October 19, 2023

Dear Friends:

Charlie Brown’s Football and the Fed

Once upon a time long ago, before PIXAR Studios and AI generated children’s movies, there was Charlie Brown.  Originally starting after World War II as a comic strip, Charlie Brown became so popular that the major TV networks started creating animated specials starring Charlie Brown.  Some of you may remember these and like me couldn’t wait to watch “It’s the Great Pumpkin, Charlie Brown” and “Charlie Brown’s Christmas” every year (note there was no on-demand, Netflix, or Youtube to watch it whenever you wanted, so we marked out calendars to watch every year.  In one of the most famous scenes, Charlie Brown’s friend Lucy holds the football for Charlie to kick.  However, at the last minute she would pull the football away and Charlie would fall flat on his back.  She would then swear to him that next time she would let him kick it, only to pull it away again at the last minute causing Charlie to protest “You just want me to come running up to kick that ball, so you can pull it away and see me fall flat on my back and kill myself!”.  Many specials aired in the 60’s and 70’s and then finally in 1979 Lucy lets him kick the football. Only he is not ready for the moment and misses anyway!.

After getting caught by surprise in the fall of 2021 by rapidly rising inflation, the Federal Reserve has been aggressively raising rates every quarter since then to try to stem the tide of inflation.  This has been a huge headwind for both stock and bond investors as interest rates have skyrocketed.  It seems like every time the market things the Fed is done raising rates and asset prices start to rise again, the Fed meets and announces they are raising rates again, even stating that they will be “higher for longer” causing asset prices to fall again.  Many investors can relate to how Charlie Brown must have felt every time Lucy pulled the football away.  However, there is much evidence and even comments from the Fed that indicates they will finally put a pause on the rate increases, and when they do it is important to be ready and already invested in assets that will benefit when they inevitably reverse course.  Learning from Charlie Brown, the plan is to be prepared to “kick the football” by designing custom portfolio strategies designed for the long term and to benefit under all market and interest rate conditions and the Fed pulls the football away!

Q2 and 2023 YTD – Excellent Performance for Portfolios

One of the strategies that has been working well in this environment are structured notes.  These are non-commission senior corporate bonds that have yields often in excess of 10%, and that also come with a feature that protects the principal against market turn-downs.  These have performed well with most generating a positive return over the last year while bond indexes are down 14% and equities are down between 3% over that same period.  This is an example of what it means to benefit by constructing a truly diversified portfolio.  This, in addition to keeping long-duration bond exposure low and helped portfolios do better than national benchmarks this year.

Year End Tax Planning Recommendations for 2023

As we go into Q4 there are many key strategies for tax planning for 2023 that we will be evaluating.  These include business compensation to kids working in the business, Solo 401K contributions, and Roth conversions. As always, we are extremely grateful for each of you and thank you for your partnership!


Mitch Anderson                                                 Destin Tompkins