October 2023 Newsletter

Financial planning

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


The economy and stock market have both been perplexing so far this year. The economy was predicted to be in a recession by now, but obviously, that is delayed until 2024 or later. The stock market's year-to-date performance has been dominated by these seven stocks:

  • Apple: Up 32.3%
  • Alphabet: Up 48.3%
  • Amazon: Up 51.3%
  • Meta: Up 149.5%
  • Microsoft: Up 32.5%
  • Nvidia: Up 197.7%
  • Tesla: Up 103.1%

These sky-high returns have pushed the market cap-weighted S&P 500 Index (VOO) up by 13.1% so far this year. But the other 493 stocks in the index have not fared so well. Looking at the equal-weighted S&P 500 Index (RSP), it is up only 1.7%. Seldom do these two indexes vary so much.

On one hand, the yield curve is still inverted, and the leading economic indicators have been negative for 17 consecutive months. On the other, GDP is above 2%, employment is strong, and inflation is coming down. So where are we headed? Well, talk to 10 economists and you will get 11 different answers. Therefore, forget about the short-term. Let’s continue to focus on the long term where we know history is on our side for positive investment returns. As we have said before, almost anything can happen in the short term. But we remain optimistic about the benefits of being invested in the stock market for the long term.

With corporate and government bond yields reaching reasonable levels, below we are recommending investors put some money into bonds for the first time in years.

We recommend employees continue to save every pay period in their employer’s retirement plan and in a Roth IRA to the maximum for their spouse and themselves. Everyone should confirm they are at a minimum capturing 100% of their employer’s match. The maximum Roth IRA contribution for 2023 is $6,500 per person ($7,500 for those 50 or older). And most importantly of all, everyone should be spending less than they make and reducing debt.


Quote of the Day

Warren Buffet, the CEO of Berkshire Hathaway, Omaha, NE.

Warren Buffet

Buffet is the CEO of Berkshire Hathaway, Omaha, NE.

“Do not save what is left after spending, instead spend what is left after saving.”


Pop Quiz

When are the 2017 Trump-initiated, lower federal income tax rates set to expire?

The answer is at the bottom of the newsletter.


The Economy


Total U.S. nonfarm payroll employment rose in August by 187,000, the same as last month, while the official unemployment rate, U-3, increased 0.3% to 3.8%. The June 2023 and July 2023 combined employment numbers were revised down by 110,000.

The Job Openings & Labor Turnover Survey (JOLTS) edged down to 8.8 million open jobs across the country as of the last business day in July. This compares to 9.2 million open jobs the month before. The 10-year chart below shows the recent downward trend in open jobs:

The Job Openings & Labor Turnover Survey (JOLTS) edged down to 8.8 million open jobs across the country as of the last business day in July.

The seasonally adjusted Total U.S. Unemployment Rate, U-6, increased in August to 7.1% vs. 6.7% last month. There were 6.6 million people unemployed in June, aged 16 and older. Last month it was 6.4 million people unemployed.

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


Unemployment rate, seasonally adjusted, August 2021-August 2023


July Unemployment Rates by Education Level

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

Average hourly earnings of all employees on private nonfarm payrolls were up 4.3% in August compared to a year ago. This was 0.1% lower than last month.


Leading Economic Indicators (LEI) sponsored by The Conference Board

The LEI for August continued its decline with another 0.4% drop.

With 17 consecutive monthly readings negative, the LEI continues to signal a recession in the near term. The Conference Board said, “Going forward, economic activity probably will decelerate and experience a brief but mild contraction.”


Gross Domestic Product (GDP)

The Bureau of Economic Analysis said the final estimate for GDP in the second quarter of 2023 rose at an annual rate of 2.1%. Gross Domestic Product for the first quarter of 2023 was 2.2%.

Gross Domestic Product percent change from preceding quarter



Annual inflation increased in August to 3.5% as measured by the Personal Consumption Expenditures (PCE) index. The previous month was 3.4% and in June it was 3.2%. Core PCE index, which excludes food and energy, dropped to 3.9% in August from 4.3% the previous month.

Perhaps when Core PCE inflation drops below 3.0%, the Federal Reserve will start to talk about cutting rates. But we believe them when they say interest rates will be “higher for longer”.

The peak Core PCE inflation this cycle was 5.4% in February 2022.


Mortgage Rates and Existing Home Prices

On September 30, 2023, the average 30-year fixed-rate mortgage had an interest rate of 7.62% and the average 15-year fixed-rate mortgage had an interest rate of 6.92%

The median existing-home sale price in August rose to $407,100 according to the National Association of Realtors.


The U.S. Public Debt as Issued by the Treasury Department as of September 29, 2023, was:


Last month it was $32,823,000,000,000.


