October 2021 Newsletter

planning and calculating finances with money in hand

Welcome to the October 2021 Newsletter. This month, we’re discussing the economy, employment, financial terminology, COVID-19 vaccine updates, and more.


Stock market history shows the primary risk to the initiation of a bear market is an economic recession. As below, key indicators tell us the risk of a recession is not anticipated in the near future.

The money supply continues to grow with the Federal Reserve continuing its monthly bond-buying. The buying will slow beginning in December and ending in June or July 2022. Only then will the FED consider increasing short-term interest rates above zero. The pace of any interest rate increase will depend on the ongoing health of the economy at that time. A shrinking money supply and rapidly rising interest rates are not likely to occur and begin a near-term recession.

We believe the Cleveland FED’s inflation indicator, “Median CPI”, is a valid indicator of long-term inflation. Currently, it sits at 2.3%. High inflation is very unlikely to cause a recession.

Long-term GDP growth should settle near 2% with stagnant population growth and a 2% annual increase in productivity. A 2% positive growth rate will prevent the beginning of a recession.

None of the indicators above point towards a near-term recession. Yes, in the volatile months of September and October, the stock market could have a period of consolidation or even a 10% correction. Long-term investors know they should simply ignore the short-term impulsiveness of the market and ride it out.

Employees should therefore continue to make their weekly, biweekly, or monthly contributions to their employer’s retirement plan, and personal and spousal IRAs. At this time, additional money can be added to an investor’s stock market allocation, but only on a dollar-cost-average basis spread over 12 months. But if we have a 10% correction, significant amounts of money can be added all at once to the market. All portfolios remain fully invested.

Quote of the Day

“Are you guys ready? OK, let’s roll.”

Todd Beamer – Oracle software salesman.

Beamer was a passenger on United flight 93 who attacked the hijackers with three others and prevented the hijackers from crashing the Boeing 757 into the U.S. Capitol on September 11, 2001. Todd’s phone call with Airfone operator Lisa Jefferson became the fullest account of what took place that day. Beamer relayed the direction of the plane, the hijacker’s behavior, and eventually, the passengers’ decision to attack.

Beamer attended Wheaton College in Illinois and was an athlete – once playing a soccer game with a broken jaw. Beamer’s three accomplices were all athletes: Jeremy Glick, Mark Bingham, and Tom Burnett. After a six-minute brawl with the four hijackers, both outside and inside the cockpit, the hijackers dove the plane into the ground outside Shanksville, PA.

Beamer, a Christian father, husband, and Sunday School teacher, asked the Airfone operator one last thing, “Would you pray with me?” They said the Lord’s Prayer together with other passengers joining in. Then Beamer recited the 23rd Psalm, concluding, “Yea, though I walk through the valley of the shadow of death I will fear no evil, for thou art with me.” Then Beamer turned to his three comrades and asked, “Are you guys ready? OK, let’s roll.”

Pop Quiz

There are 12 Federal Reserve Banks located across the country. Each bank operates within its own geographic region.

Question: Which state is the only state to have two Federal Reserve Banks?

The answer is at the bottom of the newsletter.

The Economy

money and the economy


Total U.S. nonfarm payroll employment rose by a modest 235,000 in August and the unemployment rate dropped to 5.2% from last month’s 5.4%. The Job Openings & Labor Turnover Survey (JOLTS) said there were 10.9 million open jobs in the U.S. as of the last business day of July compared to 10.1 million openings the last day of June.

The seasonally adjusted, all-encompassing unemployment rate, U-6, declined in August to 8.8% from 9.2% last month. It was 14.3% in August 2020. There are 8.6 million people unemployed in the U.S., age 16 and older, compared to 9.2 million last month. Those people not working and not seeking work are not considered to be in the labor force.


Unemployment Rates by Education Level, August 2021

Less Than High School Diploma7.8%
High School Graduate, No College6.0%
Some College or Associate’s Degree5.1%
Bachelor’s Degree or Higher2.8%

The rolling three-month average payroll employment decreased to 750,000 this month from 832,000 last month. The average hourly earnings of all employees on private nonfarm payrolls were up 4.3% year over year.

Gross Domestic Product (GDP)

The Bureau of Economic Analysis said the final estimate of the 2021 second-quarter GDP increased by 6.7% compared to a revised 6.3% increase in the first quarter.


