January 2022 Newsletter


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



Let’s review the five pre-recession indicators to see if a recession is on the horizon.

Accelerating Inflation? The median Consumer Price Index has risen to 3.5% year-over-year. It will take some time for supply chain issues to ease to a point where annual inflation can return to the 2% to 3% range. We do not see accelerating inflation causing a near-term recession.

Slow Payroll Growth? While there is a shortage of qualified workers, there is no shortage of available jobs. On average, there are three open jobs for every two workers looking for a job. The exceptionally tight labor market conditions have placed upward pressure on wages, especially for those in lower-paying sectors. Employers are finding it difficult to find qualified workers due to mismatches in education, training, and location. A recession due to slow payroll growth is not on the horizon.

Rising Unemployment Claims? The four-week average of unemployment claims fell to 199,250, tracking close to the lowest level since 1969. No recession here.

Inverted Yield Curve? An inverted yield curve is an excellent barometer for a recession that is within the next two years, but the yield curve is not inverted today.

Declining Leading Economic Index? The Conference Board Leading Economic Index (LEI) increased 1.1% in November – the best in the past six months. No recession building here.

These indicators tell Lorenz Financial our economy will have a successful 2022 without a recession. Of course, we cannot predict something like a major terrorist attack, but the economic indicators above look promising. Remember the economy and the stock market are two different things. We believe the stock market in 2022 will be OK to good 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

Dr. Malkiel

“A blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by an expensive expert.”
Burton Malkiel

Burton Malkiel wrote the above quote in his historic book, “A Random Walk Down Wall Street.”  His book was first printed in 1973 and is now in its 12th edition as of 2019.

Dr. Malkiel is a professor of economics at Princeton University and twice its department chair.  He served as a member of the Council of Economic Advisors, Dean of the Yale School of Management, and 28 years as a director at the Vanguard Group.


Pop Quiz


An Investor’s Question:  My spouse worked for a major US corporation for 38 years and put a lot of retirement savings into the company stock.  Now over 60% of our wealth is in this one stock!  We know that is too much, and we have recently started selling some shares every month to diversify our retirement savings.  When we are done selling, what percent of our portfolio is it OK to have in this one, or any, individual stock?

The answer is at the bottom of the newsletter.

The Economy

stock market



Total U.S. nonfarm payroll employment rose by only 210,000 in November while the official unemployment rate, U-3, dropped to 4.2% from last month’s 4.6%.  The Job Openings & Labor Turnover Survey (JOLTS) said there were 11.0 million open jobs in the U.S. as of the last business day of October – compared to 10.4 million openings the last day of September.

The seasonally adjusted, total unemployment rate, U-6, declined in November to 7.8% from 8.3% last month.  It was 12.0% in November 2020.  There are 6.3 million people unemployed in the U.S., age 16 and older, compared to 6.9 million last month.

Unemployment Rates by Education Level, November 2021



Less Than High School Diploma5.7%
High School Graduate, No College5.2%
Some College or Associate’s Degree3.7%
Bachelor’s Degree or Higher2.3%

Average hourly earnings of all employees on private nonfarm payrolls were up 4.8% compared to a year ago.


Gross Domestic Product (GDP)


The Bureau of Economic Analysis said the final estimate for GDP in the 2021 third quarter increased by 2.3% compared to 6.7% in the second quarter.




Annual inflation rose 5.7% in November as measured by the Personal Consumption Expenditures (PCE) index.  The core PCE index, which excludes food and energy, rose 4.7% in November, as compared to the adjusted 4.2% in October.

The nation-wide median price of an existing home sold in November 2021 was 13.9% higher on average than November 2020 according to the National Association of Realtors.

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 Year2.87%
10 Year2.56%
30 Year2.34%

This month’s estimated annual inflation numbers above are 6 basis points higher on average compared to last month.


Important Dates in January




January 1 – New Year’s Day

January 15 – Dr. Martin Luther King Jr.’s birthday.  Dr. King’s birthday is celebrated on the 3rd Monday of January which this year is January 17.

