Male Speaker: Would you like an opinion on a financial matter you're dealing with? Whether it's about retirement, investments, taxes, or 401(k)s, Scott Hanson, and Pat McClain would like to help you by answering your call. To join Allworth's "Money Matters," call now at 833-99-WORTH. That's 833-99-W-O-R-T-H.

Scott: Welcome to Allworth's "Money Matters," Scott Hanson.

Pat: And Pat McClain.

Scott: This is the final day of 2022.

Pat: Yes.

Scott: So, Pat, and myself, typically take some calls and whatnot, but today we've got a little different program.

Pat: Yes. We thought we'd try something completely new after 20...how long have we been doing this, 27, 28 years?

Scott: Twenty-seven and a half years.

Pat: That's how long?

Scott: Yeah, 27 and a half years.

Pat: Loved every minute of it, every one, particularly when there was always live, and we'd drive into the studios. They went for years. And this is a financial program where we'd get into all this stuff, but for a number of years, we started out, it was on Sundays at, like, 11, or 12, somewhere in there.

Scott: And that was pre-internet days. And we'd go to the bookstore to get "Barron's" Magazine...

Pat: I remember that.

Scott: ...with the current numbers. what happened throughout the week.

Pat: Yes. Those are good old days. Good old days.

Scott: Anyway, so today being the end of the year, we thought we would talk about some of the...we're gonna go month by month of the year, and review on, from a financial perspective...

Pat: From some of the highlights of...

Scott: Or lowlights.

Pat: ...of what we thought was interest... And that's a good point. Obviously, 2022 was a rough, rough market. Years like this is when you pay for the great years in your portfolio.

Scott: You mean, this is the cost you have to endure in order to have the great years.

Pat: That's right. Years like this is when you pay for the great years that you have, or had, or will have in the future. Because the markets are not a straight line, and unfortunately, no one to date has been able to figure out. Nobody, nobody...

Scott: How to time these things.

Pat: How to time them. People can time partially in or partially out, but typically, one of those two things is wrong. And maybe they've timed a market cycle once, but to do it consistently is very, very difficult thing to do. So ,when you look at your portfolio, and you think, "What a terrible year," you're 100% correct. You are 100% correct.

Scott: It was a bad year.

Pat: It was a terrible year and it didn't really much matter...

Scott: Where you were.

Pat: Yeah. With few exceptions.

Scott: Yeah. But I mean...

Pat: A couple sectors in the stock markets, but few.

Scott: Yeah, barely.

Pat: Yeah, barely. But...

Scott: I mean, if you were diversified, you had a decline in your portfolio this year.

Pat: Yeah. Especially... Yes.

Scott: And some things might have declined that you aren't quite aware of yet. Like the value of your house.

Pat: Yes. Or if you own a non-traded securities of any sort.

Scott: Yeah. But anyway, so we're gonna go through month by month, and tell you a little recap, review, and of course have our little discussion as we talk about it. So, starting off with January of this last year, we started off this, S&P 500 fell 5.2% in January.

Pat: And that's the worst start since 1990. So the month of January, the year started out poorly.

Scott: Often said, "So goes January, so goes the year."

Pat: Sometimes said, often said, not always the case.

Scott: Correct. Just like November, October's always supposed to be a bad month and all.

Pat: Yes.

Scott: And then May, and stay away, or whatever.

Pat: But inflation, to no one's surprise, reached 7%. And the labor market reports blew out the forecast, so 467,000 jobs were added.

Scott: Yeah. So, the labor market was really strong. Of course, not a big shock. You lock down the economy, and you open things back up, you're gonna have people entering the workforce again. But it was the inflation number, that was the first time that we had seen inflation as high as that, 7%.

Pat: Just a little commentary. We still don't see the participation rate numbers published in across the board.

Scott: What's that?

Pat: The employment participation.

Scott: Oh, I know. I don't know. It always bugs me, right?

Pat: Yeah. So, employment participation is what percentage of the adult population is actually working?

Scott: It's like 62%, or something. And one of the biggest groups of dropping outta the workforce are males between ages 18, and 40, young men.

Pat: I don't know where they go.

Scott: It's the strangest thing.

