Assets Behaving as Expected
As we get ready to enter a new week I'd like to give a shout-out to Curtain 440, which is a traveling theatrical production company. My oldest daughter is playing the role of "Young Fiona" in Shrek the Musical and they have done a great job at putting together a wonderful and entertaining experience. Here are a few observations, news, tactics and reminders to get you started off on the right foot this week.
Asset Classes Performing as Expected
The S&P 500 which is a popular benchmark for the U.S. stock market is down 8.58% since January 1st. As we have discussed stocks presently are facing the same headwinds that bonds are now, and that is mostly due to the unknown number of interest rate increases that will occur this year. You may ask, “Inflation is a problem for stocks too right?” Only in the sense that interest rates are typically raised to reign in inflation. Inflation itself doesn’t sink stocks, especially for companies that already have pricing power. We expect corrections and pullback in the stock market 1 to 2 times per year. After the long bull run in 2021, it makes sense stocks are trending lower as the market tries to price in interest rates increases that haven’t been seen in years.
For long-term investors, the S&P 500 price doesn’t tell the whole story, after all, an 8% decline hardly seems like something to get overly excited about. We like to be buyers when stock prices are reduced, but is -8% really a bargain? There are pockets within the stock market that are at what we believe to be fire sales. Take for instance Shopify. For growth-focused investors, we list Shopify in our top 10 list of “hold for the next 5 years” stocks. To get it this cheap you would have had to jump in your way-back machine to 2019. There are a whole host of racehorse companies like Shopify that are at their 52 wee lows. While the S&P 500 is down just under 10% to start the year, it is being held up by companies like Berkshire Hathaway, Pepsi, and Mastercard which are positive for the year. My mind goes back to December of 2020 when many investors were saying, “Man, I wish I would have seen the Covid downturn for what it was”, as stocks finished the year much higher than their March lows. Whether stocks stop their slide in correction (-10%)or bear market territory (-20%) is still uncertain. What is more certain to me is where they will be in the coming years. Keep this one under your pillow at night. With the exception of the self-inflicted bear market of 2020, in the last 50 years, the U.S. economy has never had a recession with interest rates below 4%. Such a stat makes the strong earnings many companies are reporting reassuring.
On the other end of the spectrum, we are seeing gold doing what it should do. Historically, gold has done a decent job of keeping pace with inflation. In a previous newsletter, we stated that gold was late to the party. Hey everyone, look who finally showed up! Gold has been on a steady climb in the past month as we would expect it to. Gold currently represents about 10% of most of our investment models as a stand-alone investment but can be found in our commodities ETF as well.
The commodities index that we use, DBC, has enjoyed a multi-year growth run as inflation has run up to 7.5% as gauged by the Consumer Price Index. We have had DBC in our models for well over a year. Despite what may have been reported, everyone who was paying attention saw inflation coming.
The energy sector returned 54% last year and is up 22% year to date. Over the past week, people have asked me what I thought about the Russian/Ukraine tensions. It is a rarity that we let geopolitics influence our investment strategies. Largely because we don’t have any more information than the next person and those events tend to pass. There has been some argument about how serious the tensions really are. While I won’t opine on that, I do believe a Russian invasion of Ukraine would likely have more effect on Europe than it would the U.S., but I would expect a Russian invasion to drive gas prices even higher.
Amidst the relatively orderly decline of stocks, we have seen the consumer staples sector hold ground as we would expect. Consumer staples are companies whose products we rely on for a daily living. As Derek says, these are the toilet paper and toothpaste companies of the world. Since 2007 the consumer staples sector has never been the worst-performing sector and has been the fourth-best sector overall since that time. If you want to learn more about the consumer staples sector listen to this.
In conclusion, we are seeing different asset classes perform as expected based on short-term macroeconomic conditions. I say this every newsletter and to some, it may seem overly repetitive: Keeping our vision long term will help ensure we don’t get tripped up on the minutia of the day. I repeat it because it's essential to success.
Health & Wealth: Heart Health and the Heart of Investing
In honor of Valentine's Day, Macy provided our listeners with key tips on maintaining heart health and Nate share what he believes to be at the heart of every successful investment strategy. You can watch it here.
It’s hard to believe right now, but soon the weather will be breaking and some of you who store summer vehicles over the winter will begin tinkering to prepare them for warm weather drives. When you do, make sure you take that insurance coverage out of storage as well. For a brief review of coverage, give Julie at our office a call at 855.496.0770 / 419.496.0770 or shoot her an email at email@example.com
$100M Crypto Settlement & Ripples in the Industry - Derek Ballinger
I write this with a heavy heart because it's the end of an era for me. As mentioned numerous times on the podcast our preferred method of buying/HODLing bitcoin was the platform BlockFi. On BlockFi you were able to buy and sell Bitcoin and other cryptocurrencies with minimal fees and get paid 4-6% interest on your crypto assets paid monthly. For the stablecoins you could receive up to 9% interest with zero volatility of the underlying asset. This was achieved similar to how banks pay interest, the customer deposits funds and then the banks loan out those funds to gain a yield and pay a portion of the yield to the depositor.
For many months now, BlockFi was in talks with regulators, most notably New Jersey Bureau of Securities who claimed the BlockFi Interest Account was an unregistered security while BlockFi viewed it more as a savings account. New Jersey blocked any new Interest Accounts from being created while the rest of the country and international users continued earning interest on their crypto.
