the PIMCO bond fund held by this investor dropped 0.5% - that’s a relatively high level of volatility for a bond fund in one day. The investor called up PIMCO and asked, “Did the fund have a distribution that made the fund price go down today?”

The answer was, “Sir you will have to talk to your advisor.” The investor responded, “I don’t have an advisor. Can you tell me why the fund went down 0.5% today?” The answer was the same, “Sir you will have to talk to your advisor.” Even when asked a third time, the investor got the same reply.

We want no part of a mutual fund company that insists on being so opaque, difficult, and rude. Therefore, Lorenz Financial will not consider selling any of our clients a PIMCO security.