Annual inflation rose to 4.3% in August as measured by the Personal Consumption Expenditures (PCE) index. The core PCE index, which excludes food and energy, remained steady in August at 3.6%, where it has been since June.

The nationwide S&P/Case-Shiller Home Price index rose 19.7% for July 2021 vs one year ago. This is the highest annual increase in 30 years! This compares to an annual increase of 18.7% in June 2021. Each city and county will have a higher or lower percentage change than the nationwide average.

Long-term inflation expectations can be estimated by measuring the differences between Treasury bond yields and TIPS real yields of the same maturities. Results are:

Bond MaturitiesAnnual Inflation Expectations
5 Year2.51%
10 Year2.37%
30 Year2.27%

This month’s estimated annual inflation numbers are four basis points higher on average than last month.


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.


Bull Market A rising stock market.


Bear Market A falling stock market with a drop of at least 20% from a recent closing high.


Cyclical stock market Typically a 1-to-5-year market trend. A rising 1–5-year stock market is called a cyclical bull market and a falling 1–5-year stock market is called a cyclical bear TIPS market. The stock market is always in one cyclical market or the other.


Secular stock market Typically a 10-to-25-year market trend. A rising 10-25-year market is called a secular bull market and a falling 10–25-year market is called a secular bear market. Each secular market will contain multiple cyclical markets. The stock market is always in one secular market or the other. The stock market can always be described as being in a cyclical and a secular market at the same time.

In October 2021, the United States stock market is in a secular and cyclical bull market.


Mutual Funds A financial investment vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money markets, and other assets. Mutual funds can be “managed” or follow an “index”. Managed funds typically have higher annual expense ratios and higher turnover than index funds. The former is to pay for the fund manager and their analysts. A managed fund’s “turnover” can be explained as per the following: a fund manager says on a given day, “We need to sell our shares in IBM and buy Merck for such and such reasons.” High turnover adds to the trading costs of a fund. These costs are in addition to the annual expense ratio that customers pay.

An index mutual fund makes no such decisions as they will buy all the stocks in the index they are following and only sell to pay customers who sell the fund. Index funds tend to have lower annual expense ratios and lower turnover than managed funds. Typically, 70% to 80% of managed funds fail to match the performance of index funds over the long term.

Mutual funds trade only at their closing price each day. When a mutual fund is redeemed by a shareholder, the shares are returned to the investment company such as Vanguard, T. Rowe Price, Dodge & Cox, etc. and the investment company pays cash to their former client. All mutual fund symbols contain five letters ending in “X”.


International Mutual Funds describes a fund that invests in all countries in the world except the U.S.


World Mutual Funds describes a fund that invests in all countries in the world including the U.S.


Exchange-Traded Funds ETFs are first mutual funds, but they trade on a stock exchange during the day. The first ETF was created in 1993. The price of an ETF can change minute by minute during the trading day, sometimes slowly and sometimes rapidly. When an ETF owner sells, the shares are bought by someone else. ETF symbols are two, three, or four letters.

ETFs fall into these broad categories (with examples):

Broad ETFs As Recommended by Lorenz Financial

Broad Stock Index ETFs. (VOO – S&P 500 ETF, or VTI, the Total U.S. stock market index)

S&P 500 Sector ETFs. (VIS – Vanguard Industrial Sector ETF)

S&P 500 Industry ETFs.  (IYT – Transportation Industry ETF within the Industrial Sector)

Stock Style ETFs.  (SCHD – U.S. large-cap value stock ETF)

Dividend ETFs.  (HDV – iShares Core High Dividend ETF)

Managed Stock ETFs.  (ARKK – ARK Innovation ETF)

Bond ETFs.  (VCSH – Vanguard Short-Term Corporate Bond ETF)

Commodity ETFs are Recommended by Lorenz Financial Only to a Small Degree

Commodity ETFs.  (GLD – SPDR Gold Shares ETF)

Real Estate ETFs.   (XLRE – Real Estate Select Sector ETF)

Foreign Stock Market ETFs.  (EFA – iShares Europe, Africa, Far East ETF)

The following ETF Categories Are Not Recommended by Lorenz Financial

Leveraged ETFs. (TQQQ – ProShares UltraPro QQQ ETF)

Inverse ETFs.  (SQQQ – ProShares UltraPro Short QQQ ETF)

Currency ETFs.  (FXF – Invesco CurrencyShares Swiss Franc ETF)


Important Dates in October

October 11 – Columbus Day

October 31 – Halloween


Stock Market

Lorenz Financial is helping you understand the 2018 September US economy and stock market.


