Flourish Insights Jay Pluimer, AIF® CIMA®

Episode #76: Fate of the U.S. Dollar

The U.S. Dollar has been the global reserve currency since 1944, when the Bretton Woods Agreement solidified the transition from the British Pound to U.S. Dollars. Recently, several clients have asked whether the U.S. Dollar can withstand challenges from growing currencies, like the Chinese Yuan, or from digital currencies. In this episode, we will review the history of currency markets, along with a deep dive into the strength of the U.S. Dollar compared to other major global currencies.

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EPISODE TRANSCRIPT

Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. Did you know we have an Alexa Skill? To listen on your Alexa device, just say, “Alexa, play Flourish Insights.”  

Today, in response to client questions, we are discussing the Fate of the US Dollar.
 
I appreciate when clients ask questions that challenge whether or not the foundations of the current market are sustainable in the future. Some of those questions relate to US versus International investments or the opportunities for a portfolio with 60% in Stocks and 40% in Bonds to earn an attractive return. An excellent example of client questions popped up recently when a couple different clients asked questions about the sustainability and reliability of the US Dollar as the global default currency. These questions challenged whether or not the US Dollar could withstand challenges from growing currencies like the Chinese Yuan or from digital currencies. It was a helpful opportunity to review the history of currency markets along with a deep dive into the strength of the US Dollar compared to other major global currencies.

The US Dollar has been the global reserve currency since 1944 when the Bretton Woods Agreement solidified the transition from the British Pound to US Dollars. This was a reflection of the balance of power for the United States as the largest economy in the world in the 1940s, a status that the US continues to hold. Although the definition of a reserve currency can be complicated, the most effective way to explain this status is that countries selling goods and services to the US and are paid in dollars, meaning that the more business a country does with the US the more dollars they have in their Treasury. For example, China is the second largest economy in the world and a major trade partner of the United States, resulting in China holding over 1 Trillion US Dollars. The result is that it would be very difficult for the Chinese Yuan to replace the US Dollar as the global currency because that would significantly reduce the value of one of the largest assets sustaining the value of their own currency.

The US Dollar represents about 60% of global foreign exchange reserves. The closest competitor is the Euro at 20% and no other currency represents more than 6%. A primary reason for the US Dollar to maintain its status as the global reserve currency is that it has consistently represented between 60% and 66% of global foreign exchange reserves, dominating all competitors by a significant margin. This consistency is impressive considering the introduction of the Euro as a global currency in 1999 and the entry of the Chinese Yuan in 2010. In addition, the US Dollar is valued relative to other currencies while the Chinese Yuan has an exchange rate that is controlled by the Chinese Government, an arrangement that has created complications for currency markets on a periodic basis over the years.

A final aspect to consider for a reserve currency is the percent of global transactions that take plac

Episode #75: The 2022 Bear Market is Over

The bottom of the 2022 bear market happened in mid-October when the market was down 25% on a year-to-date basis, and it was the second time the market hit a 25% dip last year, which is actually better than the average bear market loss of 34%. There has been upward momentum since then, and Jay Pluimer discusses the specifics in this optimistic episode.

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EPISODE TRANSCRIPT

Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. If you’ve been enjoying the show, be sure to subscribe on Apple, Spotify, Google, or wherever you get your podcasts, so you’ll never miss an episode.

Today, we are discussing what measures are used to determine that The 2022 Bear Market is Over.
 
The technical definition of a Bear Market for Stocks is a loss of 20% or more, while the definition of a Bull Market for Stocks is a gain of 20% or more. Because bear markets frequently decline by more than 20%, the technical end of a bear market frequently happens before the market has made a full recovery. In addition, the math of bear and bull market cycles don’t equate to a full recovery. For example, a market starting at $100 with a 20% drop will have a value of $80, but a gain of 20% from $80 results in a value of $96 which meets the bull market recovery but doesn’t mean the investor has made all of their money back.

The bottom of the 2022 bear market happened in mid-October when the market was down 25% on a year-to-date basis. That was the second time the market hit a 25% dip last year, which is actually better than the average bear market loss of 34%. There was a mini-rally for stocks in the latter part of the year as the S&P 500 Index ended with a loss of 19%. The market has continued to gain ground over the first 5-plus months of 2023, leading to a 20% gain from the mid-October 2022 bottom and the official end of the 2022 bear market.

