March 2020 Newsletter

coins in the shape of world countries on a table with financial reports

Welcome to the March 2020 newsletter! We’ll update you on stock market changes, the Federal Reserve and Treasury, recommended actions for your stock and bond portfolios, and more. And, as promised, we’re sharing some pretty bad financial advice you should NOT follow. Let’s dive in!


Investors are finding it hard to assess the damage the coronavirus will have on economic growth as this virus is disrupting manufacturing and supply chains around the world.

Currently, our research does not indicate a strong buy signal. During a stock market correction, no selling should take place. We are closely monitoring the stock and bond markets, and we will announce a change to our portfolios should one occur. For now, all portfolios remain fully invested. This is the time for all stock market investors to demonstrate courage and patience – requirements of all successful long-term investors.

Employees should continue to make their weekly, biweekly, or monthly contributions to their employer’s retirement plan or IRAs. At this time, additional money can be added to an investor’s stock market allocation, but only on a dollar-cost-average basis.

The Economy

coins in a stairstep with blue clock in the background


U.S. nonfarm payrolls rose in January by 225,000. The December payroll number was revised up to 147,000 from 145,000. The November payroll number was revised up to 261,000 from 256,000. The rolling three-month payroll average increased to 211,000 this month from 184,000 last month. Most of the employment gains in January came from the construction, health care, and leisure/hospitality sectors.

The unemployment rate increased to 3.6% from 3.5% due to more discouraged people looking for work. Wages climbed 3.1% from a year earlier.

U-6 is the broadest measure of unemployment. It includes both discouraged workers and part-time workers who are seeking a full-time job. After spending only one month at 6.7%, U-6 in January increased back to its November number of 6.9%.

Gross Domestic Product (GDP)

The Bureau of Economic Analysis said the second estimate of 2019 fourth-quarter GDP was 2.1% — the same as the first estimate. If this reading remains unchanged, 2019 GDP growth will be 2.35%. For 2020, we remain with our GDP forecast of 1.8% to 2.2% growth. So far, we are not yet seeing recessionary signals in real-time economic data.


Annual inflation rose slightly in January to 1.7% from December’s adjusted 1.5%, as measured by the Personal Consumption Expenditures (PCE) index. The core PCE index, which excludes food and energy, rose to 1.6% from December’s adjusted 1.5%. We are slowing approaching the Fed’s inflation target of “plus 2%” annual inflation.

Long-term inflation expectations can be determined by calculating the differences between Treasury bond yields & TIPS real yields of the same maturities. Results are:

Bond MaturitiesAnnual Inflation Expectations
5 Year1.33%
10 Year1.41%
30 Year1.41%

Inflation numbers above are 0.28% lower (on average) than last month’s numbers.

Stock Market

money as a paper boat on a blue wave background with stock chart


The COVID-19 virus is devastating to the families who have lost a loved one, just as the seasonal flu has killed 10 times as many people. But the COVID-19 virus has many unknowns, exaggeration has gripped the media, and fear has engulfed U.S. program stock traders (those who trade stocks in milliseconds). So, is there any good news?  Yes!

The Fed cut interest rates three times last year, and the economy is just starting to feel the effects. The Fed is likely to cut rates again later this month.

Energy prices are low. With consumers spending so little to heat their homes and to buy gasoline, consumers have more money in their pockets to spend elsewhere.

Interest rates, including mortgage loan rates, have dropped. Home refinancing is climbing, and home sales have picked up.

Overall, we’re looking for a positive June to December in 2020.

Will the following two leading indicators predict the next bear market?

The U.S. Treasury Yield Curve as of February 28 is below.

March 2020 U.S. Treasury Yield Curve

The short end of the yield curve from 1 month to 2 years is inverted. Yields have dropped across the board by 38 basis points on average since last month. This is due to Nervous Nellies panicking and selling equity assets and buying Treasuries. We will continue to closely watch this trend. The long end of the curve (the right side) has a desirable steep slope.

The Conference Board said the Leading Economic Index (LEI) increased 0.8% in January.

March 2020 LEI

The Conference Board said the Leading Economic Index (LEI) increased 0.8% in January following a 0.3% decline in December and a 0.1% increase in November. The Director of Economic Research said, “The LEI’s six-month growth rate has returned to positive territory, suggesting the current economic expansion at about 2% will continue through early 2020. While weakness in manufacturing appears to show signs of softening, the COVID-19 outbreak may impact manufacturing supply chains in the US in the coming months.”

Conclusion: The Treasury yield curve is partially inverted, but not long enough or deep enough to announce a recession. The LEI is suggesting early 2020 economic growth will be about 2%. There are no hard, reliable signs today of a recession beginning in the next 6 to 9 months. We will continue to monitor these as we move through the year.

Stock Market Valuation

February 19 was a closing high for the S&P 500 Index at 3,386.15. Even with the current stock market downdraft, JPMorgan announced on February 27 they are maintaining their year-end S&P 500 target of 3,400. That is 15.1% higher than the February 28 market close.

Recommended Action for Your Stock Portfolio

During these short-term stock market pullbacks, we recommend no selling, as within two or three months the market will be back to its recent high. On the other hand, if an investor has stock market cash available, stock market pullbacks have historically been a good time to buy!

Another Worthless Financial Seminar – Be Careful Who You Listen To

presenter at a seminar

In January, Mark attended a free financial seminar that supposedly focused on having a “Secure Retirement.” The speaker delivered some unbelievable nonsense. See below.