Pat: I don't know where they go. There's lots of vans apparently driving around the country with young men, and women in it.

Scott: Oh, actually. So, before we move off January, since 1990, because we had the worst January as far as the S&P 500. Since 1990, of 13 negative January since 1990, the index, S&P 500, posted positive returns 10 times from February through December. And after a negative January, the average rest of the year, total return including dividends, was 9.4%. Obviously, we didn't see that in 2022, right?

Pat: Yes.

Scott: A decline.

Pat: But that old tale that says, you know, as goes January goes the year isn't true at all, as we were making fun of before.

Scott: But it's still something fun to say. So, if January '23 is a good year, so goes January, I mean, a good month, so goes January, we're all gonna be excited.

Pat: All right. Let's get into February.

Scott: Well, yeah. February, inflation continued to go up 7.5%. The Fed started stating, "Hey, we're really gonna be needing to increase interest rates." And then we saw the Russia's invasion of Ukraine. That was since February, that's been going on.

Pat: Does it seem shorter, or longer to you?

Scott: It seems like it hasn't been that many months, but I guess it has been that many months. I don't live in Ukraine, otherwise I'm sure it would feel that long.

Pat: Well, what was amazing was how long the buildup to the Russian invasion in the Ukraine was. Just watching it slowly take place over months, and months, and months.

Scott: It's also the time we started to see oil prices...

Pat: Yeah. Increase substantially, and which obviously...

Scott: Is another type of inflation.

Pat: Oil hit more than 110 bucks a barrel. And it was $40 increase over the last three months. Massive, three months into February.

Scott: Yeah. And the economy was red hot.

Pat: Economic sanctions. As far as cutting off many of the Russian banks from the SWIFT messaging system, which is...

Scott: That worked well.

Pat: ...how to move money around. Yeah, yeah. You know, the sanctions, oftentimes as most of you aware, are against countries that then figure out ways to get around the sanctions, so that the free flow of commerce can continue through bad actors, what we consider to be bad actors, and third party. So, that was Russia. That was in February.

Scott: If we look at March. So, in March, stocks recovered a portion of their losses from January, February, but bonds extended their drop resulting in the worst quarter for fixed income since 1980.

Pat: Forty-two years.

Scott: And the market had a bit of recovery. We saw the first half of March, the markets were doing poorly, and then the Dow kind of whipped that up, and it was up about 7% from the low point, as the Feds were kind of putting out their plan of what they're gonna be doing as far as raising rates. And we saw inflation hit 7.9%.

Pat: So, that's 7% in January, 7.5% in February, 7.9% in March. And just not to take thunder away from December, the November numbers, we were back to 7% inflation.

Scott: It has ticked down, and you'll see as we kind of go through these things. But we also saw the yield curve invert in March. And that's where short-term interest rates are higher than long-term interest rates, which seems counter. You'd think that if you're willing to buy let's say, a longer CD, you get higher rate, Well, with an inverted yield curve, long-term bonds, say a 10-year treasury, is at an interest rate lower than what a short-term one would be.

Pat: Which often is a precursor to...

Scott: A recession.

Pat: ...a recession. Often, but not always, but often.

Scott: Same thing like the stay in May. Stay in Jan.. Whatever, all those things.

Pat: Yeah. Whatever those sayings go. But, you know, in fact, well, we are in the month of December now. This is the first time I can remember the Federal Reserve actually saying what they thought they were gonna do with interest rates in two years, and three years out. Did you see that? Where they were, like...

Scott: They just announced.

Pat: Where they just announced a few weeks ago, "We're gonna increase them here, but we think three years from now, and four years from now we're going to..."

Scott: I actually don't pay much attention to that. I read most financial news. I don't watch television news, almost never. And I like to consume my news through reading. And I don't even read much on the Fed stuff. It's all, I don't know.

Pat: Well, I just I thought it was curious, because I had never seen that before.

Scott: I read reactions, but when Jerome's talking about his thoughts, it's just noise to me.

Pat: Well, okay.

Scott: But you read it. So, good for you.

Pat: I read it. I just thought, "I don't remember a time when they would actually forecast where interest rates..." Well, first of all, they used to not forecast them at all.

Scott: At all, yeah.

Pat: At all. But now, actually, I can't remember a time where they actually forecast.