January 25-26 – The first Federal Open Market Committee (FOMC) meeting of 2022.

January 27 – International Holocaust Remembrance Day



Stock Market

stock market



Marko Kolanovic


On December 8, Marko Kolanovic, JPMorgan Chief Global Strategist, said, “Our view is 2022 will be the year of a full global recovery, an end of the pandemic, and a return to normal economic and market conditions.”



David Kostin



On December 9, David Kostin, Goldman Sachs Chief U.S. Equity Strategist said, “The biggest surprise in 2021 has been U.S. corporations have had four headwinds:

  • Commodity prices have gone up
  • Extraordinary difficulty hiring talented labor
  • COVID-19
  • Supply chain disruptions

Despite these challenges, corporations have increased their profit margins in the first three quarters of 2021 to 12%.  We expect profit margins to increase to 12.40% later in 2022.  Our S&P 500 prediction is 5,100 by the end of 2022.



Josh Brown


On December 23, Josh Brown, Ritholtz Wealth Management CEO, said financial advisors are recognizing how large the money flow has been into stocks and how much more is needed.  Three significant things are happening:

1. The expected stock market (S&P 500 Index) returns going forward could be lower than in recent years:

                  • 2017 = 21%
                  • 2019 = 31%
                  • 2020 = 18%
                  • 2021 = 28%

as market performance “returns to the mean” (approximately 10% per year over the long-term).

2. Bond market returns will be non-existent as interest rates are headed up. (Prices of existing bonds move in the opposite direction of interest rate movements i.e., when one goes up, the other goes down and vice versa).

3. Life expectancies are increasing and putting a higher demand on everyone’s portfolio. Retirement account expectations use to be, “they must last 30 years”.  Now the expectation is they must last 40 years or more.

The conclusion is, “Oh my, we need to put a higher percent of our money in stocks and less in bonds and cash!”  (End of Josh Brown’s comments.)

In the last few months, we have had a volatile stock market.  After having a market downturn of 5.2% starting in early September and lasting through mid-October 2021, the market recovered and set another all-time closing high on November 18.  Then in late November the market dropped 4.1% from November 18 to December 1.  These brief episodes of market noise and consolidation should not affect long-term investors.  Those still employed should continue to add to their retirement savings each pay period.


Stock Market Valuations


As per the most recent Investor Survey by CNBC, here are the percent of investors who think 2022 S&P 500 stock market returns will end the year:


Percent of Investors Surveyed







As interest rates are expected to rise in 2022, many companies with no earnings will find their stock prices continuing to fall.  Some of these companies have already had their share price drop 40% to 75% in the past year.  Some companies might have hit bottom and are a buy, but others will perform as if their stock price is a falling knife.  A partial list of these high-flying, no-profit tech companies are:


Plug PowerPinterest


Lorenz Financial believes the stock in these types of companies are to be avoided.

We believe the stock market in 2022 will be OK to good with increased volatility.  We expect the S&P 500 Index can exceed 5,100 this 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 4,200.  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 Friday, December 31, at 4766.18.  That is up 4.3% since the close on Tuesday, November 30 at 4567.00.


S&P 500 Index







The average stock market performance of the S&P 500 (using the ticker symbol SPY) has been up 11.01% over the past 20 years.  This includes the recent down years of:

      • 2002 down 21.59% due to the dot com bubble
      • 2008 down 36.81% due to the financial crisis
      • 2018 down 4.56% due to the Federal Reserve raising interest rates four times

Investors who used patience and courage during these down years and did not sell have been handsomely rewarded over the long-term.


Recommended Action for Your Stock Portfolio


What sectors does Lorenz Financial recommend for 2022?

First, we recommend the total stock market index.  Vanguard’s admiral fund shares ticker symbol is VTSAX.  Vanguard’s ETF ticker symbol is VTI.  Either one will work as these index funds will provide a very high level of diversification, very low costs to own, returns that match the S&P 500 Index and if placed in a taxable account, significant tax efficiency.