There have been a few different factors supporting the stock market recovery, some of which are more favorable than others. The least positive aspect of the 2023 recovery is the dominance of Big Tech stocks, particularly stocks like Nvidia and Apple with large exposure to Artificial Intelligence. This has led to what’s called a narrow or shallow recovery because a small number of stocks have driven the market to a 20% recovery, meaning that a large number of companies have not made meaningful progress to recoup their losses from 2022.

You may recall references to so-called FAANG stocks which referred to Facebook, Apple, Amazon, Netflix and Google, the Big Tech stocks that drove market performance for most of the 2010s. According to Goldman Sachs, the new acronym for Big Tech is MAGMA which stands for Meta (the new brand of Facebook), Amazon, Google, Microsoft, and Apple. These 5 stocks currently represent 24% of the S&P 500 Index and have represented an outsized percentage of stock market returns in 2023. For example, MAGMA stocks are up 42% year-to-date while the other 495 stocks in the Index are up a combined 2%. This lack of market depth is definitely a concern and will play a big role in determining whether or not the new bull market will be able to sustain itself.

The other key drivers of the stock market recovery reflect optimism that (1) we are getting closer to the end of high inflation and that (2) the Federal Reserve will begin to cut interest rates at some point in 2023 or early 2024. We think the market might be early in the expectations for Fed rate cuts and that there is actually a good chance that there is at least one more

Episode #74: Emotional Roller-Coaster Ride

With the last market all-time high occurring more than 450 days ago - and another not yet in sight - the stock market has been quite the emotional rollercoaster for investors. Looking at history, though, shows that time favors the patient investor. Jay Pluimer shares tips on how to weather the ride back to the top in this optimistic episode.

Always check back next week for more Flourish Insights with Jay Pluimer and don't forget to check out our insights blog at https://www.flourishinsights.com.

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Episode Transcript:

Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. If you’ve been enjoying the show, be sure to subscribe on Apple, Spotify, Google, or wherever you get your podcasts, so you’ll never miss an episode.

Today, we are discussing why investing in the stock market leads to an Emotional Roller Coaster Ride.
 
The last time the stock market hit an all-time high was on January 3rd of 2022, which is over 450 days ago. It probably feels like longer for most investors, and there doesn’t seem to be much hope on the near-term horizon that we will experience another market peak any time soon. Welcome to the emotional roller coaster ride called the Stock Market!

There have been 11 Bear Markets with a drop of over 20% since the mid-1950s. The average stock market loss during those downturns has been a painful 35% and Bear Markets have lasted an average of 14 months. In addition, it has generally taken over 3 years for a market to exceed the previous all-time high through a Bear Market. Those are some scary statistics and are a big reason why investors generally have a much more vivid memory of the fall down a roller coaster than the slow trip to the prior peak.

To brighten the mood a little, the stock market has had positive returns over 100% of the 20-year time periods and 95% of 10-year time periods. That means time is definitely in favor of the patient investor who keeps their money in the stock market for longer periods of time. Five-year returns have been positive over 88% of the time and 3-year returns have been positive over 84% of the time, meaning that even medium-term investors have a very good chance of making money on their investments. However, the numbers become closer to a coin flip when looking at 1-day stock market returns which are positive around 55% of the time. One-month returns aren’t much better at 63% showing that investors will experience a lot of unfavorable daily losses on the way to experiencing a positive 20-year return.

I think it can be helpful to compare the emotional ups and downs of the stock market to a roller coaster ride because there are significant similarities between the two. For example, 100% of investors make money over 20-year time periods and close to 100% of people who ride roller coasters are alive at the end of the ride. In addition, the downturns tend to produce screams and a desire to shut your eyes until the bad part is over. The ride to the top of the roller coaster is generally less exciting or memorable, except that part toward the end when the peak is approaching, which is also where the anxiety starts to build before everything turns downward. Those last couple of sentences were about the stock market but are hard to differentiate from the description of a roller coaster ride. I’m afraid of heights and am reluctant to ride roller coasters, but no matter how high my anxiety spikes during the ride I feel safe knowing I’ll get through the ride.