Scott: You think they actually have a clue where things are gonna be three years from now?

Pat: Nah. You know, basically, when I heard that, I thought to myself, "He's telling everyone it's gonna get really painful for the time being, but it'll be better in the future." And that's what he was saying.

Scott: Yeah. Well, that's an easy one to say. I could say that. Okay, for April, the S&P 500, the broad stock market, fell almost 9% in April. I feel like I'm bringing up a lot of bad news, right?

Pat: Well, it was a rough year.

Scott: Yeah. It was the worst month since March of 2020, and of course, all the other indexes were off. And the NASDAQ, which is mostly tech stocks, down 13.2%, and bonds didn't do well either. Bond values fell 3.8%, so it was absolutely dreadful month for investors.

Pat: And the Consumer Price Index, which is a measure of inflation, was at a 40-year high of 8.5%. Obviously, what that means is if something cost $100 last year, it cost $108.50 this year.

Scott: Yeah. And people were then starting to look at negative GDP, April.

Pat: This is a depressing show. I dunno if I wanna finish the year. So, thanks for tuning in.

Scott: That is news stories. I've got something.

Pat: Let's have something positive.

Scott: No. March, my son was a paraglide instructor in Columbia...

Pat: Okay. That's positive.

Scott: ...and made a decision not to continue that in his career path.

Pat: That was positive.

Scott: That was positive.

Pat: Your son stopping something was positive.

Scott: He was a paraglide instructor after a Boston College education.

Pat: Okay, positive news. How does this affect the listeners?

Scott: It doesn't. I'm thinking of myself.

Pat: Your personal...

Scott: Myself. May. We'll, look at May of this year. Yeah, what did happen in May? Not much. Oh, well, the Feds did start hiking rates. In May, is when they started hiking rates. And this is when crypto first started having its cracks, and Terra collapsed. Remember the stablecoin, whatever the stablecoin's supposed to mean.

Pat: Whatever stable... Stable compared to what?

Scott: I know. It's only made up terms, right?

Pat: I know. Stablecoin.

Scott: Stablecoin.

Pat: "How did that stablecoin crack?"

Scott: And Bitcoin closed below $30,000.

Pat: Oh, that's awful. Who cares?

Scott: But Bitcoin, was it at a high of six... Well, if you own Bitcoin.

Pat: Look, I've said it before on this show, time and time again, this is a Beanie Babies pyramid scheme without the Beanie Babies. We're bidding up something that actually has no backing. None. Zero. There's no...

Scott: There's not been any shenanigans in this industry.

Pat: Oh, my gosh.

Scott: Which we'll talk later as we get through the year, because that was May. And May was good news. May was my 30th wedding anniversary.

Pat: Well, congratulations.

Scott: I'm trying to find something personal, and good for the month of May.

Pat: Yeah. It was...

Scott: So, June, inflation came out again at, this time 8.6%.

Pat: Well, so the acceleration is still there, but the acceleration has slowed down, right?

Scott: Yeah, yeah.

Pat: It's still happening. It's still upward, but the upward curve isn't quite as steep.

Scott: You mean as today, or back in June?

Pat: Back in June.

Scott: Yeah.

Pat: And that is correct.

Scott: And then the growth of it has slowed.

Pat: And because of that, because of this high inflation rate, the Fed actually, 75 basis points, or 0.75% rate hike in June. And this was the largest in 27 years. So, this is telling us in June that the Federal Reserve is essentially saying, "We're not gonna allow this inflation to continue for much longer. We are doing whatever we can to stop it." At the same time, the parts of government were actually giving out piles, and piles of money to different organizations, including people, debt forgiveness of all sorts, which was driving inflation in certain states, including the one in which we are broadcasting this show from, with putting in economic things for the pandemic.

Scott: I just saw California... The U.S., there's billions of dollars more in unemployment that you can qualify for...

Pat: That's right.

Scott: ...if you chose not to go to get a job, because you're fearful of COVID or something.

Pat: Yeah. This is June of 2022.