But for those who want to focus on the sectors we expect that will perform better than the overall index, our recommendations are below in alphabetical order:

      • Consumer Discretionary (VCR)
      • Financials (VFH)
      • Industrials (VIS)
      • Materials (VAW)
      • Oil and Gas (VDE)
      • Semiconductor manufacturers (SMH)
      • Technology (QQQ)

All portfolios remain fully invested.  Additional money can be added to an investor’s stock portfolio on a dollar-cost-average basis.





    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.

    Here are some investment products to never buy!


        1. Exchange Traded Note (ETN) – these are very different than an exchange traded funds, ETFs. An ETN is an unsecured debt security issued by a bank that tracks an underlying index of securities or commodities. ETNs do not have interest payments but instead their price fluctuates like a stock.  ETNs tend to be a high-risk investment for investors but the issuing bank almost always makes money.


        1. Fixed or Variable Annuity – annuities are issued by a life insurance company. Annuities tend to have low returns with no guarantees except from the life insurance company. Life insurance companies pay a high commission to the annuity selling agent.  To make up for this the insurance company will charge the investor a high annual fee for the life of the annuity.  In a variable annuity with funds, the investor will have fees to pay to the mutual fund companies in addition to the fees paid to the life insurance company.


        1. Do not buy any investment product that contains these words in its name: collateralized, non-traded, subordinated debt, closed-end funds, leveraged funds, contrarian funds, alternative investments, limited partnerships, master limited partnerships, viatical life settlements, unit investment trusts, structured notes, structured CDs, SPACS, NFTs, and any unregistered securities. The list goes on and on.


    OK, Now What Do I Do? 

      Last month we emphasized, “Spend less than you make”, “Embrace delayed gratification”, “Be a long-term investor” and “Refinance your home’s mortgage if you can get an interest rate lower than what you are currently paying and are only charged reasonable fees”.  This month we want to cover more of the basics.

      First build your emergency fund.  Target having three months of family expenses in a safe and liquid account like an FDIC bank checking, savings, or money market account.  There is no objective to make money with an emergency fund!  The fund is to be liquid (readily available today!) and safe (FDIC insured) – there are no other objectives for this money.  Later we will recommend increasing a family’s emergency fund to six to nine months of spending (not income).

      Second, do you have all the insurance your family needs?  The list includes:

      • Life – if you have dependents
      • Medical
      • Homeowner or renters
      • Auto
      • Umbrella Liability
      • ID Theft
      • Long-Term Care (purchase between the ages of 55 and 60)
      • Optional: Long-term Disability Income


      Third, eliminate all bad debt.  All debt is bad debt, except a family’s fixed-rate, first mortgage.  For some families, this will take a year or longer to eliminate all bad debt.  This includes student loans, credit card debt, home equity lines of credit, personal loans, payday loans, and car & other vehicle type loans.  It imperative that a family eliminates all bad debt!

      Once these financial basics above are in place, where should an investor begin?

      Step 1 is to capture all of the employer’s match to the company’s retirement plan.  This is free money so go get it all!

      Step 2 is to contribute the maximum to your Roth IRA and another for your spouse.  Only one spouse needs to have income to contribute to two Roth IRAs.  The maximum contribution is $6,000 per year if under 50 and $7,000 per year if 50 or older.

      When the family has enough income, Step 3 is to go back to your employer’s plan and work your way to contributing the maximum.  This will take a few years.  Our recommendation is to take 50% of all pay increases and use that money to increase annual retirement savings.