During August and September, the financial media broadcast dire warnings of a looming 10 to 20% correction in the stock market. On September 2, the S&P 500 Index closed at another all-time high at 4536.95. The market then proceeded to drop for the next four weeks. On September 30, the market closed at a low of 4307.54 – down 5.06%. One of these days we will have a real correction (down 10%) and eventually, we’ll have another bear market (down at least 20%).

Even so, there is a “Wall of Worry” for stock market investors. It includes:

The Delta variant is not going away quietly or quickly.

Inflation is running hot.

Open jobs are not being filled as quickly as employers would like.

Corporate supply chains remain fragile. In the case of semiconductor chips, the supply chain is nearly broken.

The transportation sector is in disarray with a shortage of new trucks and truck drivers, and U.S. ports are overloaded with scores of cargo ships waiting to dock and be unloaded in Los Angeles, Long Beach, New York, New Jersey, and Savannah.

The Federal Reserve is ready to begin tapering its asset purchases likely in December 2021. This means interest rates will begin to rise.

Higher taxes in the form of higher income taxes, higher capital gains taxes, higher estate taxes, and higher corporate taxes have been proposed by the House.

Over the past ten years, the total U.S. stock market index has increased 16.6% per year on average. This is significantly above the market’s long-term average! The market will eventually take a breather, perhaps in late 2021 or 2022.


Stock Market Valuations

Based on our forecast of strong economic growth in 2021, we estimate S&P 500 operating earnings will increase to $207 this year and as high as $220 next year. We assume there will be a higher corporate income tax rate in 2022. With a price/earnings ratio of 22.5 times, the S&P 500 Index has the potential to reach 4,660 this year. If the PE ratio drops only to 22.0 next year due to higher interest rates, the S&P 500 Index has the potential to reach 4,840 next year.

The S&P 500 Index closed Thursday, September 30, at 4307.54. That is down 4.76% since the close on Tuesday, August 31 at 4522.68

Recommended Action for Your Stock Portfolio

Obviously, the stock market has been catching its breath during September. From December 31, 2020, to September 2, 2021, the S&P 500 Index is up 20.8% plus another percent or two due to dividend payments. Then from September 2 to 30, the S&P 500 has dropped 4.76%. 

Don’t be fooled! Don’t listen to others when they cry out, “Sell, sell, sell as we don’t know what is coming next!” Every investor must exhibit patience and courage as the September market movement has been very normal. It is definitely not the time to sell when the market is down 4.76%.

This month we are recommending the following international and world stock funds.



International stock funds are a great way to diversify a portfolio. Depending on an investor’s risk tolerance, a portfolio should have 5% to 20% of international or world mutual funds or ETFs.


The Wild West

On September 15, SEC Chairman, Gary Gensler, made the following comments on CNBC.

“Zero commissions for stock trading does not mean the trading is free to the public.” The Chairman is referring to the slightly higher price per share an investor pays to trade when the investor’s trading is free. The higher trading price allows the market maker to kick a small commission back to the broker on every share traded. Instead of the broker making money by charging an investor $4.95 per trade, for example, the broker gets a kickback from the market maker.

The SEC rightfully believes a broker must always seek out the best price for their investor. Then let the market makers compete solely on the price and speed of the execution with no kickbacks to the broker. Kickbacks to the broker are a strong conflict of interest incentivizing the broker to use the market maker with the highest kickbacks instead of using the market maker who offers the best price.

Regarding cryptocurrency, the Chairman went on to say, “Currently we just don’t have enough investor protection in crypto issuance, trading, finance, or lending. Frankly, at this time it’s more like the ‘Wild West.’ This asset class is rife with fraud, scams, and abuse.”

Our Corporate Bad Boy This Month

Why did the Champlain Towers South collapse?

Source: Page A1, The Wall Street Journal, August 25, 2021

Officials are still investigating why the Champlain Towers South in Surfside, Florida collapsed, but engineers consulted by the Journal say it’s unlikely any one design or construction issue identified so far could have brought down the building by itself.

There is strong evidence of rampant cost-cutting. Unfortunately, the key principals are dead, including the architect, the lead structural engineer, and the contractor. But the facts point to a variety of shortcomings in both design and construction.

