In the second quarter, the decline in residential investment subtracted 0.7% from real GDP growth. The third quarter has started on a sour note:  July housing starts dropped nearly 20% from their cyclical peak in April.

Home builder sentiment for August plunged to its lowest level since June 2014 (excluding the pandemic), raising concerns of a housing recession.  This suggests further weakening in construction activity in the months ahead.

Also, the sharp drop in housing affordability suggests more downside.  The cyclical slowdown in housing will likely push the broader economy in the same direction.  Single-family home sales tend to lead retail sales by about six months.  This suggests slower consumer spending growth for the rest of the year, one of the economy’s current pillars.  Housing is pointing to a coming recession in the U.S.

This year has not exactly been the year of the 60/40 portfolio. No matter which way you cut it, 2022 has been the worst year in 50 years for stocks and bonds combined.  Both stocks and bonds are down more than 10% YTD.  Stock returns are measured by the S&P 500 and bonds by an “aggregate” bond benchmark.  This benchmark includes both government and corporate bonds of different maturity lengths.  If you are an equity investor, it has been hard to avoid damage this year; even conservative stocks are down.  However, fixed-income investors could have limited bond price downside by staying with high-quality, short-term maturities.

NO MORE FED ‘PUT’

On Friday, Fed Chair Powell gave a short talk on how long it could take to tame inflation, and shares plunged.  “We will keep at it until we’re confident the job is done” were among the words that spooked investors.

One thing is for sure:  the dovishness that the market read into the July FOMC statement is nowhere to be seen, and stocks are trading without a safety net with the current policy.  The Fed ‘put’ is a long way lower if it even exists anymore.  (The Fed ‘put’ is the expectation by investors that the Fed will save the day and ease policy if the stock market plunges.)

While the Volcker shock isn’t likely to be repeated, the Fed’s recent rhetoric reflects a likely recession.  And to complicate matters, as we mentioned last month, the economy is far more sensitive to interest rate changes than it was 40 years ago, owing to a debt load that has more than doubled.  This increases the chance of recession even more.

In summary, Fed Chair Powell’s short speech made no mention of balancing inflation and employment.  The speech was laser-focused on price stability.  With plenty of signs the economy is softening, Powell’s shift in tone seems ill-timed.

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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?

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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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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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