July 2022 Newsletter

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




The U.S. economy continues to struggle with multiple headwinds. At the top of the list is high inflation which dominates rent, food, and energy prices. The war in Ukraine is having a devastating effect on worldwide food supplies causing food prices all around the world to rise. David Beasley, CEO of the World Food Program said, “We have no choice but to take food from the hungry to feed the starving.”

Energy prices are also affected by the war in Ukraine as country after country has declined to buy Russian oil and gas, reducing the supply of available energy. In the United States, our poorly managed effort to expedite the conversion from fossil fuels to renewables has discouraged oil production and placed a strain on domestic supplies of gasoline. Energy companies see no long-term benefit in spending company profits on additional exploration, drilling, refining, or pumping. They have recently decided their best path forward is to reward shareholders with higher dividends and buying back stock.

Housing, both rental units and individual housing, is in short supply. Residential construction materials costs are up 19% year over year. On the purchaser’s side of the business, mortgage rates have zoomed up to over 6% for a 30-year loan.

The worldwide supply chain is a long way from being resolved. The state of California recently allocated $2.3 billion to improve the ports of Los Angeles and Long Beach. General Motors reports they have 95,000 cars and trucks built but is unable to ship them to dealers as the trucks are missing micro-processors or high-tech sensors.

And as all of our readers are aware, the stock market has started 2022 with the worst performance since 1970.

The best news is employment is still in good shape. Layoffs have been very minimal. Almost anyone who wants to work, can find work. This is not the time to be laid back. We recommend everyone over the age of 18, if not in school, to work aggressively, spend less than you make, and save the difference.


Our July 2022 newsletter will discuss the economy, employment, financial terminology, and more.

Milton Friedman

“The greatest danger to the consumer is the monopoly – whether private (the utility company) or governmental (the local school district). The consumer’s most effective protection is free competition in his hometown and free trade throughout the world. The consumer is protected from being exploited by one seller, by the existence of another seller from whom the consumer can buy and the second who is eager to sell.”



Pop Quiz

Other than being a U.S. President, what did James Madison do that was so great that the U.S. Treasury put his portrait on the $5,000 bill?

Our July 2022 newsletter will discuss the economy, employment, financial terminology, and more.

The answer is at the bottom of the newsletter





Unemployment Rates by Education Level, May 2022

Less Than High School Diploma5.2%
High School Graduate, No College3.8%
Some College or Associate’s Degree3.4%
Bachelor’s Degree or Higher2.0%

Average hourly earnings of all employees on private nonfarm payrolls were up 5.2% compared to a year ago.


Leading Economic Indicators (LEI)

The LEI dropped by 0.4 in both May and April. The lower LEI suggests weaker economic activity is likely in the near term.


Gross Domestic Product (GDP)

The Bureau of Economic Analysis said the final estimate for the 2022 first quarter GDP decreased by 1.6% compared to a decrease of 1.5% in the previous estimate.


Annual inflation remained the same at 6.3% in May as measured by the Personal Consumption Expenditures (PCE) index. The core PCE index, which excludes food and energy, decreased for the third month in a row to 4.7% in May, as compared to the adjusted 4.9% in April and 5.2% in March. The core PCE inflation index peaked at 5.3% in February.

The Federal Reserve’s core PCE inflation target is 2.0%. Therefore, everyone should anticipate more increases in the Federal Funds rate to increase short-term interest rates and aggressive Quantitative Tightening to raise long-term interest rates.

The nationwide median price of an existing home sold in May 2022 was 14.8% higher on average than last year according to the National Association of Realtors. The median price was $407,600. But, home sales have begun to slow as the inventory of unsold homes rose.

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 Year2.58%
10 Year2.33%
30 Year2.23%

This month’s estimated annual inflation numbers above are 29 basis points lower on average compared to last month.


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




Important Dates in July

July 1, 2, & 3, 1863 – The Civil War Battle in Gettysburg, Pennsylvania was fought resulting in 51,100 men killed, wounded, or missing.