Important Dates in September

October 4, 1582 – The Gregorian Calendar took effect in Catholic countries as Pope Gregory XIII issued a decree stating the day following Thursday, October 4, 1582, would be Friday, October 15, 1582, correcting a 10-day error accumulated by the Julian Calendar. Britain and the American colonies adopted the Gregorian Calendar in 1752.

October 8, 1871 – The Great Fire of Chicago erupted. According to legend, it started when Mrs. O’Leary’s cow kicked over a lantern in her barn on DeKoven street. Over 300 persons were killed and 90,000 were left homeless as the fire leveled 3.5 square miles, destroying 17,450 buildings.

October 9 – Columbus Day.

October 19, 1987 – “Black Monday” occurred on Wall Street as stocks plunged a record 22.6%, the largest one-day drop in stock market history.

October 24, 1929 – “Black Thursday” occurred in the New York Stock Exchange as nearly 13 million shares were sold in panic selling. Five days later “Black Tuesday” saw 16 million shares sold. Over these four business days, the stock market dropped 25%.

October 26, 1881 – The Erie Canal opened as the first major man-made waterway in America, linking Lake Erie with the Hudson River.

October 28, 1886 – The Statue of Liberty was dedicated on Bedloe Island in New York harbor.

October 31, 1517 – Martin Luther nailed his 95 Theses to the door of the Wittenberg’s palace church, denouncing the selling of papal indulgences and questioning various ecclesiastical practices. This marked the beginning of the Protestant Reformation.

October 31 — Halloween


The Stock Market


Jan Hatzius, Head of the Global Investment Research Division at Goldman Sachs based in New York City.

Jan Hatzius

Hatzius is Head of the Global Investment Research Division at Goldman Sachs based in New York City.  He is also the firm’s Chief Economist.

In our August 2023 newsletter, we quoted Hatzius as saying in July, “We are cutting our probability that a U.S. recession will start in the next 12 months further from 25% to 20%.”

Now in mid-September, Hatzius says, “We see a 15% chance of a U.S. recession over the next 12 months, down from 20% previously, and the Federal Reserve has likely ended its 18-month cycle of rate hikes.”


Stock Market Valuation

David Kostin, Goldman Sachs Chief U.S. Equity Strategist

David Kostin

Kostin is the Goldman Sachs Chief U.S. Equity Strategist based in New York City.

Kostin said on CNBC on September 12, “Looking out over the next several years the probability of a recession is quite low due to:

  • The job market is strong.
  • Unemployment is relatively low.
  • The consumer is in a strong position.
  • Inflation is coming down.”

“We are expecting the economy to continue to expand over the next year and probably beyond that. So, what are the drivers of the stock market? The single biggest contributor to earning growth is GDP growth. Earnings for 2023 we believe have stopped going down compared to last year. Our 2023 year-end prediction of the S&P 500 is 4,500. For the market to go higher, either earnings or PE ratios will have to go up. For PE ratios to go up, interest rates will have to first come down.”


The S&P 500 Index closed on September 29, 2023, at 4288.05.

Monthly Performance of the S&P 500 Index



Recommended Action for Your Stock Portfolio

Obviously, this is the section where we talk about an investor’s stock portfolio. We have avoided bonds for at least 3 years now and longer in some portfolios. But with interest rates at more reasonable levels, it is time to put some stock market money into bonds. Here are some bond funds we recommend.


Bonds we recommend.


Financial Markets Vocabulary

This month we are sharing information on the fees merchants pay when a customer uses a credit card. There are two types of fees.

Credit Card Network fees range from 1.5% to 3.5%. These fees are paid to the credit card company. The exact amount depends on the payment network (Visa, Mastercard, Discover or American Express), the type of credit card, and the merchant category code (MCC) of the business.

Credit Card Interchange fees average an additional 2% but can be much higher. These fees are paid to the bank or credit union that has issued the card. The more perks or cash back a card has, the higher the interchange fee.

Visa and Mastercard have announced they are increasing their network fees in the next six months. In 2023, Visa and Mastercard are expected to earn $90 billion in network fees. That’s a lot of money for simply processing credit card transactions.

In the Lafayette, Indiana area, there are at least two merchants that offer a discount for cash. They are Tyre, a lawn mower repair service, and the Oral & Maxillofacial Surgery Center of Lafayette.


OK, Now What Do I Do?

A desirable financial objective for you and your family is “we will build substantial wealth over our lifetime”. Of course, a secondary objective needs to be, “minimize family expenses”. At Lorenz Financial one expense a family should maintain is adequate insurance. The purpose of insurance is to prevent a financial disaster that could derail the rest of your life. Here is what we recommend:


Term life insurance, but not whole life. For those who have no one depending on their income, a person could get by with minimal coverage. However, most adult family members will need substantial term life insurance.