First, waterproofing was missing in areas of the ground level slab where saltwater could seep into the concrete and deteriorate the rebar. This was discovered by Morabito Consultants during their 2020 inspection. Morabito Consultants also noted the driveway wasn’t sloped towards the drains.

After the collapse, the building remains were inspected for deficiencies. Engineers found the concrete columns in the collapsed part of the building were too small. Most of them were 16 x 16 inches compared with 24 x 24 inches in the western part of the building that did not collapse. 

About a week after the collapse, a crew from Maryland-based Controlled Demolition Inc. (CDI) drilled holes in the support columns in the still-standing part of the building to make way for explosives to take down the remainder of the tower. CDI owner, Mark Loizeaux, asked his men after drilling in two columns, “What’s the concrete like?” They said, “Soft and powdery.” This surprised him as the building plans called for robust 6,000 PSI compressive strength concrete. After drilling 120 holes on the first floor and garage level columns, the firm found all of the columns “uniformly soft.”

Tall buildings such as Champlain Towers contain “shear walls.” These are thick concrete walls that extend from the basement to the roof to resist lateral forces such as high winds and are a crucial part of many reinforced concrete buildings. The part of the building that survived had three shear walls. The part of the building that collapsed had one and even it was not positioned to resist east-west winds off the ocean.

Engineers often add concrete boxes called drop panels to the top of columns to help prevent the slab from breaking at the point where it connects to a column. The 2020 Morabito engineering report recommended these be added atop the garage columns, but this was never approved by the condo board.

Despite the building’s many structural flaws, engineers say some issues were fixable, had the property’s condo board approved extensive repairs earlier in the life of the building.


Vaccine Deployment

U.S. Data by the CDC – September 30, 2021

Percent of the Total U.S. Population Fully Vaccinated55.6%
August’s Fully Vaccinated Percentage52.4%
July’s Fully Vaccinated Percentage49.5%
June’s Fully Vaccinated Percentage46.7%
May’s Fully Vaccinated Percentage40.7%
April’s Fully Vaccinated Percentage30.5%
March’s Fully Vaccinated Percentage15.0%

A COVID-19 Booster Update

The FDA and CDC have voted to allow a Pfizer booster shot for those 65 and older. Also approved were those 18 to 64 at high risk of severe disease or death and those whose occupational exposure to COVID-19 put them at high risk. Those occupations include workers in healthcare, daycare, grocery stores, homeless shelters, and prisons, among others.

The panel considered a request by Pfizer only. Plans to offer extra doses of vaccines by Moderna and J&J have been delayed as the FDA needs more time to analyze data about them.

Health authorities have already authorized booster shots for people 12 and older whose immune systems are compromised.




Pfizer began testing 4,500 children in June 2021 with one-third the dose given to adults. Two-thirds of the children received 10 micrograms each in two shots given three weeks apart. One-third of the children received a placebo. The first criterion for success was: Is the vaccine safe? The Phase 3 clinical trial showed the children ages 5 to 11 had fewer side effects such as fever and chills compared to young adults ages 16 to 25 who received the adult dose of two 30 microgram shots. The second criterion for success was: Does the vaccine develop similar levels of antibodies as in adults? Pfizer found the antibody levels one month after the second dose to be similar to those found in people ages 16 to 25.


Pfizer said they would be applying for emergency use authorization as early as the end of September or early October.

There is insufficient safety and efficacy data regarding the COVID-19 vaccines.

According to Johns Hopkins Hospital in Baltimore, Maryland, all three COVID-19 vaccines have been thoroughly tested and found to be safe and effective in preventing severe COVID-19. The hospital administers all three vaccines to their patients.

All three vaccine manufacturers completed the FDA’s three phases of clinical testing in 2020 before the vaccines were approved for use by the general public. The last phase, Phase 3, is the largest and most important phase of testing. See the details below:

Moderna enrolled 30,351 participants in their Phase 3 clinical trials. Data published in the New England Journal of Medicine in November 2020 demonstrated 94.1% efficacy against COVID-19 infections.

Pfizer enrolled 43,661 participants in their Phase 3 clinical trials. Data published in November 2020 showed an efficacy rate of 95% against COVID-19 infections.

Johnson & Johnson enrolled 44,345 participants in their Phase 3 clinical trials. Data published showed an efficacy rate of 67% against COVID-19 infections.

Since the release of the vaccines by the FDA, over 184 million Americans have been fully vaccinated. The FDA had teams of doctors across the country peer-review all three vaccines. Each team deemed the vaccines to be safe and effective.