Scott: But, you know, it's interesting how the Feds, instead of just seeing the inflation and say, "We're gonna raise interest rates 2.5%," they don't do that. "We're gonna raise a little bit now, a little bit later, a little bit later, a little bit later." It's kinda like they're trying to slow things down, which is exactly what they're doing. They're trying to slow the economy some to get inflation down without slowing it so much, we'd drive off a cliff and have a recession.

Pat: Correct. Otherwise you'd get whiplash. I'm gonna use an analogy, pretty simple one. If you think of the economy as a speeding car going down the street, you slam those brakes on, and come to an immediate stop, which is what a 2.5% increase in the interest rates would do, we'd create all kinds of whiplash. There'd be damage.

Scott: Yeah. That would be bad.

Pat: So, it's slowly, and it's...

Scott: I mean, there's a lot of borrowing that the interest rate is based upon the Federal Reserve rates.

Pat: There's a lot of variable interest rates, especially in corporate America, that is based on as a basis what this interest rate is plus a margin. So, it's allowing businesses to titrate their growth to what's happening in the economy. But at the same time if you think about it from the Federal Reserve, I thought about them the other day. I'm like, "This has gotta be very, very, very difficult job, because you can't see everything in the numbers, because things are lagging."

Scott: Oh, yeah.

Pat: Right. So, they raise interest rates...

Scott: All's we can look at is yesterday.

Pat: That's right. And not even...so you're like, all these tech people are laying people off. You read about them getting laid off. You don't hear about when they actually hit the unemployment line. They might be on payroll for a month, or two months.

Scott: Or there's the severance. They'd have three-month severance, or six-month severance.

Pat: Yes. It takes a while.

Scott: July, S&P enjoyed the best month since November, 2020. It was up 9.2%.

Pat: Congratulations, S&P.

Scott: And bonds were up 2.4%. So, we saw both those were going up quite a bit in the month of July. Go figure. That's how the markets do things. And this was also at a time when they're starting to look at, "There's a real chance we're in a recession." And then if you remember, they were starting to have some discussion, "Well, how do we define a recession? Recession is not really defined..." All that kind of garbage. This was also the month, July is when Biden announced his loan forgiveness, student loan forgiveness, of up to 20,000 bucks a person, which is still working its way through the courts. And that was July.

Pat: Thank you, But if you think about it, it's up 9%. So, month after month, your portfolio's getting racked through most of the year, and then all of a sudden July, "Wow. Look at this." So, this is actually why it's difficult. This goes back to what I said at the beginning of the show. This is really why it's difficult to time a market.

Scott: Right. You're looking at things all over the place.

Pat: Because if you're like, "I can't stand this anymore, I gotta get out," and then you miss July.

Scott: And then August comes, and about half of July's gains were erased.

Pat: Yes.

Scott: And the long-term interest rates rose dramatically over in the month of August.

Pat: And inflation was at 8.5% year over year.

Scott: And this is when the Senate approved the $430 billion Inflation Reduction Act.

Pat: Spending money on climate change, clean energy, and...

Scott: Why [inaudible 00:19:28] them for misinformation? I mean, they had the package, and someone said, "Why don't we put something, inflation, on it? That way, people are gonna like it." If they were a corporation, the FTC would've fined them or they would've been sued for false advertising.

Pat: For the Inflation Reduction Act?

Scott: Yes.

Pat: Because that's what you need to do. If you wanna tame inflation, you put more money into it.

Scott: That's right.

Pat: Oh, my. You get the demand higher.

Scott: It is an upside-down world. Yes.

Pat: Yeah, yeah.

Scott: Okay. So September, stocks and bonds were both punished in September. Large-cap stocks fell 9.2%, small-caps fell 9.6%, international were down 9.3%, emerging markets were down 11.7%.

Pat: Interest rates went up again by 0.75%, third straight time.

Scott: And by the end of September, if you owned the Bloomberg Bond Index, broad index of bonds, your return for those bonds were down almost 15% year-to-date.

Pat: Worst year in bonds in 50 years?

Scott: We did see the CPI start to decline a bit. So, July was 8.5%, and August it was 8.3%, and it dropped to 8.1% in September. So it...

Pat: Replacing was...

Scott: And Liz Truss, was the shortest prime Minister in Britain's history.

Pat: Oh, that was something to watch.

Scott: That was something to watch.

Pat: That was something to watch.

