September 2022 Newsletter

Financial advisor featured in Lorenz Financial September Newsletter.

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




Since 1940, the United States has had nine economic events with inflation at or above 5%. All nine cases were resolved with a recession.

Could we break the pattern and have a soft landing with no recession and inflation dropping towards the Fed’s target of 2%? Yes—we could— but it is unlikely. If we have a recession, the stock market will bottom six to eight months before the recession. The stock market is always anticipating the next economic event. We do not see a recession starting in 2022, but likely in 2023. Therefore, we believe it is likely there will be a good stock market buying opportunity between September and December 2022. It all depends on how fast:

  • The Federal Reserve Raises Interest Rates
  • Inflation Falls
  • Consumer Confidence Deteriorates
  • Unemployment Increases

In the event stock market weakness develops in the weeks ahead, a successful test of the mid-June S&P 500 Index low could occur. This would have the potential to trigger a mid-term election year buying opportunity if internal technical conditions become favorable. If this occurs, we will make an announcement to our clients and newsletter subscribers that the “market is attractive for purchase.” We continue to recommend that “safe” money be held in cash and not bonds.


Vanguard Group Founder featured in Lorenz Financial September Newsletter.

“The historical data supports just one conclusion with unusual force: To invest with success, you must be a long-term investor. The courage to press on regardless – whether we face calm or rough seas, and especially when the market storms howl around us – is the quintessential attribute of the successful investor. Reversion to the mean is the iron rule of financial markets. I believe – deeply and profoundly – that speculation is a loser’s game.” – John Bogle



Pop Quiz

It’s late October 2021. The fictitious married couple, Kevin and Sally, signed up for Medicare to start in January 2022 when they both will turn 65. They retired at the same time, about five years ago. Their annual income has been around $72,000 each year in retirement, but in 2020, Sally exercised all of her stock options from her previous employer. As a result, their 2020 modified adjusted gross income ballooned to $229,000 in that year. How much will they pay per person per month for Medicare Parts A, B, and D in 2022?

The answer is at the bottom of the newsletter.


July 2019 to July 2022 Unemployment Rate graph featured in the Lorenz September newsletter.












Unemployment Rates by Education Level, July 2022

Less Than High School Diploma5.9%
High School Graduate, No College3.6%
Some College or Associate’s Degree2.8%
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.

The extraordinary strength of the U.S. labor market is allowing the Federal Reserve to be aggressive in raising interest rates to fight inflation.


Leading Economic Indicators (LEI)

The LEI for July dropped by 0.4%—the fifth consecutive month of a decline. Below are previous LEI results:


  • June decreased 0.7%
  • May decreased 0.6%
  • April decreased 0.4%
  • March decreased 0.1%

The declining LEI over the past five months suggests weaker economic activity is likely to begin starting in September/October (six to seven months from the first negative reading in March).


Gross Domestic Product (GDP)

The Bureau of Economic Analysis said the second estimate for GDP decreased by 0.6% in the second quarter of 2022 compared to a decrease of 1.6% in the first quarter.


Q2 Real GDP graph featured in Lorenz September newsletter.

Annual inflation decreased in July to 6.3% as measured by the Personal Consumption Expenditures (PCE) index. The core PCE index, which excludes food and energy, decreased slightly to 4.6% in July from 4.8% in June.

The Federal Open Market Committee (FOMC) watches PCE core inflation more than the other inflation indicators. Here is a little bit of PCE core inflation history this cycle:


  • June 4.8%
  • May 4.7%
  • April 4.9%
  • March 5.2%
  • February 5.3% (peak PCE core inflation this cycle)
  • January 5.2%

So, in the six months from February (January data) to August (July data), PCE core inflation has dropped 0.7%. We cannot imagine anyone on the FOMC that is satisfied with that. Our expectation is the FOMC will stop raising interest rates when the economy sees “repeated, consecutive, and significant reductions in PCE core inflation.” Significant, in our opinion, is a 0.3% or greater monthly decrease. With the very mediocre results we have had so far, the FOMC must continue to aggressively raise interest rates, reduce the money supply, and continue with Quantitative Tightening.

