Author Archives: Granite Group

The markets look forward, not backward.

While the inflation numbers were disappointing this morning, it is important to remember that it is a lagging indicator.

Why is this important? Because lagging indicators report what has happened not what will happen. However, the inflation print this AM instills fear in investors. That fear is predicated on what the Fed will do in the July meeting which scares market participants.  The bond markets have already taken into account the Fed action of a 75bps increase. Other important lagging metrics are unemployment, hourly earnings, jobless claims, etc… but again, these are in the past.

Since markets look forward 6-12 months, it is more important to access future indicators. Stay focused on forward looking indicators like consumer confidence, purchasing managers index (PMI) and of course forward-looking corporate earnings. As of this writing, corporate earnings are looking to increase by about 7% in 2022. If there is a coming recession, it would be the first time the US recessed without unemployment increasing.  The current job market shows that we have more jobs available than people to fill them. The economy will indeed slow, but we believe the US will not enter a recession at this time. We also have received through channel checks that supply chain issues should be resolved in the first half of 2023.

Valuations have come down to normal levels. Any further deterioration in the market valuation down to the June 17th low would be a good place to dip a toe in the water.

To learn more about family office, endowment , pensions or retirement plans , please call Lyle Himebaugh at 203-210-7814

Not a time to sell

At the end of last year, we imparted our beliefs that the markets were overvalued and needed a pullback to get to a more reasonable market valuation. As an aside, pullbacks are very a healthy and normal process that we see in markets quite often.

Unfortunately, some exogenous global events added fuel to the fire.  With the unexpected re-lockdown of China (a major supplier of goods to the world) the big sticker shock of inflation and the Russia/Ukraine war (wheat), you get a more emotional response (fear) to financial markets. Given the higher interest rates and the trajectory of the fed raising rates and over- valued stock valuations combined with outside geopolitical factors, the markets are now down more than expected.

After several weeks of downturns, stock valuations are back within a very normal range. We also believe the higher interest rate trajectory is already baked into the market. In addition we assume the China Lockdown and the worst of the Russian/Ukraine war are behind us. Given these factors and the current valuations, GGA believes the markets have 10% upside into the end of the year from today’s projected lower opening. Our target is based on historical fundamental analysis. At the moment, Wall Street has a much higher target.

If you would like to learn more how GGA can help your family, foundation, pension or learn a way to deliver a personal employee experience in your company’s 401k retirement plan. Call 203-210-7814.  

Russia and Ukraine

We normally do not comment on international affairs, but we feel it is important to give our thoughts on the possible Russia/Ukraine conflict. 

First off, we do not believe that the US will enter a war with Russia, even if Russia does invade or annex part of the Ukraine.  While there is an awful lot of jawboning coming from the Biden administration, there has been little to no physical activity with our troops and military that would signal an entrance to war.  Additionally, most of the rhetoric coming from the US is about sanctions and economic action against Russia, which is the most likely outcome if they decide to invade.

Russia has some strategic need to get direct access to its Naval base in Crimea, which is what the annexation of Crimea was about in the last skirmish.  While we do not know whether Putin will escalate, we do know that in the past, economic sanctions did not seem to really change the decisions coming from the Kremlin.  The US does not have many tools here to fight a battle for Ukraine as the country does not offer much in terms of strategic need for the US.      

The final point is: if Russia moves in, what will be the economic impact and how will that affect markets? The simple answer is, whatever effect it has will be temporary. In almost every major event/crisis, the immediate reaction is negative followed by a resumption.  We believe if there is a selloff, that would be a buying opportunity. However, there will be some impacts in the oil and gas world for some period of time. 

WHAT DOES A CONSERVATIVE BOND INVESTOR DO IF THERE ARE HIGHER INTEREST RATES?

If talk of inflation is making you uncomfortable – consider a Hedge Fund of funds, here’s why…..

A new focus on rising interest rates will hamper rate sensitive bond mutual funds. (As rates rise, the value of the bond falls) If you have exposure to bond funds, and may be uncomfortable with the potential downside, there are other investments, at a similar lower risk profile, which could potentially have a better long-term return.

A better place to allocate might be a Hedge Fund of funds.  These types of funds are an actively managed blended fund consisting of multiple types of assets. These funds seek a total return from capital appreciation and income. The combination of assets is designed to produce a portfolio with much lower volatility than the major equity market indexes while providing a roughly 4%-7% annualized rate of return.

Feel free to contact us at 203-210-7814 if you would like to discuss your investment questions.

Great Companies In Cannabis

Click here to listen to Lyle’s latest interview on Bloomberg Radio.