Earlier this week, the CEO of BlockFi Zac Prince announced the deal cut with the SEC and state regulators for a settlement of $100M for the “selling of unregistered securities”. $50M to the SEC and $50M to various state agencies. In addition, they are halting the creation of any new BlockFi Interest Accounts in the US and are in the process of introducing a new product called BlockFi Yield. For all of the transparency that BlockFi has provided with the ongoing discussions with regulators, they seem to be noticeably vague about what the new BlockFi Yield product will actually entail. The old product was an ideal situation for crypto investors. You could buy Bitcoin, and if you weren't planning on purchasing anything with Bitcoin you were paid to wait for appreciation. It was as if you got paid a 4.5% Bitcoin dividend on a percentage of your assets.
Going forward this does not appear to be the case. BlockFi has yet to come out with details on the new product so the following is pure speculation on what I believe to be the most likely outcome. I imagine they are going to offer a BlockFi investment vehicle that is backed by Bitcoin that pays the yield. This is different from actually owning Bitcoin and being paid in Bitcoin. The asset will be a Bitcoin derivative that would have to be sold and proceeds used to repurchase coins if you wanted to move them into cold storage on a hardware wallet. Again, this is speculation.
BlockFi’s has remained publicly optimistic about the settlement, which is impressive considering they are remaining optimistic after paying a $100M fine, they claim that this paves a framework for similar companies in the crypto-lending space and will make investors more comfortable developing and investing in the crypto space. The SEC and regulators have said that this is a niche case and by no means will be an approach used broadly for other companies. The SEC claimed victory and said it shows a willingness to work with other crypto companies to begin conversations with regulators and offer their products in a compliant way.
For people who are invested in Bitcoin, it shows that there is some level of counterparty risk having your bitcoin held on an exchange and not a hardware wallet. BlockFi stated that coins that are already in the Interest Account will continue to earn interest and then be morphed into the BlockFi Yield product in the coming months. We are expecting more details for the product before launch.
Standard Disclaimer: Not a recommendation to invest in Bitcoin or cryptocurrency, these are volatile assets do your own research before deciding if a particular investment fits your objectives and risk tolerance.
How well do you know your customers? - Carly Snyder
How many are there? Where do they live? What factors are impacting their decisions? Where do they get information? Are they happy with your product(s)?
As a business owner, these questions should be top of mind. It’s easy to get distracted by your schedule, your prospects, your products & services – but what if you carved out a little time today to dig into the reason your business exists. Your customers. We have two types of customers – those we know and those we don’t yet know. Building profiles – or personas, buyers, etc. – are helpful in pulling together the information you know today and creating demand generation plans to reach that target customer. Pro tip: if your CRM (customer relationship management) system doesn’t capture buyer information, think about revamping how you are using it! Not only should it track your prospects but it should also manage your contacts. Take a step back, figure out what you’re trying to accomplish, then make your data work for you!
This is a goldmine when you have decent data! However, sometimes that whole decent data thing proves challenging. If that sounds familiar, don’t worry you are not alone! My advice is to start by figuring out what you want to know then map that against what your systems can tell you today. The benefit to starting with the bigger picture is you won’t be limited by your not-so-perfect data and at the same time, you’ll keep focused on the task at hand. Plus, now that you know what you need, you can create a data roadmap to begin capturing that information.
Customers you want to reach
A bit trickier is defining the customers you want to reach. Of course, we want everyone to buy our stuff – right?! Well sometimes leaving our message too general can result in resonating with very few. Whether you are B2B or B2C, here are a few steps to get you started:
Who is making the buying decision?
What influences their decision?
Do they know they need your product?
Where do they get information?
Why might they not buy from you?
What would make them act?
Run through these questions for each person making the buying decision. If you decide to embark down this path, I recommend you block a half day and go a lot deeper into the steps but you get the picture! Now you can use this information to build custom lead generation plans! Need help? Contact Carly for a free consultation. Direct email: firstname.lastname@example.org
Top of the Charts
We had Carly Snyder on the Dynamic Growth podcast two weeks ago and within a week her episode cracked the top 50 most downloaded episodes of all time. If you missed it, you can listen to it here. Literally by popular demand, Carly joined us again last week to discuss “Knowing Your Customer” and how businesses and entrepreneurs can take measures to enhance client experience and ultimately grow business.
“The secret of life, though, is to fall seven times and to get up eight times.”― Paulo Coelho, The Alchemist
The Alchemist is one of my favorite books. Derek and I had a discussion on a recent podcast about the importance of sports for teaching us how to lose, and I don't mean enjoying losing. Quite frankly, I despise losing, but how do we take failure and build upon it? Failing today does not define us as failures. We are not a set outcome. We are an outcome under construction. Choose to take today's losses and build a foundation for future success.
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Nate M. Crosby, CRPC
Crosby Advisory Group, LLC
Wealth Accumulation, Retirement Income Planning, Insurance
Listen to our podcast Dynamic Growth Here. New episodes release every Monday.
This newsletter is for informational purposes and should not be taken as direct investment advice without consultation. Investing involves risk including the potential loss of principal. Understand all risks and fees before investing. Crosby Advisory Group, LLC is a registered investment advisor in Ohio and Florida. Employees of Crosby Advisory may own investments mentioned in this newsletter. Insurance products are sold and serviced through Crosby NMD Insurance.