I encourage investors and clients to embrace a similar approach when looking at the daily, weekly, or monthly ups and downs in the stock market. It

Episode #73: If it Bleeds, it Leads

Media companies are in the business of making money, and their profit motives tend to supersede other agendas. However, we may have reached a saturation point when it comes to negative financial news stories, with some investors having a skewed view of market performance that is not based in reality. It may be time for fewer flashy headlines and more context, and that's what we'll examine in this episode.

Always check back next week for more Flourish Insights with Jay Pluimer and don't forget to check out our insights blog at https://www.flourishinsights.com,

Please write a review of this podcast on Apple Podcasts or Alexa

EPISODE TRANSCRIPT

Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. Did you know we have an Alexa Skill? To listen on your Alexa device, just say, “Alexa, play Flourish Insights.”  

Today, we are discussing the role of media and their commitment to the premise that If it Bleeds, it Leads.
 
This will not be an anti-media podcast episode. However, the reality is that the vast majority of media companies are in the business of making money. That fact is also true for social media companies that amplify messaging and storylines from mainstream media. The profit motive supersedes any potential political agendas for media companies, in my opinion, although some stories may be skewed to appeal to certain audiences.

It has been startling to meet with a large number of Flourish clients over the past few months who are honestly surprised to see that their accounts have positive returns in the first few months of 2023. The stock and bond markets have both been up pretty consistently through the first 4 months of the year, including parts of the market that have done poorly over the past years like Emerging Markets and International Stocks. Although I don’t expect the media to provide a fair and balanced approach to all of their news stories, the emphasis on negative storylines may have reached a saturation point when investors are no longer aware that they are making money.

For example, I was watching the news while getting ready for work in late February when a story tease before a commercial break stated “don’t check your 401k statements”. That statement caught my attention because I wasn’t aware of a significant market dip over the past few days, so I stopped what I was doing to look at the latest financial news stories and market movements, all of which were positive for the week. I was motivated by the tease to stick around for the news story which basically summarized that 2022 was a bad year for Stocks and Bonds, noting that globally balanced portfolios with around 60% in Stocks and 40% in Bonds had one of their worst years on record. All of that information was correct, but it wasn’t any more relevant in late February than it was at the beginning of the year and there was no mention during the news story about stock markets performing well to start the year. In addition, if I was tempted to look up market performance by watching the news story, then I can only imagine how many other people did the exact opposite of the tease and checked their 401k statements that morning. My conclusion was that the story was mostly accurate while leaving out any information about positive trends, but it wasn’t “news” from the standpoint that the information wasn’t new.

The fact is that negative storylines about bank failures or high mortgage rates or growing credit card debt can be accurate, but need more context than is being provided by most media companies to fully understand the story that is being presented. Leading a newscast by showing logos of local banks in a story about bank failures is designed to feed

Episode #72: "Mr. Worldwide" is Back

For the past 14 years, U.S. stocks have outperformed international stocks by a wide margin. However, things have begun to change over the last several months. Although it’s too early to tell at this point whether or not this trend change is sustainable, there are reasons to favor International stocks in the current market environment.

Always check back next week for more Flourish Insights with Jay Pluimer and don't forget to check out our insights blog at https://www.flourishinsights.com

Please write a review of this podcast on Apple Podcasts or Alexa

Episode Transcript:

Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. If you’ve been enjoying the show, be sure to subscribe on Apple, Spotify, Google, or wherever you get your podcasts, so you’ll never miss an episode.

Today, we are discussing why “Mr. Worldwide” is Back.
 
For pop music fans, the title “Mr. Worldwide” is immediately associated with the artist named Pitbull. I like his music because it incorporates a global beat and brings a lot of positive energy. It’s also fortunate that Pitbull has collaborated with a large number of other music stars because that brought a lot of depth to his music. He gave himself the title “Mr. Worldwide” based on the premise that his songs incorporated themes and genres from around the world, that he toured the world performing his music, and that as part of an immigrant family growing up in the United States Pitbull represents the American Dream of success that is generally shared around the world.

I promise that is the end of my efforts to take a deep dive into pop music culture! Today’s podcast is really about the positive returns from International Stock investments which are affirming the desire to have a globally diversified investment portfolio. We frequently reference a chart in client meetings from JP Morgan showing that US Stocks have outperformed International Stocks for over 14 years with a performance advantage of over 275%. It has been difficult to justify global diversification over that time period because US Stocks were providing better performance almost every year, and frequently with significantly better returns.
However, International Stocks have flipped the script over the past few months. The MSCI Europe Asia Far East (aka EAFE) market Index is up over 23% since November 1st of 2022 compared to 7% for the S&P 500 Index. That is the largest performance differential between these two stock market indexes over the past 15 years and the first that has demonstrably favored International stocks. Although it’s too early to tell at this point whether or not this trend change is sustainable, there are reasons to favor International stocks in the current market environment.