Some things the speaker said that were blatantly false:

1. “Medicare Advantage plans are good.”  (Yes, you can get hearing aids and dental insurance with an Advantage Plan, but the insurance will only apply to the doctors and hospitals in your network. Regular Medicare has no network. Knowing the insurance company is going to continue to make a profit even after these giveaways, where is the catch? The “catch” is Advantage Plan’s hospitalization and doctor coverage has decreased levels of coverage, leaving the patient with more to pay.)

2.  As the speaker apparently did not know, they asked the audience, “Will federal income taxes be going up in the future?” (Yes, they are scheduled to go up January 1, 2026).

3. “Buy gold, as it has increased its value by 10 times since 1970.”  (Meanwhile, the S&P 500 Index has grown 34 times since 1970.)

4. “When gold is sold with a profit, there are no taxes.” (Wrong: Gold is defined as a “collectible” by the IRS and has a 28% federal tax on profits.)

5. “After turning 70, two good investment ideas are buying life insurance and buying an annuity.” (Mark almost had a heart attack as the fees in these products are very high, leaving very little as a return to the client or their beneficiaries.)

6. “Insurance companies are safer than an FDIC bank account.”  (Unbelievable! No, No, No! FDIC guarantees up to $250,000 per qualified account. A couple can have $250,000 FDIC coverage in each of a husband’s account, a wife’s account, and a joint account. This will provide a total of $750,000 of protection.

If an insurance company goes bankrupt, its general account, where fixed annuities reside, will go to zero. Maybe your state’s insurance regulator will give you some money over your lifetime as compensation for your total loss, but certainly not in one big check.)

7. “Mutual funds are outdated.” (I would agree that loaded, high-cost, low-performing mutual funds are outdated, but it is wrong so say without qualification or any hard facts, “Mutual funds are outdated.”)

8. “It is not a good idea to follow rules of thumb such as, ‘It’s only safe to withdraw 3 to 4 percent of your portfolio each year during retirement.’” (This is an excellent rule of thumb!)

9. “A reverse mortgage is a good idea for a retiree to raise cash.” (We recommend a reverse mortgage only as a last resort.)

Some basic things the speaker should have said but did not:

1. One way to increase future Social Security income is to make sure a potential retiree has 35 years of earnings. For every year a retiree has less than 35, the Social Security Administration will add zeros to the calculation!

2. The speaker had no comments on Medicare’s Income-Related Monthly Adjusted Amount (IRMAA). This is the extra premium high-income earners pay to Medicare every month. These charges start at an income of $87,000 for a single taxpayer and $174,000 for a married couple. These fees are in addition to the basic Medicare payment of $144.60 per month per person in 2020.

3. There was no comment that a great starting point for ensuring a secure retirement is to get a financial plan.

4. The speaker made no comments that everyone should strive to get out of debt well before retirement — and to always have an adequate emergency fund.

5. The speaker only talked about stockbrokers at Edward Jones, Schwab, and TDAmeritrade. They never told the audience there is another group of people who can help investors – a Registered Investment Advisor who has a legal obligation to always put the interests of the client first. Brokers do not have this requirement.

If you’re not sure whether the information you receive at one of these free financial seminars is trustworthy or trash, give us a call at Lorenz Financial and we’ll sort it out together.

The Wells Fargo Saga Continues

businessman on the phone

Wells Fargo has agreed to pay $3 billion to settle charges brought by the Securities & Exchange Commission and the Justice Department into the long-running “fake accounts” scandal committed by the bank on millions of their customers. The deal includes the right of the Justice Department to bring criminal charges against current or past management employees who encouraged and demanded subordinates to create new accounts for existing customers – no excuses were acceptable! Honest employees who resisted were fired! The result was a customer, with only a checking account, would secretly end up with a savings account, a money market account, a credit card, a home equity line of credit, etc.

The bank’s safeguard was the customer would be notified of the new account with an email, but the dishonest employees would enter a fake email address so the customer would never know what was going on. Some of these accounts had a required minimum balance. With a zero balance, a monthly charge would end up being applied to the one real account the customer had. Wells Fargo remains on probation for the next three years.

We continue to recommend not doing business with Wells Fargo Bank or Wells Fargo Advisors. If anyone has an account with them, we recommend closing it immediately.

Bond Market

saving and investing in a piggy bank


The real-time U.S. economic figures indicate a slow pace of economic growth this quarter. The employment data remains healthy. The chemical activity barometer, railroad traffic figures, truck tonnage index, and port traffic volume all indicate a weak beginning of 2020 – but not negative growth.

Federal Reserve

The Federal Open Market Committee (FOMC) will hold a two-day meeting on March 17 and 18. The CME FedWatch Tool shows a 95% probability of a 50-basis point rate cut at this meeting versus a 5% probability of a 25-basis point cut. On February 28, Fed Chair Powell released a brief statement acknowledging the evolving coronavirus risks to the economy and that the Fed “will use our tools and act as appropriate to support the economy.”

U.S. Treasury

U.S. Treasury yields fell sharply last month as some investors aggressively bought Treasuries in a flight to safety. Only one of the yield curve measures we monitor is currently inverted. The 10-year note yield of 1.13% is 14 basis points less than the 3-month T-Bill. The yield curve inversion can easily be corrected with a 50-basis point rate cut by the Fed.

Recommended Action for Your Bond Portfolio

Our bond fund recommendations have not changed since last month. We suggest a possible portfolio weighting of 20% in each of the categories below.

  • Short-term and intermediate-term U.S. bond funds with a portfolio that consists of at least 60% securitized debt – debt backed by an asset
  • Ginnie Mae bond funds
  • TIPS bond funds
  • Cash

In all cases, try to select a bond fund with an SEC yield over 3% and a duration of fewer than 4 years.

Next month: Learn the basic financial action you should take before becoming an investor.