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Linnard Financial Management & Planning, Inc.

Fee-Only Financial Planning and Investment Advisor


Outlook & Trends

LFM&P publishes Outlook & Trends, a quarterly newsletter. Outlook & Trends provides a commentary on current economic and market conditions as well as a financial planning topic of interest. These past issues provide an interesting view of the progression of economic and market conditions since 2002.

The Trends October 2021

How can we possibly understand the current economic environment? There are so many competing global influences. There is so much noise. Does raising the debt ceiling matter? Does the deficit matter? What about inflation? What is Evergrande anyway? Is there any consistency between these issues? Should I care?

Recency Bias July 2021

There is a psychological concept called “recency bias”, which, according to Wikipedia, is a cognitive bias that gives "greater importance to the most recent event". If it is summer and the weather is hot, recency bias leads one, quite rightly, to pay more attention to their air conditioner than their furnace. This bias is especially strong if the observer has no direct experience or acquired knowledge that would challenge the assumption. Without other contradicting information, it could be imagined that summer will go on forever and a furnace is useless.

Recency creates momentum in the investment markets as investors observe trends and expect them to continue. There may not be any reason for making an investment other than the expectation that a position will be able to be sold at a higher price later to someone else (also known as the “greater fool theory”). This can continue indefinitely until there are no more greater fools, at which time the momentum shifts, prices fall, and recency suggests the fall will last forever.

Blowing Bubbles April 2021

The adoption of Modern Monetary Theory provides cover for current support policies by explaining that the government can spend as much as it likes by borrowing until a time when inflation becomes a problem. In a short-term sense, this is true. If you are a government, it makes complete sense to drive interest rates to zero and refinance your accumulated debt. As long as rates stay low, borrowing costs also remain low. With close to zero interest, in essence the borrowed money is free. Who can argue with that?.

As it turns out, however, there are many arguments. In addition to free money promoting moral hazard, and risky or useless investment projects that are eventually prone to fail, what will happen at the end of the free period when inflation and interest rates are no longer zero and the extensive debt needs to be repaid? It won’t be possible to rollover, let alone reduce the debt burden without incurring big interest expenses. What might the solution be? 1) Jack up inflation to repay the debt with money that has less value, 2) Raise taxes. As the old saying goes, there is no free lunch. Today’s spending and money printing is borrowing (or perhaps more accurately, stealing) from the future. The policies to avoid the political pain of an economic slowdown today are likely to be paid by future generations.

Covid and the Frog January 2021

Last year was a year of rapid change. Rapid changes cause stress, particularly those for which we are not prepared. As time passes, we learn to cope and our situation normalizes. We see opportunities in the new paradigm as it is revealed to us. Slow incremental change is perhaps less stressful, for we have time to adjust. It may be more insidious though, because it can seem more natural and may go unnoticed, like the fable of the frog that does not jump out of the pot of water that is slowly heated to boiling. While it is difficult to prepare for the unexpected, we should endeavor to be aware of slowly evolving trends that can eventually cause great change while masquerading as “this is the way it has always been”.

Covid and Beyond October 2020

Have we dodged the proverbial bullet? Or should we be preparing physically, mentally, medically and financially for a Covid counterattack reinforced by the flu? Most people have at least partially adjusted to the virus war that has been raging around us on multiple fronts, being fought by the invisible air force. Hopefully the answer is “yes”, we have learned much, but it is always good to be prepared. However, we should not be so focused on the preparation to be mired in the problems, worries and dangers that Covid presents. Without question, this experience has changed our lives, but then life is always changing.

On the other hand, where there is difficulty there is also opportunity. The more that we can remain aware and adapt, the more resilient we will become. We can pick the good outcomes that arise and leave the bad behind. Just as the space program of the 1960s generated spin-off advances in technology, the current heavy investment in immunology and medical technology can be expected to provide new applications for years to come. The benefits of a broader application of communications technology have the potential to change our lives. The rapid acceptance of communications for telecommuting, education and shopping has accelerated personal telecommunications well beyond telephones and video games. Reducing the energy requirements of travel may become a factor in reducing carbon emissions. Who would have thought that Covid might slow the melting of Arctic ice? There will be good things coming from this experience, if we remain open to change.

Outlook and Trends in a Covid Context July 2020

Bob Dylan once sang, “You don't need a weatherman to know which way the wind blows”. The economic winds are clearly blowing south at the moment. The virus, or more accurately the government lockdown policy reaction, created a mega-slowdown in economic activity, evidenced by quarantines and massive unemployment as businesses shut their doors. It is probably not coincidental that widespread social unrest has occurred simultaneously.