The past 10+ years featured low inflation and historically low interest rates, an environment that favored Growth-oriented investments. Technology and Communications stocks represent 30% of the S&P 500 Index compared to just 15% for the MSCI EAFE, so a favorable environment for Growth stocks will consistently favor US markets. However, a period with moderate inflation and moderate interest rates will favor stocks that have consistent revenues, profits, and favorable valuations (also known as Value stocks). The EAFE Index has a 47% allocation to Value sectors like Industrials, Financials, Energy, and Materials compared to 27% for the S&P 500 Index.
Assuming the era of free money is over, there are reasons to add exposure to Value investments.
A sustained period of moderate interest rates is favorable for Financial Services companies like banks because they will be able to generate more revenues from loans with higher interest rate payments. In

Episode #71: The Debt Ceiling Question

The U.S. Government hit its legal debt limit of $31.4 trillion in debt on January 19, 2023, and we're getting closer and closer to June - when the 6-month extension expires. So, will Congress take measures to reset the limit? Will we have another close call? What does it all mean for the markets? I answer these questions and more in this episode.

Want more Flourish Insights? Check out our insights blog at https://www.flourishinsights.com

EPISODE TRANSCRIPT:

Hi everyone, Jay Pluimer here with Flourish Insights. As the director of investments at Flourish Wealth Management, I take pride in providing our clients, colleagues, and friends with resources and information that can help them make strategic and effective choices regarding their investments. If you’ve been enjoying the show, be sure to subscribe on Apple, Spotify, Google, or wherever you get your podcasts, so you’ll never miss an episode.

Today, we are discussing The Debt Ceiling Question.
 
An interesting comment about recording this episode in late February is that over 95% of the articles I looked at about the debt ceiling were dated in mid- to late-January. That’s odd because we are a month closer to running out of money but conversations about the debt ceiling are no longer grabbing headlines or being featured in doom-and-gloom articles. Just a guess, but debt ceiling articles will become all rage again and grabbing attention at some point in June because that’s when the debt ceiling will be approaching a final expiration date.

The US Government hit its legal debt limit of $31.4 trillion in debt on January 19th, 2023. By definition, the debt ceiling sets the limit that the US Government can borrow to keep the country running. The US has used debt ceilings since 1917 to cap government spending, although its been a very flexible cap that has been raised or suspended 102 times over the past 104 years. The US can continue to spend and borrow money for a few months due to “extraordinary measures” by the Treasury Department and the Federal Reserve, but those can’t keep the government afloat for more than about 6 months.

Congress is in charge of the debt ceiling and is responsible for resetting the debt limit as needed. The last extension took place with minimal fanfare back in 2021 when Covid relief spending still had bipartisan support. In contrast, partisanship is all the rage in Washington DC these days as both sides of the political aisle are using the debt ceiling topic as a beach ball to whack back and forth in the Halls of Congress. The odds are in favor of a deal happening at some point over the next few months because there has never been a time when the US failed to increase the debt ceiling or defaulted on debt payments.

The closest call to a default took place in 2011 when negotiations concluded just 2 days before the US was going to run out of money. The close call resulted in the first and only downgrade for the US Credit Rating from AAA to AA+, plus the US Dollar sold off and the stock market dropped by over 16%. An uncomfortable similarity between now and 2011 is that we had the exact same political configuration then as we do today with a Democratic President and Senate paired with a Republican majority in the House of Representatives. Many analysts and commentators have expressed surprise that the US Stock Market is up over 8% through the first 7 weeks of the year with the debt ceiling crisis looming over the markets.

Without getting into the weeds of political discourse in Washington DC, both parties have legitimate arguments about how the US Government should or shouldn’t spend money in the future. Although there don’t seem to be any adults in the room to help politicians put their egos on the back burner and negotiate in good faith at the moment, there is hope that fear will eventually provide the motivation necessary for a solution to take place. And there is good reason for politic