The nationwide median price of an existing home sold in July 2022 was 10.8 % higher on average than last year according to the National Association of Realtors. The median price was $403,800, but the quantity of existing home sales per month fell for the sixth consecutive month. Existing home inventory is now at 3.3 months’ worth of sales.

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 Year2.48%
30 Year2.31%

This month’s estimated annual inflation numbers above are 18 basis points lower on average compared to last month.


The Public Debt as Issued by the U.S. Treasury, August 31, 2022




Important Dates in September

September 3, 1783 – The Treaty of Paris was signed between representatives of King George III of Great Britain and Ben Franklin, John Adams, and John Jay of the United States. The treaty officially ended the Revolutionary War. The treaty recognized the United States as a free and sovereign nation, all British land east of the Mississippi was granted to the United States and the U.S. was granted fishing rights off the Newfoundland Grand Banks. This was a very lopsided treaty to the benefit of the United States.

September 5 – Labor Day

September 6, 1901 – William McKinley, the 25th U.S. President was assassinated in Buffalo, New York. He died eight days later. McKinley was the third U.S. President to be assassinated in office.

September 11, 2001 – Patriots’ Day

September 16 – Quad Witching Day when individual stock options, stock index options, stock index futures, and options on stock index futures all expire.

September 20-21 – The sixth Federal Open Market Committee (FOMC) meeting of 2022.

September 22 – The First Day of Fall or the Autumn Equinox for the northern hemisphere. An equinox is defined as the time when the plane of the earth’s equator passes through the center of the Sun. The earth has two equinoxes: typically, March 20 and September 22.

"Welcome Back, Kotter" lunch box featured in the Lorenz September newsletter.

September 28 – National Ask a Stupid Question Day




The Stock Market


This month we have two quotes from important Wall Street people.

David Kostin is the Goldman Sachs Chief U.S. Equity Strategist based in New York featured in Lorenz Financial September Newsletter.

David Kostin

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

David said on CNBC on August 9, 2022, “Second quarter corporate earnings were much better than expected but we are forecasting earnings to grow only 3% in 2023.”

“All our portfolio managers are now looking at what will probably happen in 2023. Today we see only 1% growth in GDP in 2023 and that will be a headwind for corporate growth. That is why we are only seeing earnings growth next year of 3%.”

“The biggest issue we see for 2023 is high inflation as that will reduce profit margins.”

Steve Weiss is the Chief Investment Officer and Managing Partner of Short Hills Capital  Partners in Maplewood, New Jersey.

Steve Weiss


Steve Weiss is the Chief Investment Officer and Managing Partner of Short Hills Capital Partners in Maplewood, New Jersey.

Steve said on CNBC on August 15, 2022, “The only questions an investor needs to ask are:


  1. Does the Federal Reserve want the economy to slow down?
  2. Do they have the power to do it?”


“The answer to both questions is yes! Therefore, the correct conclusion is today we are experiencing a bear market rally – not the start of a new bull market. The market will come down again; we are not going straight up from here.”


Stock Market Valuation

The closing low for this bear market so far was 3,667 on June 16 as measured by the S&P 500 Index. Here are Lorenz Financials’ stock market prediction for this bear market’s final closing low.


Our best case is

YearEarnings/SharePE RatioApprox. S&P 500 Index High


Our base 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 this bear market is 3,650 +/- 100. The S&P 500 Index closed at 3955.00 on August 31.


Monthly Performance of the S&P 500 Index















Recommended Action for Your Stock Portfolio

For those in the workforce, please continue to contribute to your employer’s retirement plan and in yours and your spouse’s IRA every pay period.

We believe with conviction this stock market is headed lower in the short-term as interest rates head higher (meaning the price of existing bonds will go lower). Right now, an investor’s “safe” money should be in cash.