Current Market Environment

With the recent volatility in the markets, Granite Group Advisors thought it would be prudent to share our thoughts on what is happening, and what you can do. While many of you may be interested in discussing the crazy happening in GameStop and Bitcoin etc.. we will focus on what we see going forward.

It is no secret that the equity markets are trading at records with lofty valuations. However, with the Federal Reserve continuing to provide liquidity, a new stimulus bill, keeping interest rates low, and other general government support, a case can be made that there will not be a 20% or greater market correction. Equity markets could experience a pullback of 10% or less which historically has been a part of norm.  

We believe once the country gets through covid and the economy opens back up to travel, vacation and other restrictions lifted, people will have a lot of savings to spend. This is why GGA is optimistic on the equity markets for this year.

It is important however to watch the 10 year treasury yield because the higher it goes in yield the less this thesis will play out.  As long as interest rates stay low things should go as expected.  There may be some exogenous events as well that can cause ripples which is an unknown at this time but this is what we see as of today. 

If you need or want any more clarification or just want to discuss this in more detail please do not hesitate to give us a call and set up some time to discuss your personal situation.  Thanks for your time and attention and we hope you all stay safe healthy and prosperous !!!

The tale of two tapes: Trick or Treat?

This year has been the tale of two tapes. For those that have exposure to the growth sector, those assets are up significantly this year. For those with exposure to the value sector they are down this year. This will not be forever. Look at the chart below, The NDX, (tech/growth stocks) is up 30%. The Russell 1000 Growth (R1K-Growth) and Russell Small Growth (R2K-Growth) are up 22.1, and 6.3% respectively. While the Russell Large Value (R1K Value) and Russell Small Value (R2K Value) are down 14.5, 19.5 respectively.

As of the 10/29/20 close:

Growth stocks like Amazon, Google, Microsoft , etc…,, have been the place to be while the American workforce hibernated over the past several months. Large value stocks like Chase, AT&T, Chevron, CVS,……. have done horribly this year.  But what will happen when a vaccine occurs, more stimulus is provided  and people become more confident to go back out? We believe the traditional old economy stocks may advance significantly over the next few years for a couple of reasons:

  1. the valuations are somewhat depressed when compared to their growth/tech brethren
  2. People start to turn off the computers and go out , they will utilize more energy, restaurants, amusement parks , vacations, etc…..

The markets predict 6-12 months in advance. What should you do? First, make sure your allocation reflects your needs. (i.e 80% stocks / 20% bonds, etc.)  Look for managers holding stocks that would perform better when the economy turns. This is all predicated on when a vaccine is available and the American public having the confidence to go back out. Granite wants to provide some direction on taking advantage of a return to normalcy. We are not saying it is happening now, but when it does, value stocks will do very well going forward. This is a suggestion of what we believe could happen, and it all depends on if it fits your risk appetite.

If you are retired or getting ready to retire or would just like investment assistance with respect to your account,  please call us at 203-210-7184.  We can be reached directly for one on one help.

Allocation

During the Covid crisis we spent many days having webinars to try to calm people’s nerves about what we saw as the outcome of all recessions and market dislocations. Our advice was to stay the course and continue to add to your retirement funds. As we approach the middle of June the market has almost fully recovered the enormous losses incurred at the beginning of the year. While we made the point that the market is a future predictor and will be recovering ahead of the economy, it is important to recognize that the economy has not recovered yet. This is a good time to reflect on how you felt during this period and if you were comfortable with your portfolio during the crisis. If you were uncomfortable with your portfolio during the crisis then it may be a good time to retake the questionnaire and make sure your portfolio represents your investment comfort. We encourage to login and retake the questionnaire with your company’s credentials here. Please feel free to call us for help.

What should an investor do now?

On Dec 26th for 2019, our blog stated:

It’s not the price of the market, it’s the valuation of the market. The markets are the greatest predictors of future economic growth. Sometimes the markets get too enthusiastic. Granite Group believes that the 2020 returns will not be as robust. If you are retiring or in need of funds, please make sure your allocation reflects your risk and needs.

That is what was said then, and today we want to give some insight on one way to value the market, and what you can do if you have short term needs or long-term goals:

One way to value the market:

The Price to Earnings Ratio (P/E) is the price the index divided by the earnings. If the price of the S&P index is 10 and the earnings is 1, the P/E is 10. The average over the last ten years is 16.4 times earnings. Before covid and oil issues, the P/E ratio was at a premium of 19.5 times earnings for 2020.  The P/E ratio (as of today) stands at over 22 times 2020 earnings. That means, the markets are more expensive today than they were before covid.