Homeowner’s or renter’s insurance. If you live in an apartment and it burns down, of course, the building owner’s insurance will help rebuild but his insurance will not cover your possessions – that’s what renters insurance is for. If a family has a healthy emergency fund, deductibles can be large to reduce the premiums.

Auto insurance. The primary categories are liability, collision, and comprehensive. As above, maximize deductibles to reduce premiums.

Medical insurance. The leading cause (66%) of personal bankruptcies is large medical debt. Don’t let that happen to your family – maintain good medical insurance!

Umbrella Liability. This is additional liability insurance that provides protection beyond the existing liability limits of auto and home policies.

ID Theft insurance. If your identity is stolen, having someone help restore your financial well-being, can be a significant benefit.

Get as many of these policies as possible at the same company to reduce the total price.

Other insurances to consider:

Long-Term Disability Income Insurance. As more young people become disabled than the number that die, this can be reasonable protection.

Long-Term Care Insurance. This needs to be considered by age 60.


Our First Financial Bad Boy This Month

Ex-Representative Buy Gets 22 Months in Prison.

Source: The Wall Street Journal, page A2, September 20, 2023

Steve Buyer, a former Republican congressman from Indiana, was sentenced to 22 months in federal prison for his insider trading conviction for making illegal stock trades. Buyer, whose congressional career stretched from 1993 to 2011, made his illegal stock trades during the merger of T-Mobile and Sprint. At that time Buyer was a consultant to a company that had insider information. In addition to 22 months in prison, Buyer must forfeit $354,000 representing his illegal gains and pay a $10,000 fine.


Our Second Financial Bad Boy This Month

Parents of FTX Founder are Sued for Funds

Source: The Wall Street Journal, Page B1, September 20, 2023

The founder of FTX is of course Sam Bankman-Fried. He now sits in jail waiting for his trial to begin in October after being accused of stealing customer funds. His parents are Joseph Bankman and Barbara Fried, both Stanford Law School professors. Joseph and Barbara are the defendants in this new lawsuit. The lawsuit was filed in Delaware bankruptcy court by the current chief executive of FTX, John Ray III.

Joseph was a paid employee of FTX. The lawsuit alleged that Joseph was “richly rewarded for his work at FTX”. He received a $10 million gift from his son in early 2022 after lobbying his son to increase his $200,000 annual salary. In addition, the lawsuit said Sam helped his parents obtain a $16 million luxury property in the Bahamas with “unobstructed ocean views”. The property was paid for with FTX’s customer deposits.

Barbara held no formal position within FTX, but she was the “primary advisor” to her son on his political contributions. These totaled $40 million ahead of the 2022 mid-term elections and were given to Democratic and liberal-leaning groups.

FTX also gave $5.5 million to Sam’s parent’s employer, Stanford University. A university spokesman said the gifts “will be returned in their entirety”.


The Bond Market


Below is a 69-year chart showing the history of the Federal Funds rate.

69-Year History of Federal Funds

A quick review – what is the number one driver of the stock market? Corporate profits. The more profits go up, the higher the stock market. What drives profits? Growing corporate revenues and growing Gross Domestic Product of the nation. Also, increasing efficiencies and lower costs can grow corporate profits. One cost of nearly every company is interest rates when a company borrows money.

As per the chart above, U.S. companies have enjoyed nearly zero interest rates since 2009. Well, now NORMAL interest rates have returned. During the time of zero interest rates, the stock market returned 11.8% per year on average for the past 10 years. (Morningstar data as of September 28, 2023, for VOO)

With interest rates back to normal levels, it should not be assumed the rate of growth of corporate profits will continue in the next 10 years as compared to the previous 10 years.

Recommended Action for Your Safe Money

Our recommendations for an investor’s safest money have not changed. Our recommendations include:

  • Short-Term U.S. Investment-Grade Corporate or Securitized bond funds
  • Intermediate-Term U.S. Investment-Grade Corporate or Securitized bond funds
  • Cash (in a money market mutual fund paying 4.75% to 5.25% per year)
  • Bank or Credit Union Certificates of Deposit (only if FDIC or NCUA insured!)
  • U.S. Savings I-Bonds (max savings is $10,000 per account per year)



Pop Quiz Answer

When are the 2017 Trump-initiated, lower federal income tax rates set to expire?


The Trump federal income tax rates are set to expire on December 31, 2025. How do those tax rates compare to the higher rates scheduled to begin in January 2026?

Federal Income Tax Rates

Once again, the middle class is going to take the brunt of the increases.

  • 12% goes to 15%
  • 22% goes to 25%
  • 24% goes to 28%

Of course, Congress and the President can legislate changes to the planned 2026 tax rates anytime between now and then.  But with the rapidly escalating federal debt, lowering federal income tax rates is going to be a very hard sell.