Before we begin, I wanted to say a few words regarding my post from last week. I had written about the importance of charging rent to “boomerang kids” when they move back home. The idea is to welcome them as the adults they’ve become with an understanding, on both sides, of what’s expected.
This isn’t to suggest that you charge rent in all cases, however. Our kids could move back for any number of reasons and many of them, such has health-related issues, personal trauma, and so forth, would (and should) reasonably be free from rent for obvious reasons. I failed to mention this last week and wanted to clarify that here (thanks for the reminder - you know who you are).
Now on to this week’s post…
As often happens in the short-term, financial markets are all over the place. Stocks have moved up from recent lows, but the interesting activity has been mostly in the bond market. I’ve mentioned previously how the yield curve is currently inverted and how this has been a good indicator of an oncoming recession. Let’s update where we stand.
My research partners at Bespoke Investment Group put out a very good piece last week addressing how long the yield curve normally stays inverted before it starts flashing a bright red light, so to speak, for a coming recession. As shown in the graphic below, out of the seven recession periods (the gray bars) in recent decades, the yield curve has been inverted for at least 30 days, but more commonly at least 50, before being a better signal.
If you look closely, you’ll also see a lengthy inversion in 1967 that didn’t precede a recession, as well as a couple of blips as outliers in the late 90’s. While not a foregone conclusion, our current inversion is about 20 days old, so we’re knocking on the door of this becoming a more meaningful indicator.
What’s going on with the stock market? That’s a question several of you have asked in the last week. I thought I’d answer the question here as well since I’m sure others are also wondering. The short answer is that this is a normal bout of volatility that is part of getting good long-term returns. But since the slightly longer answer is usually more interesting, here goes…
Although stocks have logged decent performance of about 4% in the past 12 months, you’d be forgiven if you felt like it’s been a bit of a rollercoaster ride getting there. We had all that volatility to end 2018 when stocks fell almost 20%. Then we had a good upsurge to start 2019, only to be followed by stocks falling 6% in May. These gyrations are due in large part to several risks, some of which are new while some could be considered old (but persistent) news.
We’ve previously discussed how we’re nearing the end of the economic cycle that began during the Great Recession. This is old news. As the cycle starts to slow investors get nervous and headlines that might otherwise get overlooked take on greater significance. For example, it turns out Google may be subject to an antitrust investigation by the Department of Justice, and possibly Amazon and Facebook as well. Since the tech industry makes up nearly a quarter of the S&P 500, the long-term viability of the business models of these companies matters a great deal. I don’t know that these antitrust revelations are necessarily new, but they contribute to a growing sense of anxiety within the stock market.
Piling on last month was worsening geopolitical and trade news. We learned that British PM Theresa May was resigning after failing to deliver Brexit. This almost ensures another down-to-the-wire ordeal come October when their extension to leave the European Union ends. Continued disfunction around Brexit adds to fears about the structure of the EU itself. Taken to the extreme, the EU collapsing as other countries with nationalist tendencies try to leave would obviously have far-reaching ramifications. On top of this we learned of more tariffs from the Trump Administration directed at China and, at month’s end, potential tariffs aimed at Mexico. All of this raises the tension level in the room, so to speak.
Ever wonder what financial planners talk about when they go to an industry conference? I know you spend lots of time wondering, so this week I’m going to give you a sense of the conference I attended last week in Austin, TX.
I’m a member of the National Association of Personal Financial Advisors, the organization that puts on this twice-annual continuing education extravaganza. NAPFA’s conferences are unlike many I’ve attended because they’re filled with high-quality educational content, not product pitches from the latest mutual fund or insurance product.
There were some interesting themes this year, with maybe half of the content being investment-related and the rest addressing topics such as health, wellness and aging. Here are three examples.
Keeping Our Brain Young
This talk was given by a wellness guru about brain health and how serious mental decline isn’t necessarily a given as we age. Apparently, lifestyle choices we make over time have a huge impact on brain health. Sleep plays a major role. The speaker provided some basic tips to ensure quality sleep, such as staying on a schedule, limiting screen-time prior to bedtime and darkening our bedrooms at night followed by natural light in the morning.
Dementia, the speaker also explained, is a set of symptoms and not a disease, such as Alzheimer’s. A third of dementia is preventable and much is treatable if it’s caught early. Alzheimer’s research is rapidly evolving. 95% of what we know about the disease has been discovered within the last 15 years and much of that has come in the last few years. For example, the speaker talked about how our roughly 80 billion brain cells produce waste every day. This waste, if left to accumulate too long, starts interfering with how the cells in our brain communicate with each other. The waste gets cleared up during sleep, which is part of what makes getting a good night’s sleep so important.
Other tips for keeping the brain young included getting good exercise, going outside for even just a few minutes of nature-time daily, eating heart-healthy foods (“what’s good for the heart is good for the brain”), social engagement and learning new things. It’s also important to monitor for issues like sleep apnea and diabetes as both are risk factors for Alzheimer’s. Interestingly, these suggestions don’t require fancy gadgets or apps on our phone; they’re simple things we can do each day.