We at Lorenz Financial have developed 15 indicators that will hopefully tell us if and when we have a buying opportunity in the stock market. These only come around once every couple of years. The last one was May 2019 with the S&P Index at 2700. Hopefully, we are not going that low again. As no one rings a bell to indicate when to buy, we will probably buy at three different levels of the S&P 500 Index as the market moves lower.

Big picture, rely on your strong patience and courage as we go thru this challenging economic and stock market event.


    At this point, a recession is more than just a maybe – it’s a real possibility. So, who is the arbiter of whether or not a recession has begun? The President – no. The Congress – no. The Federal Reserve – no. It’s a group of economists that almost no one has heard of.

    Their name is the National Bureau of Economic Research. They are a private, non-profit, non-partisan research organization that facilitates cutting-edge investigation and analysis of major economic issues. A part of the NBER is the Business Cycle Dating Committee (BCDC) whose eight economists have the authority to declare a recession and define when it started. When a recession is acknowledged, it is always declared well after the recession has begun. For example, if we do fall into a recession in, say, January 2023 — the BCDC might not declare it until next May as they thoroughly examine all the pertinent data.

    The BCDC defines a recession “as a significant decline in economic activity that is spread across the economy and lasts more than a few months.” Note this definition has three parts: the recession is pronounced, pervasive, and prolonged.



    OK, Now What Do I Do?

      At about the age of 50, a working person who has been saving for retirement their whole working life will look at their retirement account and say something like, “Wow, that is a nice pile of money. If I am going to manage this myself, what information and skills do I need?”

      The information an investor needs first is a financial plan. Broadly, the financial plan consists of the financial goals (spending) of the person (or family) along with their income and financial assets. Then a Monte Carlo analysis is run, which provides an answer from zero to 99% to the question: — “What are my chances of success?” Success means your money lasts longer than you do (and your spouse).

      If the analysis only provides a mediocre answer, the spending goals can be reduced to improve the chances of success. With the financial plan now providing a positive analysis, let’s now take a look at what skills an individual needs to manage their own retirement money.

      An investor needs three skills: desire, knowledge, and time. Many people have no desire to manage their account. That’s okay, as family life is very busy and sometimes complex.

      An investor also needs knowledge about stocks, bonds, mutual funds, and exchange-traded funds. The investor needs to be able to identify low vs high costs of the securities they buy, when might a portfolio be poorly vs. well diversified, and how to make a taxable account tax efficient — and perhaps most of all, how to design a portfolio that matches up with the investor’s needs, objectives, risk tolerance, and time horizon.

      Lastly, a do-it-yourselfer needs the time to do all this. It’s not wise to look at your account daily, but an investor needs to spend a lot more than one hour per year to properly manage their account.

      If any one of these three attributes: desire, knowledge, or time is missing, then find a low-cost, registered investment advisor—a fiduciary—to help you with these decisions.




      Walgreens Helped Fuel San Francisco Opioid Epidemic 

      Source: The Wall Street Journal, August 11, 2022, page A3


      A federal judge found Walgreens exacerbated the opioid epidemic in San Francisco. The judge found the company liable “for substantially contributing to the public nuisance.” Another trial will be held to determine how much the company must pay the city to address the harms of the opioid crisis.

      Walgreens’ pharmacies dispensed hundreds of thousands of suspicious prescriptions in the city between 2006 and 2020. Opioid overdoses reached eight per day in the city in 2020.

      Federal regulators require companies to investigate suspicious and/or repetitive prescriptions of controlled substances and verify the prescriptions are medically legitimate before dispensing them. The judge found Walgreens didn’t give pharmacists enough staffing, time, or resources to adequately review opioid prescriptions. Pharmacists said they endured “constant pressure to fill prescriptions as quickly as possible.”

      A Walgreens spokesperson said the company is disappointed with the decision and would appeal.


      Chinese State-Owned Enterprises (SOE)

      Five very large Chinese SOE’s have announced their intention to delist their American depositary shares from the New York Stock Exchange by early September.