What should an investor do?

For investors with short term needs, college tuition, retirement or other more secure needs: since the market has moved up from the bottom, this could be a good time to secure your short-term needs. Please be sure your allocation meets your needs. This is true for any market condition.

For investors with a longer time horizon than 12 months, look at 2021 earnings. As of  today’s writing, the markets are trading at almost 18x 2021 earnings. That is not expensive or cheap given the amount of stimulus. It will be a slow recovery, but a recovery none the less. On dips, we would increase yearly contributions.

If you are one of our 401k clients, please log on to the educational site to reassess your risk. Use your company password. After you receive the results, be sure to speak with your advisor or click on the “about us” and email Sharlene Kelly for further assistance.

Protecting Your 401K in a Market Downturn?

We Answer Your Biggest Questions

For anyone with money in the stock market the last month has been harrowing to say the least. The S&P 500 has tumbled more than 30% from its high in mid-February, oil prices have cratered, and the coronavirus pandemic threatens to cause economic chaos as businesses large and small shutter operations and furlough employees.

What should you do?

Inevitably there is concern about protecting your 401K and other retirement investments, no matter what your age or stage in life. Here we answer some of your biggest questions right now.

As someone who is three years out or less from retirement, what investments are safest to stay in? What investments should I stay away from?

For investors retiring with three years or less, your overall portfolio should be primarily invested in conservative vehicles such as bonds, hedge fund of funds and conservative stocks. When referring to bonds, think high-quality instead of junk bonds. A true hedge fund of fund, even though it has equities, should have much less risk than the S&P 500. For stocks, large cap dividend-oriented stocks would be the best strategies for general guidance. For more specific retirement plan advice, contact us at (203) 210-7814.

As a young investor, should I be moving my investments in my 401k to mostly bonds?

In the short term, moving money into bonds during uncertain times may be appropriate; however, then the decision will need to be made when to switch back to other investment vehicles. A more important question to address is to ask if investment decisions and allocations are based on your personal needs. Once that is determined, stick with a long-term approach. With a long-term outlook, your contributions are buying at lower prices, which inevitably will rise with a longer-term focus.

As an employer, what advice should I give my employees about how to manage their 401ks during this time?

As history tells us, impulsive decisions during market crises is counter-intuitive to the long-term approach of retirement planning. As an employer, there are many ways you can reassure your employees. They need access to direct advice, guidance and investment education on a regular basis, even more so during a time of stress. An employer should be working hand-in-hand with their financial advisor on frequent communications and ensuring there are a variety of ways to interact. An accessible advisor will help ensure every employee feels comfortable and informed versus scared and reactive.

For the aggressive investor, is this a stock buying opportunity?

If your allocation is weighted heavily in stocks, we would advise that you continue having your contributions go in at this lower pricing point. As the number of coronavirus cases increase, the resulting angst may continue to drive stock prices lower. However, this will not be forever. GGA believes the general indexes will be higher a year from now with the stimulus that has been injected into the market.

Can 401k contributions be temporarily stopped?

Any decision to stop contributions should be taken seriously. While it’s a personal decision, if you can afford it, do not stop. Contributions result in your ability to put tax-deferred dollars towards your retirement. If you want to stop because of the market volatility, an option would be to change your contributions to money markets. That way you are still contributing without taking risk. Just remember to switch your allocations back. All contributions should be based on individual needs to ensure your long-term approach is getting the results you expect.

How often should my allocations change in this type of market?

An allocation established through the Granite Group Advisors’ investment education toolkit should stay in place. History and experience tell us that markets go up and down in the short term, however; over the long-term, markets move up. While it may not happen overnight, remember that your current contributions are buying at lower price points. As the markets recover, that should help your retirement in years to come.

How do we know when the market is bouncing back?

It is very hard to catch a falling knife. One should instead look at forward indicators — one of the best is the Bullish Sentiment. At the moment the ratio is below 40%, which historically indicates investor sentiment is not optimistic at all and suggests one reason to buy. On the other hand, a 60% ratio means investors are extremely optimistic and stocks are likely overbought. We can’t emphasize enough that patience is a virtue in this market.

Given historical crises, how long will it take to reverse losses in my 401k?

In past bear markets, history has told us that the following year is typically an up year. While history has a way of repeating itself, there is no way to guarantee that this is certain. Still, Granite Group Advisors has no reason to believe as of today that it will be different this time. Depending on one’s allocation, time frame and how the markets behave, we expect to see a higher market return a year from now. The main takeaway: the markets will eventually come back and investors should be patient and hold their long-term view to see investment returns.

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