Rain Clouds and Crowds

'The average weight of a cumulus cloud is about 1,100,000 pounds. The cumulus clouds are the big puffy white ones you see very lazily moving across a picturesque summer blue backdrop. The many sources I cross referenced for that fact on the internet also named them “fair-weather” clouds. It is amazing to think that each of those giant slow motion cotton balls floating over our heads weigh about a million pounds.

That fun fact came to mind because of one of the many sprawling car-ride conversations me and Carter have had in transit between home, school, the grandparents' house, and back again. Other research topics have included the heat of the different layers of the sun, speed of the fastest car, the speed of the earth, and the record held for the number of digits of pi memorized by a person. It seems many of our talks revolve around records and extremes.

During my own musings in the pauses between these conversations I realized that I don’t normally notice those normal fair-weather clouds. Our extreme weather has brought about some fantastic skies recently, including vibrantly colored cloud-filled sunsets. Those will always draw my attention, especially when they change the light coming in through the windows into a strange hue, but the normal fluffy boring clouds don’t call attention to themselves. That is, until they begin to condense, growing larger and darker until they loom omnisciently overhead and I’m hoping the umbrella is in the car.

Well two weeks ago was probably the first time in a long time that many of us noticed the stock markets. At the turn of the month the markets came to an unexpected thunderhead of negative volatility, pulling the whole world from its fair-weather daydreaming. These global market declines were eventually explained as a sudden fear of a possible recession because they coincided with a few employment reports which were negative to expectations.

The more likely explanation that followed, however, was that large institutions and money managers had been borrowing cheap Japanese Yen. When the Bank of Japan unexpectedly raised interest rates, that borrowed currency was no longer cheap and the leverage being used became harmful. Managers needed to “unwind” their borrowed yen investments, which meant selling. Selling begets selling and we all know the rest. Since then, the storm has dissipated, and the world seems to have returned to its fair-weather cloudy daydreaming.

I want to offer a quick recap of what the markets have done this year, so we know where we are, and what the recent sell-off has meant to overall returns. I simply looked back at the major market indexes (S&P 500, Dow Jones Industrial Average, Nasdaq), and averaged the movements in changes between peaks and troughs. The markets rose about 8.0% from the beginning of the year until the end of March, followed by a 4.5% decline in April. This was followed by an almost 10% increase to the end of July. Then the storm hit, and the markets dropped 6.5%, only to quickly recover about 7.0%. As of August 15th, the year-to-date return of the Dow is 7.62%, the S&P 500 is 16.21%, and the Nasdaq is 17.21%.

Things are still going well. Most analysts and experts have walked back their immediate recessionary fears. However, the markets are still historically expensive, and they will eventually correct in a more meaningful way. The economy is still presenting strong indicators, but recession will come at some point. These are the inevitable cyclical swings of all things related to our human social structure. The close of our presidential cycle is also getting closer, and I assume our emotional volatility will continue to increase which could affect many elements of our lives, including the markets. But at the base fundamental and structural level, I don’t see quickly forming thunderheads. I do, however, pray we get some level-headed politicians in place willing to address our country’s spending and debt.

There are three additional small things I wanted to mention.

First, there was a recent headlining hack of National Public Data, which supposedly amounted to many Social Security numbers being compromised. Putting a Credit Freeze in place, as we’ve discussed before, is still one of the most effective defensive measures you can utilize. Reach out to us if you’d like more information on the subject.
 
Second, the IRS has finally issued guidance on the changes with Inherited IRA’s that they put in place back in 2020. Don’t worry as we will take this into account when we begin our cycle of reviewing the accounts of those of you who are required to take Required Minimum Distributions. In a quick nutshell, when you inherit an IRA account, in most cases you will have to completely distribute 100% within 10 years. If the person you inherited the IRA account from had already been taking RMDs, you will have to take an RMD each year. If the person you inherited the IRA from had not been under Required Minimum Distributions, you will not need to take a RMD (but you still must fully distribute within 10 years).

Third, the cost of ink toner and printing continues to increase dramatically, but it is also sometimes logistically challenging to acquire toner. One of our ink orders was on backlog for three months. I know many of you prefer, and or require, printed copies of letters and statements. We will not stop our practice of providing printed materials to those of you who want them. However, I also know there are several of you who continue to go ever more “electronic only”. If you would like us to change your current delivery method, please reach out to us and we’ll get you switched over.

I hope the transition from Summer and into the new school year is going well for each of you and your families. It is smart to notice those forming thunderclouds, but it also smart to reflect on the fluffy, fair-weather ones too. I wish you all the best.

Justin Anderson