      Those companies are:

      • PetroChina Co.
      • China Petroleum & Chemical Corp.
      • Aluminum Corp of China Ltd.
      • China Life Insurance Co.
      • Sinopec Shanghai Petrochemical Co.

      Even though there are still 250 or so Chinese companies listed on U.S. stock exchanges, there are only three Chinese SOE’s left. All Chinese companies will be delisted from U.S. stock exchanges unless they conform to the audit requirements of the U.S. Public Company Accounting Oversight Board. This board reviews the financial results of every company listed on a U.S. stock exchange to confirm the company’s financial reports are accurate. Citing national security concerns, the communist Chinese government has restricted such access.

      On August 26, American and Chinese officials said they have reached an agreement to allow accounting firms in China to share more information with American regulators about the finances of Chinese companies listed on U.S. stock exchanges. U.S. officials remain wary of whether China will fulfill their pledge.



          The Bond Market


          With the very high employment reports from July and August, the Federal Reserve can now be more aggressive with their interest rate increases should they choose to do so. The strength of the U.S. labor market tells the Fed they will do less damage to the economy with rate increases.

          If we are headed for a recession, the most important thing to remember is the stock market will bottom out approximately six months before the recession hits bottom. The stock market is always anticipating what is happening next. Therefore, a stock market buying opportunity might occur this year, even though a recession might not start until next year.


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

          The FOMC will meet next on September 20 and 21. At that time, they are expected to raise the Federal Funds rate by 0.50% to 0.75%. On August 26, Chair Powell spoke concisely and bluntly at the Jackson Hole Symposium. Chair Powell said the Fed is going to keep rising interest rates to combat high inflation. Chair Powell noted this means we are likely entering a period of sustained “below trend growth” and a softer labor market over the coming months.


          The U.S. Treasury

          The Federal budget deficit was $727 billion through the first 10 months of this fiscal year. Tax receipts have been $789 billion higher than expected.


          Recommended Action for Your Bond Portfolio

          There have been no changes to our bond fund recommendations this month. Most bonds are not appropriate today. It is expected in the short- to mid-term that 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 over their lifetime 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

                        It’s late October 2021. The fictitious married couple, Kevin and Sally, signed up for Medicare to start in January 2022 when they both will turn 65. They retired at the same time, about five years ago. Their annual income has been around $72,000 each year in retirement, but in 2020, Sally exercised all of her stock options from her previous employer. As a result, their 2020 modified adjusted gross income ballooned to $229,000 in that year. How much will they pay per person per month for Medicare Parts A, B, and D in 2022?

                        The couple’s total cost for Medicare in 2022 will be $372.30 per person per month. The details are below.

                        Medicare Part A has no monthly premium for most people, but Parts B and D have a monthly premium. In 2022, Medicare costs $170.10 per month per person for Parts B and D. There are no discounts for married couples. For most recipients, the $170.10 is subtracted from a person’s Social Security check. But, Medicare also looks back two years at a person’s (or couple’s) modified adjusted gross income as reported on their federal income tax forms. The higher a person’s or couple’s income, the more they must pay for Medicare. This ensures higher income folks pay more for Medicare. For Kevin and Sally, they made too much money two years back in 2020 to only be charged $170.10 each.

                        This extra charge Medicare is called the Income Related Monthly Adjustment Amount, or IRMAA. For Kevin and Sally, they will pay $170.10 for Medicare, plus $170.10 for IRMAA Part B and $32.10 for IRMAA Part D. Their total cost will be $372.30 per person per month.

                        Each year, Medicare will make a new calculation after looking back two years. Even if a person has their modified adjusted gross income only $1 over one of the brackets below, they will pay that higher rate for 12 months. See the charts below to determine Parts B and D IRMAA for 2022, looking at 2020 income.

                        2022 Part B IRMAA brackets looking at 2020 modified adjusted gross income:

                        2022 Part B IRMAA brackets looking at 2020 modified adjusted gross income.


                        2022 Part D IRMAA brackets looking at 2020 modified adjusted gross income:

                        2022 Part D IRMAA brackets looking at 2020 modified adjusted gross income