Scott: Bizarre, wasn't it?

Pat: Oh, just for a side note, there is on, is it Netflix? On Netflix, or HBO, there is a series on the Murdochs, the Murdoch family. A documentary about the Murdoch family.

Scott: You liked it, I guess.

Pat: It's worth watching.

Scott: Okay. Murdochs on Netflix.

Pat: It's either Netflix, or HBO. It is worth watching. And the reason I bring this up is the tie to government in England.

Scott: And Liz Truss?

Pat: Not Liz, but it may have had some with Liz.

Scott: I'd actually forgotten her name. It's, like, "She was the shortest..."

Pat: It was months. It was months. But they talk about many of the relationships between the Murdochs and the prime minister.

Scott: Sounds riveting.

Pat: It was great. It was great.

Scott: Okay, October. Stocks roared back in October. October's supposed to be a bad month. Like January, whatever happens January happens... October's supposed to be a bad month. The Dow was up 14% in October. It's the strongest monthly return since 1976. And, get this, it had the best October ever as far as returns go.

Pat: I was talking to a client a couple weeks ago, and they said, "You know, the markets are rough, but the whiplash is really getting to me." And they said, it's up, and then it's down, and then it's up, and then it's down.

Scott: We also saw that mortgage rates rose above 7% come October. November of this year...

Pat: We're not really seeing this in home prices though yet. We've started to see it a little bit, but I thought that these higher interest rates would affect home prices.

Scott: We're seeing the volume of home sales decline quite a bit.

Pat: Significantly.

Scott: And the refi markets are done, right?

Pat: It's frozen.

Scott: November, we saw positive months again for the S&P, and for the NASDAQ. It was a good time for that. And we saw inflation starting to creep back down a bit. That was November.

Pat: That was October.

Scott: November. We're on November.

Pat: November. Oh, I'm sorry.

Scott: And we saw the same time, that FTX's token fell 80% on liquidity concerns.

Pat: On liquidity concerns?

Scott: And of course, December, which we are now at the end of December, end of the year, FTX is in...

Pat: Bankruptcy.

Scott: What a house of cards that whole thing was.

Pat: That whole thing, the whole thing, the whole crypto thing, the whole thing, it is beyond me.

Scott: I heard one economist who said, in five years, he says, crypto's either gonna be zero, or a million dollars. He says, "I think it's gonna be zero, but I'm not discounting the fact it could be worth a million."

Pat: But Scott, it just goes back time, and time, and time again. We've talked about it on this show, throughout the year we talked about the special purpose acquisition companies that were real big in 2021, that they all started, many of 'em lost significant, 50%, 60%, 80% of their value.

Scott: I tell you what though, here's the end of the year. We just kind of went through some of the economic stories for the year. We're gonna have new economic stories in 2023. The important thing is, is to make sure that your financial plan, your investment plan is allocated properly. You've got the right things in place to participate regardless of what happens, and be on a path to accomplish your financial goals and objectives.

Pat: And don't get sidetracked by bright...

Scott: The noise.

Pat: ...and shiny, new investments, the noise, get-rich-quick schemes. Don't get sidetracked by that. Pick a path. Make sure that your investment philosophy is sound, that you can live with it, you can stick with it, and stay with it.

Scott: Yeah. And if you've looked back over 2022, and as we're talking about, like, "Oh, I made a wrong timing then, I made a wrong timing then," maybe it's time for you to hire a professional that can help you with this.

Pat: Or understand who you are, and how to protect yourself from yourself.

Scott: Or maybe hire a professional. Granted, I'm biased. We've both been three decades as financial advisors. A good financial advisor more than pays for themselves. But there's maybe 5% of the population that doesn't need a financial...could do without one. Well, half the population doesn't have two nickels, so there's not much to plan. But anyway, we're out of time. Hey, wanna let everyone know that on Thursday, January 19th from 3 to 4 Pacific, we're gonna have a time. We're sitting in the studio taking questions, calls, taking your calls. Email us at questions@moneymatters.com right now to sign up. Again, that's questions@moneymatters.com. Put your question in, and we would love to take your call on Thursday, January 19th. It's been great being here with you. Thank you for 2022. This has been Allworth's "Money Matters."