Even though last week’s CPI (consumer price index) came in hotter than expected, we would argue against interpreting results as a notable uptick in inflation. “Supercore” (which strips out a range of very volatile categories) continued to trend weaker.  We were happy to see both the stock and bond markets shrug off the small miss without any tumult.  After the report, the markets raised the probability that the Fed will cut rates in March to over 80%.

The PPI (producer price index) was weaker than expected when announced last Friday.  The PPI has completely unwound the very high inflation period of 2021 and 2022.  A big part of that is commodities including food and energy, both deep in deflationary territory. 

Finally, the Fed’s favorite inflation indicator, the PCE (personal consumption expenditures), showed inflation has returned to target.  Core PCE prices were up only 1.9% annualized over the last six months.  See the graph below:

PCE CORE INFLATION IS BACK TO TARGET…

Source:  Bespoke Investment Group

Our take:  Inflation is slowing and will continue its downward push.  The Fed’s 2% year-over-year target should be reached around mid-year.

We remain an adversary to environmental, social and governance investing (ESG). In an earlier commentary we even thought the practice may be considered illegal for institutional accounts (pensions, endowments, profit sharing, etc.).  Sure enough, some governors have outlawed the use of ESG investing in state-sponsored retirement portfolios.

ESG’s hallmark investment view rests in the support of stakeholder capitalism, not shareholder capitalism as is commonly practiced.  Shareholder capitalism is traditional.  That is, companies are run for the benefit of shareholders.  Stakeholder capitalism is run for the benefit of clients, employees, society, and then shareholders.  Many consider stakeholder capitalism to be woke capitalism.  Many ESG investors will accept lower returns in exchange for being a socially responsible investor that include various parameters including carbon footprint, gun control, diversity and inclusion, among other factors.  Proponents say investment returns are not compromised, but that has never been proven.

A constrained strategy (like ESG) cannot beat an unconstrained one.  Any short-term alpha (excess return) is a result of outsized flows into those strategies, driven in part by aggressive marketing by Wall Street.  New products often mean higher fees.

Our conclusion:  Investing cannot be a vehicle for creating social change.  In fact, the concept should be retired.

 

ARTIFICIAL INTELLIGENCE REMAINS THE NUMBER ONE

INVESTMENT THEME IN 2024

 

Market cycles need themes and “AI” has been this bull market’s theme in a big way.  There is a good chance this becomes a secular rather than a cyclical wave, which is bullish for equities.  Companies are now locked in on the AI race so they don’t get left behind.  In fact, Google co-founder Sergey Brin has returned to Alphabet to take the lead on AI at the company.

AI should be an even bigger story in 2024.  The AI theme should play out over years and decades, not just months.  You could see AI’s promise at the 2024 edition of CES last week (Consumer Electronics Show).  AI was essentially the only topic at the tech trade show.  Everyone asks people coming back from CES about the coolest thing on display.  The entire tech industry has single-mindedly placed all of its eggs in a single AI-generated basket.  And investors who thought AI was just hype earlier have come around.

We embraced the theme early in 2023 and have aggressively added AI exposure to client portfolios since then.  We own both creators of AI technology as well as companies that will benefit from the efficiencies of using that technology.  We are very excited about AI.  This may be as powerful as the introduction of PCs and the internet in the 1990s.

Knowledge – Results

Experts in Risk Management

Are you prepared for the next market correction or financial crisis?

Knowledge – Results

Experts in Risk Management

Are you prepared for the next market correction or financial crisis?

Knowledge – Results

Experts in Risk Management

Are you prepared for the next market correction or financial crisis?

Knowledge – Results

Experts in Risk Management

Are you prepared for the next market correction or financial crisis?

Real Retirement Solutions

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  • Management of Risky Assets
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This is achieved through an ongoing assessment of market risks given your specific financial situation and goals.

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Professional Expertise

Leadership Team

Richard Furmanski

Richard Furmanski

CFA

has been a portfolio manager and analyst for over 35 years. He manages conservative, tax-efficient portfolios for both pre-retirees and retirees. His lower risk approach appeals to investors who want less volatility and competitive risk-adjusted returns.

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Mary Ellen Adam

Mary Ellen Adam

Director of Operations

has been in office administration for over twenty years. Her experience includes customer service, firm operations, and office administration. She interacts with our clients on a day-to-day basis and handles any requests that may arise.

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Frequently Asked Questions

If you can't find the answer to your questions here, feel free to give us a call at 847-847-2505

Do you manage both stock and bond portfolios?

Yes. We build a portfolio of conservative, high-quality stocks and hold them for the long-term. The average holding period is 4 – 5 years. Our focus is on stocks that are suitable for retirement portfolios.

Our high-quality bond portfolios are designed to provide both income and stability of principal. Bonds provide the anchor for balanced accounts (those holding both stocks and bonds).

What is your investment philosophy?
We take great care in purchasing only high-quality stocks and bonds intent on a multi-year holding period. Portfolio turnover and taxable realized gains are modest in comparison to other active managers. We do not time the market but will become more defensive, in terms of stock holdings, when market conditions warrant.
Will the portfolio be managed in accordance with my financial goals?
Yes. Each of our clients has a custom-tailored portfolio. These custom portfolios are designed to meet specific client objectives with a thoughtful approach to specific constraints such as risk tolerance. And as each client’s situation changes, the portfolio does as well. There is no cookie cutter approach.
What kind of expertise do you have and how can that help me in difficult markets?
We have been working with high-net-worth clients like you since 1982. Over that time we have helped them to navigate several bear markets and financial crises (including the stock market crash of 1987). We hold the Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP) designations.
Are you sensitive to taxes when managing portfolios?
Yes. Our holding period for an individual stock averages 4 plus years which means our turnover is low and realized gains can be carefully managed. Further, where possible, we tax loss harvest small losses as a way of offsetting gains taken elsewhere in the portfolio.
How have you performed?
Results will differ by client and the level of customization but we have provided competitive investment returns for many years.
How do you charge for your services?
We charge a management or consultant fee based upon the size and level of customization of the account. As the account grows, we benefit together.

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