July 2, 1881 – James Garfield, the 20th President of the United States, was assassinated at a Washington, DC train station. The shooting occurred less than four months into his term as president. He died on September 19. Charles Guiteau assassinated the president for an imagined political debt. Garfield was the second U.S. President to be assassinated in office. Chester Arthur was sworn in as President on September 19, 1881. Arthur did not win the Republican primary for President in 1884. The republican winner was James Blaine, but he lost the general election to Grover Cleveland.

July 4, 1776 – Independence Day. On this day, twelve of the 13 colonies approved Jefferson’s Declaration of Independence. The New York delegation abstained during the July 4 vote as they were waiting on approval from Albany. Yes, even the American colonies were plagued back then by leaderless bureaucrats.

On July 4, 1826, Thomas Jefferson, our third U.S. President, died. Five hours later on the same day, John Adams, our second U.S. President also died.

July 20, 1969 – Neil A. Armstrong, commander of Apollo 11, became the first man to walk on the moon.

July 26-27 – The fifth Federal Open Market Committee meeting of 2022.



The Stock Market


Josh Brown, CEO of Ritholtz Wealth Management, New York, NY

On CNBC Josh Brown said on June 28:

“We had a recession in March of 2020, but it only lasted a week because for moral reasons we decided, no, we are not going to have a recession and ruin people’s lives due to the COVID lockdown. Therefore, every branch of the U.S. government and central banks all around the world poured money into their country’s economies to prevent the pandemic from causing a massive recession.

“But we have to pay at some point for all the easy, free money we have had for over a decade. Eventually we have to actually have a recession to cleanse the excesses. A technical, short, shallow recession is not the worst thing that could happen.

“I don’t think the majority of people on Main Street would have their lives materially altered by a recession IN THIS CASE because of how tight the labor market is. If we lose a bunch of executives at Tesla, Netflix, and Coinbase, no big deal. But we’ll be OK if we keep a high employment level of nurses, truckers, and oil field workers, etc.

“Remember the economy and the stock market always overshoot (up and down). We are not getting out of this recession with the PE of 16, especially if earnings fall apart in the latter half of this year. In the early 1980s recession, the PE ended at 9.”

Lorenz Financial’s research is focused on identifying the stock market’s final bottom. This can open the door to a mid-term off-presidential election year buying opportunity. We expect this to develop with a market bottom, followed by a short-term rally that fails, and then the bottom is retested. When, or if this scenario develops, we will issue an alert to our newsletter subscribers that the stock market in our view is “attractive for purchase.”


Stock Market Valuation

The S&P 500 Index closed at 3,785.38 on June 30. The closing low for this bear market so far was 3,667 on June 16.


Our best case is

YearEarnings/SharePE RatioApprox. S&P 500 Index High


But the worst case might be

YearEarnings/SharePE RatioApprox. S&P 500 Index High


The current Lorenz Financial prediction for the S&P 500 Index bottom for the remainder of this year is 3,150 +/- 100.


Monthly Performance of the S&P 500 Index















Recommended Action for Your Stock Portfolio

Our long-term advice shown here has not changed since last month. Everyone, please stay strong by drawing on your patience and courage. The stock market has never gone to zero; not during the Great Depression, not during the significant recessions of ’57-’58, ’73-’75, and ’80- ’82, not during the Dot Com Bubble of 2000, or the worldwide Financial Crisis (The Great Recession) of 2008-09, and not during COVID in 2020. Every time the market has recovered and made new highs.

So, what should long-term investors do at this point?

1. Don’t sell now; the market is at a low point. (Sell high, not low)

2. This bear market will not go on forever. If an investor has cash destined for the stock market, begin to get psyched up to buy back in later this year or early next year. (Buy low)

3. And most importantly, please continue to make your weekly, bi-weekly, or monthly contributions to your employer’s retirement plan and your IRAs. Buying low is a good thing!



