by Jim Ulland

The New Year started with a bang, and most of the bang was in fixed income. The last weeks of 2022 were plagued with tax-loss selling, which forced prices lower. When the year ended, so did tax-loss selling. Without the selling pressure, the attractive yields in fixed income were compelling for investors. Our Intelligent Fixed Income strategy (IFI) was paying about 7%. By the end of the week, the prices of the securities in this strategy were up over 5%.

Equities also started the year with gains, but more modest than those in fixed income. Forecasters think a recession is likely, which will be a headwind for corporate profits. Stock prices are sensitive to earnings, so stock prices will have trouble sustaining rallies until the Fed stops raising interest rates. We expect this to occur sometime in the spring.

The Fed is looking for signs that inflation has both peaked and started trending down. Today, the new jobs report for December was released. Job growth was not as slow as the Fed would have liked; however, wage increases were less than expected. It is tough to get to the Fed’s target of 2% inflation if wages are growing at 5%. The December report had wages growing at 3.6%, a lot more favorable than 5%. Inflation data also improved in Germany and France. Here, gasoline prices were down. Natural gas responded to warmer weather here and in Europe and fell to pre-Covid levels. Used car prices were lower, as were home prices. Medical care even showed price declines. The Fed is looking for a trend, and one is emerging. Some Fed Regional Presidents have publicly noted this: St Louis Fed’s Bullard said that Fed policy is getting closer to being sufficiently restrictive. We think it is already very restrictive.

For the most cautious investors, we recommend our new US Treasury strategy (IFI-GOV) which invests in Treasuries with a maturity of three years or less. After our fee, the net to clients currently is over 4%. Ironically, Treasuries with a six-month maturity pay the most. Thus, when compared to CDs, investors get better yields and a more favorable tax treatment.

For the week, the 10-yr Treasury was down -32bps to 3.56%. Monday was a holiday. The S&P 500 was down Tuesday -0.40%, Wednesday +0.75%, Thursday -1.16%, and Friday +2.28%. For the week, the S&P 500 was +1.45% and the NASDAQ +0.98%.

The news next week will focus on the CPI report Thursday (will the downward trend continue?). The market will be very reactive to the number. At the end of the week, Q4 earnings will start with the big banks and United Health Group on Friday.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors

by Jim Ulland

The best thing about this week is that it marks the end of a terrible year in financial markets, in which the S&P 500 was down 19.4% and the NASDAQ was down 33.1%. Fixed income got pounded as well. Only energy stocks battled this trend. If you take a longer-term perspective, one can be somewhat forgiving for 2022. Over the last ten years, the S&P 500 was up 174% and the NASDAQ was up 253%, both including 2022.

The villains of the 2022 drama are well known. There is Covid, which triggered massive government over-spending that resulted in inflation. The Fed kept interest rates too low and generated additional inflation. When the Fed realized its mistake, it raised interest rates rapidly, which became a huge headwind for markets and the economy. The Ukraine war added to inflation with supply chain disruptions, as well as the human tragedy. China was a factor due to its size as the world’s second largest economy. Their Covid response of locking down the country caused supply chain disruption and reduced growth. Now they have reopened to relatively low vaccination/booster rates and a Covid outbreak.

2023 is setting up to be a lot better than 2022. We still may have to work through a recession or, at least, an economic slowdown. However, inflation is trending down, and this will allow the Fed to pause its rate-raising frenzy. Stocks are cheaper, a lot cheaper, than at the start of 2022. For instance, Pfizer trades at a price/earnings ratio of eight and has a dividend of 3.2%, with Covid vaccination and boosters probably becoming an annual preventative.

Fixed income is positioned to rally. Tax-loss selling hit the fixed income market this month. Prices are now at a point where it is relatively easy to put together a portfolio paying 7%, unheard of at the start of 2022. As the Fed lowers rates, possibly by the end of 2023, these securities could bounce sharply higher. While waiting, you can enjoy the 7%.