      Our Corporate Bad Boy This Month

          Gold Dealers Who Promoted it is Legal to Buy & Take Possession of Gold Coins Purchased with IRA Money

            Source: Page B4, The Wall Street Journal, December 4-5, 2021


              Tax Court Judge, Joseph Goeke, recently ruled owners of individual retirement accounts with assets in gold or silver coins cannot take possession of those coins.  This decision upholds current tax law.  The defendants, a Rhode Island couple, had put $730,000 of their retirement money in precious metal coins and took possession of the coins.  The court ruled their IRAs were therefore dissolved, and the proceeds were immediately taxable to the tune of $270,000 (37% tax bracket).  The Judge also added a penalty of $54,000.  Ouch!

              It’s a cautionary tale that shows how dangerous it can be to invest retirement funds in “alternative assets” without professional advice.  It is legal to put alternative assets in an IRA but there are landmines everywhere.

              Here are two examples of some big mistakes with retirement money.  First, gold coins can be bought with IRA money but only from a gold dealer who is also an IRS-approved gold depository.  And absolutely, the gold coins stay at the depository!  Unfortunately, all buying and selling (with a substantial commission and annual storage costs of course) of the gold coins must be made through the gold depository.

              And here is a real estate example:  A vacation rental property can be put into an IRA, but a real estate custodian willing to handle the transaction must be found first.  Then if the IRA holder stays one week in his/her vacation property, that is a “prohibited transaction” that dissolves the IRA and income taxes are due.

              If an investor has already bought gold or silver coins with IRA money and taken possession of the coins, we strongly recommend hiring a tax lawyer immediately and come clean with the IRS.  Please do not mess with the IRS.



                  Bond Market

                      Stock Bonds



                            The fourth quarter CNBC All-America Economic Survey found the top issues facing the American people were voiced by the following percent of people as their top two concerns.

                            Cost of LivingCOVID-19ImmigrationCrimeClimate Change

                            Also, Home Builder sentiment has increased as housing starts increased in November by 11.8%.  Mastercard reported retail sales increased 8.5% from November 1 through December 24 in 2021 vs 2020.


                                Federal Reserve

                                  The Federal Open Market Committee (FOMC) met in mid-December and voted unanimously to keep the federal funds target rate at the 0% to 0.25% level.  FOMC members also decided to double the pace of tapering from $15 billion per month to $30 billion per month. The faster pace of tapering means the asset purchase program will end in March rather than June.  Ending the quantitative easing program a few months earlier enables the FOMC to consider raising the federal funds rate earlier in 2022.

                                      U.S. Treasury

                                        Congress voted to increase the debt ceiling by $2.5 trillion in December.  During the two years the country has endured COVID-19, the federal government has added $6.4 trillion to the public debt and the Federal Reserve has added $4.6 trillion to their balance sheet.  Looking back over the most recent 10 years, the total public debt has increased $14.4 trillion, or a 95% increase since December 31, 2011.  This level of federal spending beyond tax receipts cannot continue forever.  Something has to give.

                                            Recommended Action for Your Bond Portfolio


                                              There are no changes to our bond fund recommendations this month.  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 6 to 9 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.

                                                    PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.

                                                        Pop Quiz Answer


                                                          An Investor’s Question:  My spouse worked for a major US corporation for 38 years and put a lot of retirement savings into the company stock.  Now over 60% of our wealth is in this one stock!  We know that is too much, and we have recently started selling some shares every month to diversify our retirement savings.  When we are done selling, what percent of our portfolio is it OK to have in this one, or any, individual stock?

                                                          Answer:  At Lorenz Financial we invest in the stock market primarily through mutual funds and exchange traded funds to significantly diversify an investor’s portfolio.  Only the most aggressive investor should invest in individual stocks as the volatility can be unnerving.  For example, in a worst-case scenario, an individual stock could drop 50% in a matter of days.  When, not if, this happens the investor’s stock portfolio is only down 2% if they had only 4% in each individual stock.  That is our recommended individual stock limit – only 4% of an investor’s stock portfolio in any one individual stock.

                                                          See the chart below on the Peloton (PTON) stock price from Dec 1, 2020, to Dec 31, 2021.  The price is down 78% from its high.