After the bruising market in 2022 where the broad index was down 19.43%, we are in a better place. Year to date the Morningstar broad index is up 12.81% but down 3.19% for the quarter. That said, we have a lot to keep our eyes on. On the positive side, consumer spending is remaining robust, and the Biden administration passed their TRILLION-dollar spending bill, corporate profits are slowing but still positive, unemployment is a low 3.6% and the Fed again passed on raising interest rates. All this means that we may have an economic “soft landing” (i.e., avoid a recession). On the other side of the coin, interest rates are up and may go higher. Inflation has come down but is still well above the Fed's target of 2%. Add to this the concern over the budget deficit and you have a mixed signal on where the markets are going. Putting it all together I am hopeful for a potentially rough but positive overall market. Why do I think this? For the first time in a decade, we can earn interest in the bond market. If we look back on our accounts, you will notice that the bond portion of the accounts made almost nothing. This has meant that we have lived and died on the equities in our accounts. We now can offset declines in stocks with the higher returns we can now earn on the “safe” part of our portfolios. If interest rates drop, we can get bond appreciation, another positive.  

The market usually prices itself, trying to predict the next 6 months in advance. Given what just happened as I write this, we have a new issue to deal with. A group of Republicans have ousted their own speaker of the house. Welcome to politics and making sausage! They are fuming about two things: the deficit, and the border issue. The just passed trillion-dollar spending bill (mentioned above) will push our deficit north of $1.7 trillion for the fiscal year. Entitlement spending is grabbing increasingly more of the federal budget and must be trimmed. However, once elected, politicians like the rewards that come with the office and, even though they know we have a problem, will not fix it because they will be voted from office if they do. Most will be long gone when it all comes crashing down! The second issue with the same solving issue is a for a fix is the border. I have family who live less than 90 miles from Mexico and what we are seeing in the news is not a good illustration of the problems we have; they are massive and will add to the annual deficit, among other problems. I find it interesting that the sanctuary cities are now changing their tune. It is a mess! So how does all this matter to the markets? The ousting of the Speaker of the House was about the deficit fight as mentioned. We are now 45 days or so from another government shutdown. The markets do not like unpredictability or large budget deficits. It is impossible to predict the outcomes. But I relearned something that is easy to forget sometimes. We are investors and prices will fall, drop, rise, and fall! In January of this year, everyone I know was fearful and did not want to get in or buy. We were all wrong. Think long term and things will be fine! 

I want to also cover the Schwab conversion in this letter. The TD accounts have moved over to Schwab and the few issues we have had with the conversion are being fixed as they pop up. Kathy was prescient and is to be given extra kudos for her understanding of the conversion, and the potential pitfalls, RMDs being just one of the issues she has caught. The calculations did not transfer, but fear not, Kathy thought of it ahead of time and we have spreadsheets with the missing data. 

You will receive two statements for September. One from TD and one from Schwab. It should show the positions moving from TD, thus showing an ending balance of zero, and one from Schwab showing the positions received from TD. We expect there to be cases where interest earned, or dividends received but not paid at conversion, will flow into your old TD “accounts” and will then be automatically swept into the Schwab accounts. From our perspective we are learning the Schwab systems and are mostly up to speed on them. Bear with us as we work through the processes and forms. We are here and if you have any questions or concerns, please let us know. Nick, Keith, Alison, and I will as always keep our eyes on the market and make the best decisions we can. 

Willis Ashby CFP, President