    U.S. Series I Savings Bonds, or I-bonds, have recently become all the rage. So, what are they? I-Bonds are issued by the U.S. Treasury and have the full faith and credit of the U.S. government. Therefore, I-bonds have no credit risk. But for example, Russian bonds are currently rated “C” (may be ready to default) by Fitch.

    Private, municipal, corporate, and other governmental bonds have interest rate risk. That is the risk that an existing bond’s price will drop as interest rates rise. I-bonds do not have this risk as they function a lot like a bank CD.

    I-bonds pay interest based on a formula that measures recent inflation. For example, I-bonds purchased in May thru October 2022 pay an annual interest rate of 9.62% for six months after purchase. Then every six months after the purchase date, the current I-bond interest rate applies. If inflation ever goes negative, I-bonds will not lose value but pay zero percent interest.

    I-bonds are a 30-year, federally tax-deferred bond. I-bond interest is tax free from state and local taxing authorities. Federal taxes are deferred until the bond matures in 30 years or when the bond is sold back to the Treasury. I-bonds must be held a minimum of one year before being sold. And if sold during the first five years, the purchaser will lose the final three months of interest.

    I-bonds cannot be purchased at your broker, but only through the government’s website:
    There is no commission or annual fee to buy or hold I-bonds.

    Unfortunately, I-bonds are limited to $10,000 per person per calendar year. But besides being purchased by an individual, I-bonds can be purchased by a trust, a corporation, or an LLC. See the above website for many more details.

    Lorenz Financial recommends only a family’s “safest” money be invested in I-bonds as the final return of I-bonds minus federal taxes minus inflation will always be slightly below zero.



    OK, Now What Do I Do?

      Last month, we talked about a variety of steps everyone can take in this environment of high inflation and the stock market growling like a bear.

      This month, we’re offering advice for long-term investors who need income but are not satisfied with the yield of CDs and who are willing to take some individual stock market risk. An option for that group of investors might be a diversified portfolio of high dividend paying stocks.

      We highly recommend diversifying your holdings by owning eight to ten stocks in a variety of sectors, not just two or three. Don’t put more than 4% of your stock market allocation into any one stock. Below is a partial list of stocks a long-term investor, who desires dividend income, might own.



      Broadly, Lorenz Financial does not recommend to our clients to invest in individual stocks, but we know some do. Even though we can help anyone buy high dividend-paying individual stocks, we do not allocate our time to decide when to sell those stocks.

      Lastly, as the SEC is in the process of delisting Chinese stocks from U.S. stock exchanges, Chinese stocks are not the place to be—and never were in our opinion—for long-term investors. For example, DiDi Global opened for trading in the U.S. at $16.90 on July 1, 2021. On June 30, 2022, it closed at $2.95, a drop of 82.5%.




      Ernst & Young to Pay $100 Million Fine in Ethics-Cheating Scandal

      Source: The Wall Street Journal, June 29, 2022, page A1


      Ernst & Young (EY) agreed to pay a $100 million fine to the Securities and Exchange Commission (SEC) and to admit that some of its auditors cheated on required ethics exams. The SEC said since June 2019 over 90 EY audit professionals requested, used, or shared answer keys with colleagues! EY must also pay for two compliance reviews by outside firms.

      Even though EY knew of some level of cheating within the firm, EY’s response in 2019 to the SEC inquiry was, “EY did not have any current issues with cheating.” As EY reported that to the SEC, they opened their own internal investigation.

      “It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams,” said SEC Enforcement Director Gurbir Grewal.

      An EY spokesperson said, “Nothing is more important than our integrity and our ethics.”



          The Bond Market


          On June 15, Federal Reserve Chair, Jay Powell testified before Congress. He said in part:

          “Job growth is slowing, but the labor market is still robust. Consumer spending is very strong, but most importantly, inflation is too high.

          “We are in the process of significantly reducing our $8.5 trillion balance sheet by selling off part of our bond inventory monthly. We see either a 50 or 75 basis point increase in the federal funds rate most likely at our July meeting. We want to see a series of declining inflation numbers before we back off on increasing interest rates.