The war in Ukraine is likely to end in 2023 as well. Both sides talk of peace, although with conditions unacceptable to the other. Yet, peace will come at some point. International trade should return to pre-war levels, with the exception that Europe must replace Russia as a crude oil and natural gas supplier. China is reopening. Their manufacturing capacity will help supply chains. Their economic activity will boost worldwide growth. Covid will become manageable.

2023 will require patience. We profoundly appreciate the patience our clients have shown in 2022. We feel this patience will be rewarded in 2023. Thank you.

For the week, the 10-yr Treasury was up +13bps to 3.88%. Monday was a holiday. The S&P 500 was down Tuesday -0.40%, Wednesday -1.20%, Thursday +1.75%, and Friday -0.25%. For the week, the SP 500 was –0.14% and the NASDAQ -0.30%.

Wall Street will start the year with a four-day week. We too will be closed on Monday. The news next week will be on Friday with the December Jobs Report. The consensus is that job increases for December will be fewer than November, reflecting the Fed’s higher interest rate drag on the economy. With tax-loss selling at an end, look for a rebound in the markets.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors

by Jim Ulland

Even the new Avatar movie underperformed during its opening last weekend. As they say, “Join the Club.” Everything, except for energy, has underperformed in 2022. To show you how tough the market has been, one only needs to look at Amazon (which is down 48%) and Google (37%). The Fed has crushed both the equity and fixed income markets, but it has yet to crush the economy. The Fed wants the economy to slow, probably causing a recession, so inflation will decline to about 2%. The annualized GDP for Q3 didn’t cooperate and was revised up to an annualized 3.2% after two negative quarters to start the year. The market feared the GDP news would compel the Fed to raise interest rates even more than already expected.

It is lucky we are not homebuilders. Their confidence index is down for the twelfth straight month. Current home sales are near pandemic lows. Although Tesla announced layoffs, the labor market continues to be tight as shown in the weekly initial jobless claims, which have remained relatively flat since October. The Fed wants unemployment filings to increase, so that the upward pressure on wages is diminished. This is traditional economic theory until one of those laid off is a family member or neighbor.

The mess we are in can be rightly blamed on the Fed (for keeping interest rates too low for too long, which over-stimulated the economy), on Congress (for its historically huge spending, which was blissfully increased this week, putting more fuel on the inflation fire), and on the Russian invasion of Ukraine (which has dislocated the world energy market and disrupted international trade, forcing prices higher).

Our guidance to investors has not changed. We feel cash should go to fixed income. Here there are two good choices. We just launched a US Treasury strategy (IFI GOV), which invests in US government bonds with maturities of three years or less. This pays about 4% and is exempt from state and local taxes. Most consider US Treasuries almost risk-free. For those willing to tolerate more volatility, the potential reward is greater. Our Intelligent Fixed Income strategy (IFI) has a current yield of about 7%. The core security in this strategy is preferred stock. The primary issuers are the banks. In this strategy, you can lock in almost a 7% yield for a long time. Whether the preferred prices rise or fall, the dividends will remain constant, thus locking in today’s high yields. There is also the potential for substantial appreciation when the Fed starts lowering rates.

We advise waiting before adding to equity positions. Equities will have headwinds until the Fed starts lowering interest rates. The Fed suggests this will not happen in 2023, although others feel that a recession may force them to lower rates sooner.

For the week, the 10-yr Treasury was up +26 bps to 3.75%. On Monday the S&P 500 was -0.90%, on Tuesday +0.10%, Wednesday +1.49%, Thursday -1.45%, and Friday 0.59%. For the week, the S&P 500 was –0.20% and the NASDAQ -1.94%.