Economic indicators have worsened markedly. There is no question that, at best, the long-predicted recession is upon us. Unemployment is now 13.3%, reflecting 21 million people looking for work. This is about the same number as during the Great Depression, although the rate was a much higher 25% then. Likewise, the current labor force participation rate is at the lowest level since 1974. Economists are predicting that the GDP-measured business activity will have contracted 35% when the results for the second quarter are tallied.

Covid and The Bear April 2020

Over the last month, the COVID-19 disease has turned everything on its head. We have changed from complacency to acute awareness of our surroundings, from social beings to suspicion and isolation, from personal interaction to representation by Face Time and Zoom, from expectations of a functioning society to concerns of shortage. It is all due to a microscopic bug, and perhaps even more importantly, our reaction to it.

The value of the stock market fell 34% over four weeks. This was the fastest 30% decline ever seen from a prior peak. Faster than 1929. Faster than 1987, 2000, or 2008. Government backstop policies have arrested that fall, at least for the moment. Adding to the distress, typical diversification strategies also did not help much. Long-term treasury bonds fell 13% over eight days, and corporate investment-grade bonds dropped 21%. Excessive volatility was commonplace. One 9.2% daily gain was more than erased by an 11.63% loss the following day. These movements are more typical of an entire year’s change than a day.

Legal and Regulatory News to Know January 2020

Lawmakers and regulators have been busy proposing and enacting several changes that could be important for your retirement and your understanding of what you can expect from financial advisors.

Secure Act
Regulation Best Interest
Form CRS
Stand Alone Fee Table
CFP® Standards

Which Investment Style Do You (or your Advisor) Follow? October 2019

There are probably as many different investing styles as there are investors. All of them work well sometimes, but none of them work well all the time. Since the bottom of the last recession, passive investing in index funds has yielded very good results. This is not unlike the so-called "one-decision growth stock" strategy of the late 1960s. The one decision then was to buy, and theoretically hold forever. This newest incarnation is the passive index strategy, which has been aided for years by supportive central bank policy and automatic 401(k) investing.

All things come to an end at some point. The one-decision approach ended poorly in the early 1970s. There are now people suggesting that the popularity and growth of indexing will be an accelerant in the next bear market, when many of the passive investors want to cash out of their large-cap S&P 500 index and target-date funds....

The Bigger Picture July 2019

When economic cycles are strong and have lasted a long time, there is a tendency, called “recency bias”, to think that these conditions will remain in place well into the future. Over the last 30 to 40 years, extended expansion periods have persisted due to either government deficit spending or Federal Reserve support or both.

Keynesian economics suggests that governments should be savers during the good times and provide extra money to the economy in poor times. Unfortunately, politicians have not maintained the fiscal discipline to limit spending during the expansion phase. The result has been artificially long expansions, which are good for votes, but allow
large economic imbalances to build, particularly in the financial markets...

The Debt Cycle and Yield Curve Inversion April 2019

Our current situation can be seen within the context of an economic cycle top. Ray Dalio, founder of the world’s largest hedge fund, has published a treatise entitled "A Template for Understanding Big Debt Crises" that discusses the existence of short and long debt (and economic) cycles. The former last 7-10 years. The latter are 75-100 years. The short cycle causes typical economic recessions. The long cycle causes economic depressions when debt gets too far out of hand.

Dalio also produced a short, animated version, which explains how the economy works. You can see it at While Dalio does not specifically mention it, since short cycles are superimposed on top of the long cycle, it is understandable that there could be multiple bubble tops formed by the peaks of the short cycles near a long cycle top. We may be witnessing this as the long cycle rolls over, evidenced by the sequence of dot-coms, the housing bubble, and now the current central bank QE bubble...

Teddy and Grizzly Bears January 2019

A flattening trend is always present during a period of horizontal consolidation and typically can be seen before the onset of an extended decline in prices. Years ago, when we first started studying the stock market, different periods were dubbed corrections, consolidations and bear markets. Corrections occurred when rising prices got ahead of themselves and were brought back to a more reasonable level within an ongoing upward trend. Consolidations happened when an intermediate term (i.e. about 9 months or shorter) cyclical counter-trend slowed a rising trend down, causing the overall direction to become horizontal. A bear market signified a long-term down trend, which was as much a state of mind as it was a market phenomenon. Sellers created falling prices which reduced the collateral value for margin loans. Less collateral forced more selling. Selling created more selling. Eventually the entire over-leveraged financial structure washed out, until there was no one left who wanted or had to sell...

Outlook & Trends Archive 2002 - 2018

The contents of Outlook & Trends reflects the general opinions of LFM&P and is not intended to provide investment or planning advice. Such advice is only provided by means of individual agreement with LFM&P.