          “There are many aspects of inflation we cannot influence – those being food and energy prices.”

          Unfortunately, Lorenz Financial has more data that shows a bond investor in today’s market can lose money owning bond mutual funds.

          Vanguard Long-Term Bond IndexVBLAX– 21.62%
          T Rowe Price International BondRPIBX-16.93%
          Fidelity Convertible Bond SecuritiesFCVSX-18.98%


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

          The FOMC met on June 14 – 15 and voted to raise the short-term Federal Funds rate by 0.75% to the current range of 1.50% to 1.75%. Also in June, Quantitative Tightening began as the Fed began to sell $47.5 billion of their bonds monthly. In September, the target doubles to $95 billion a month.

          The FOMC members said they expected the Federal Funds to max out this year between 3.1% and 3.6%. Next year, they said the rate could reach 4.1%. We believe the FOMC will raise the Federal Funds rate another 75 basis points at their next meeting, July 26 – 27.


          The U.S. Treasury

          The U.S. annual budget deficit continues to decrease as compared to the Federal spending in 2019, 2020, and 2021. Yields on U.S. Treasuries are rising. For example, a 5-year Treasury yields 3.0% – the same as a 5-year bank CD. To purchase any type of U.S. Treasury bond, go to:


          Recommended Action for Your Bond Portfolio

          There have been 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 recommendations, in order, only include the following:

          • Cash
          • U.S. Savings I-Bonds
          • Ultra-Short-Term U.S. bond funds



          Rule one: “Spend less than you make.” A family cannot pursue long-term happiness and build wealth by spending more than they make.

          Rule two: “Maintain a safe and liquid emergency fund of at least six months of family expenses.” An emergency fund should be kept in an FDIC-insured bank’s or NCUA-insured credit union’s checking account, savings account, or money market account.

          Rule three: “Permanently eliminate all bad debt.” All debt is bad debt except a fixed-rate, first mortgage on your home.



                      Pop Quiz Answer

                        Other than being a U.S. President, what did James Madison do that was so great that the U.S. Treasury put his portrait on the $5,000 bill?

                        James Madison (March 1751 – June 1836) was an American statesman, diplomat, and founding father. He served as our fourth president after Washington, Adams, and Jefferson.

                        In 1787, Madison drafted The U.S. Constitution. Even though his writings accurately reflected what the members of the Constitutional Convention decided upon, a little rhythm or poetry was desired. Gouverneur Morris, along with Ben Franklin, were two Pennsylvania delegates to the Convention. Morris gave 173 speeches at the convention, had a marvelous vocabulary, and added the poetic flare of the 18th century to our country’s most important document.

                        Once the constitution was drafted, it had to be ratified by at least nine states. To help convince the man on the street, Madison, along with John Jay and Alexander Hamilton wrote The Federalist Papers between October 1787 and May 1788.

                        As Secretary of State for our third President, Thomas Jefferson, Madison supervised the Louisiana Purchase from France in 1803 for $15 million. This doubled the size of the United States.

                        Madison was then elected President. He served two terms from 1809 to 1817. During his time in office, Madison directed the U.S. military efforts during the War of 1812 with England.

                        It was Madison’s wife, Dolley, who saved the portrait of George Washington that hung in the White House when the British burned the White House during the war of 1812.

                        The eight-foot-tall painting hangs today in the East Room of the White House.

                        After the war, Madison focused his attention on domestic affairs.  The federal budget was brought back into surplus; an effective taxation system based on tariffs was implemented; a well-funded standing professional military was established; pensions were extended to orphans and widows of the War of 1812 for a period of five years.  Madison is usually ranked among the top ten U.S. presidents by scholars.

                        In 1918, the U.S. Treasury first printed the $5,000 bill.  Without interruption, James Madison’s portrait has been the only portrait on the $5,000 bill.  Though no longer in circulation, over 300 remain in existence with collectors.