Wall Street activity will be very slow next week. The markets (and our office) will be closed on Monday. Perhaps we can take Col. Quaritch’s remarks from the 2009 Avatar as hope for 2023. He says to wheelchair-bound, former Marine Jake at the outpost Pandora, “By the way, you’re going to get your legs back”.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors

by Jim Ulland

Just as the inflation numbers on Tuesday pointed to a downward trend, the market changed its focus to the possibility of a recession. This is a market where all news is viewed as bad news. The market has been so focused on the Fed and its interest rate increases that less attention was placed on the impact higher interest rates would have on the economy. Stocks have historically been valued based on earnings. During recessions, earnings go down, thus it is no surprise that stocks are weak with a lot of recession talk in the air. Naturally, the Fed, interest rates, and recession are all part of the same witches’ brew. Let’s hope the brew doesn’t kill us.

On Tuesday, the Consumer Price Index (CPI) was released. The inflation rate in November was down from October and lower than expected. That good feeling lasted all of one day. On Wednesday the Fed announced its latest interest rate increase. Although this increase was less than that of the prior Fed meeting, it was surrounded with language on how tough the Fed was going to be with more increases and leaving this high rate in the market, or in Fed speak, “Higher-for-longer.” The Fed concedes that it will cause layoffs. It even virtually dismissed any rate cuts in 2023. Goldman Sachs didn’t take long to get the message and announced the layoff of 4,000 employees two days later. The New York and Philadelphia Fed manufacturing indices were down in sympathy. November retail sales contracted more than expected. One of the few counter-trends was found in unemployment filings. These were down, showing more workers staying at their jobs. One suspects that workers may be trying to build a cushion of savings, preparing for a recession.

With equities expected to have headwinds until the Fed starts lowering interest rates, investor attention is turning to fixed income. This month we launched a US Treasury strategy (IFI Gov) that has a target yield of 4% after fees. The great thing about Treasuries is that they have exceedingly low risk (the US has never defaulted) and they now pay a meaningful return for short maturities. Our new strategy focuses on Treasuries with maturities of less than 36 months. Interest income on Treasuries is exempt from state taxes. Investors also can withdraw some or all funds at any time without penalty, although securities sold before maturity will be sold at market prices. These separate accounts have a $250,000 minimum and a fee of 0.25%.

Our other fixed income strategy, Intelligent Fixed Income (IFI), has a current yield near 7%. In 2023, the total return will be the 7% income plus the change in price of the securities. We look for appreciation to be between 5-10% depending on when the Fed starts reducing interest rates. This means the potential for double-digit returns in 2023, in our view.

For the week, the 10-yr Treasury was down -10bps to 3.49%. On Monday the SP 500 was +1.43%, on Tuesday +0.73%, Wednesday -0.61%, Thursday -2.49% and Friday -1.12%. For the week, the SP 500 was –2.09% and the NASDAQ -2.72%.

Wall Street activity will be slowed by the Holiday next week. We have high hopes for a fixed income recovery early in 2023 and an equity recovery later in the year. Onward and upward.

The information contained in this commentary is not investment advice for any person. It is presented only for informational purposes to assist in explaining factors that may have had an impact in the past or may have an impact in the future on client portfolios or composites. All expressions of opinion reflect the judgment of the firm on this date and are subject to change. Included information has been obtained from sources considered reliable, but we do not guarantee that the foregoing materials are accurate or complete. Investors should contact Ulland Investment Advisors for individualized information prior to deciding to participate in any portfolio or making any investment decision. Ulland Investment Advisors does not provide tax advice. All investors are strongly urged to consult with their tax advisors regarding any potential investment.

Performance quoted is past performance. Past performance is not indicative of future performance. There is always a possibility of loss. Current performance may be lower or higher than performance shown. Differences in performance versus the indices/funds may be attributable, in part, to differences in the asset make-up of the strategy vs. the indices/funds. Performance calculations are based on the reinvestment of dividends and gains unless these amounts were paid out to the client. Performance is subject to revision. See www.ullandinvestment.com for important strategy disclosures.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investing involves risk; principal loss is possible. Investors should consider the investment objectives, risk, charges, and expenses of the strategy carefully before investing. This and other important information can be obtained by contacting Ulland Investment Advisors