I have a greater chance of dying from a car accident than dying of COVID-19 and I still get in my car.

According to Wikipedia, there were 11.18 people killed in car accidents per 100,000 population in the U.S. in 2018, the year the most recent data is available.

According to the CDC, COVID-19 has killed 694,700 people, or 209 people per 100,000 in the past 1.75 years (Jan 2020 thru Sept 2021). To get this into an annual number, 209 must be divided by 1.75. Consequently, 119 people have been killed per 100,000 people per year in the U.S. due to COVID-19. Therefore, more than ten times the number of people are dying each year due to COVID-19 than being killed in car accidents in the U.S.


I’ve heard the COVID-19 vaccines will make me infertile.

COVID-19 vaccinations are recommended for everyone 12 years of age and older, including people who are trying to get pregnant now or might become pregnant in the near future. There is no evidence that any vaccine, including the COVID-19 vaccines, causes fertility problems in men or women. To protect herself and her unborn baby, a pregnant woman should seek out the COVID-19 vaccine as soon as possible.

I’ve heard the COVID-19 vaccines contain a tracking device.

The COVID-19 vaccines do not contain any type of microchip or tracking device. Your smartphone probably tracks you, but no vaccine has ever included a tracking device.



There are so many variants, what is the big hurry?

Studies clearly show all three COVID-19 vaccines available in the U.S. demonstrate a high level of effectiveness against all four known variants. All four variants can cause hospitalizations, the patient being put on a ventilator, and death. To a very high degree, a person fully vaccinated will avoid severe disease or death from the SARS-CoV-2 virus, the virus that causes COVID-19.



COVID-19 is not a real threat. I trust my immune system to protect me.

An unvaccinated person will likely catch the highly contagious Delta variant. Most will not die, but there is some likelihood friends, neighbors, co-workers, or relatives will catch the virus from the unvaccinated person. Some, not all, will get sick, but some will end up in a hospital, possibly on a ventilator, and some will die.

99% of the people dying and 97% of those hospitalized due to COVID-19 are NOT vaccinated. The human immune system is not sufficiently robust enough in most people to successfully fight off the SARS-CoV-2 virus.


For more information, check out this website: https://getvaccineanswers.org

Bond Market


Supply constraints around the world are holding back economic growth. The most recent GDP predictions by the FED are 3.2% to 3.8% in the third quarter of 2021.

In September, there were as many as 70 cargo ships waiting to unload at the ports of Los Angeles and Long Beach. The average cost to ship a container from China to California has skyrocketed from $1,500 to $20,500 each.

The trucking industry is looking for 60,000 additional truck drivers. There are 260,000 new trucks on backorder. Current truck manufacturing is only half of what it was in 2019 due to a lack of semiconductor chips.

In summary, the pace of economic growth in the second half of 2021 is decelerating. It will take some time for supply chains and the transportation industry to ramp up.

Federal Reserve

The Federal Open Market Committee voted at their September meeting to keep very short-term interest rates at 0% and to maintain buying $120 billion of bonds monthly.

At the end of September, the Federal Reserve Bank Presidents of Boston and Dallas announced their decision to resign over criticism in the press of their personal stock trading activities, even though their trading was judged legal and ethical by the Federal Reserve’s ethics lawyers.

U.S. Treasury

The U.S. Congress has again failed to get its job done in full and on time. On the last day of the fiscal year, September 30, Congress only managed to pass a short-term spending bill to keep the government running until December 3, 2021. Also, an increase to the debt ceiling needs to pass by October 18 so the Treasury can meet its obligations.

Recommended Action for Your Bond Portfolio

Most bonds are not appropriate today because it is expected in the mid-term, interest rates will rise significantly 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.

U.S. Savings I Bonds have no credit risk, no interest rate risk and income taxes are deferred until the bonds are sold or mature. I-Bonds purchased now are yielding 3.54%.


Before Investing

Of course, everyone should maintain a safe and liquid emergency fund of at least six to nine 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. A family should have an adequate, safe, and liquid emergency fund before investing in a stock and bond portfolio.


Which state is the only state to have two Federal Reserve Banks?

Answer: Missouri

See the locations of the 12 Federal Reserve Banks on the map below. Washington D.C. is also highlighted as it is the location of the seven Federal Reserve Board of Governors.


map of U.S. Federal Reserve Bank Locations