Higher interest rates are not only hitting stock and bond markets, they are also hurting the housing market. Thirty-year fixed mortgage rates are off the recent high of six percent, but mortgage applications are plunging, consistent with an outright collapse in sales activity.  The current housing market is in the midst of the worst affordability shock on record.  The graph below shows the affordability shock, based on year-over-year percentage change in monthly mortgage payments.  This graph shows an even worse shock now than 1981, when interest rates were much higher due to hyperinflation.  The red dot is the current monthly mortgage payment increase, about 65%:

Source:  Bespoke Investment Group

Housing is an important part of our economy, and its weakness is adding to recession fears.  With higher home prices and interest rates likely to stay firm or increase, we may have seen the peak in housing for this cycle.  Bears say this will be a contributing factor to the probable recession ahead.

WHAT YIELD CURVES ARE TELLING US

With each passing day, another indicator flashes a warning sign that the economy is already in or heading towards recession.  While these indicators may not have perfect prediction records, when more arrows are pointing towards recession, the evidence becomes more convincing.

What about yield curve analysis?  After all, the 2s10s (two year Treasury versus ten year Treasury), a common comparison, is now inverted (short rates higher than long rates).  Historically, this implies an 85% chance of recession over the next 12 months.

Is it this definitive?  No, not really.  There are many other yield curves with different maturity comparisons to consider.  For example, the 3m10y curve (three month T-bill versus ten year Treasury), the Fed’s preferred measure of the yield curve, has remained positively sloped (although it is flattening somewhat).

Our research shows that it is more about the number of yield curves that are inverted.  We reviewed 28 different yield curves (that have varying maturity comparisons) and only three are inverted (2s/10s, 5s/10s, and 20s/30s).  So far we have not seen nearly the same percentage of yield curves invert as we have seen in prior recessions dating back 50 years.

Our takeaway is that yield curve analysis is inconclusive.  While 2s/10s is inverted, most other curves are not.  The full body of evidence does not support a pending recession.

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

designed to improve
  • Wealth Preservation
  • Management of Risky Assets
  • Peace of Mind

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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