Wednesday, February 7, 2024

Weather Forecasters Are More Trusted Than Economists

From the Desk of Joe Rollins

Over the last several years, the profession of an economist has fallen to new lows. And quite frankly, they deserve the demotion they have received. Going back to 2022, the economists were adamant that the economy would shrink and recession was inevitable in the coming years. They could not have been more wrong. The most recent economic data has even further elevated the U.S. economy and projects a more robust economy for 2024.
Breathtaking! Client Caroline Matton enjoying the view
after hiking up Mount Batur in Bali.
I want to discuss the economy in greater detail in this posting since it is extremely important. I also want to reflect on earnings in the fourth quarter of 2023 and how they should impact stock prices going forward. Since 2024 is an election year, I have to report on the shenanigans going on in Washington to boost the economy and improve the chances that one politician or another might win the election. From an economic standpoint, these decisions are very damaging, but from an investor in the stock market, they are extremely helpful.

I also want to discuss the recent demise of the Chinese economy and many problems with China that have not reached the media yet. The stock markets in China and Hong Kong have been dismal, and until China changes, they will continue to be dismal.
Client Cindy Craft enjoying time with her handsome boys
and their beautiful families in Charleston, SC.
The most famous fund manager of all time is Peter Lynch, who successfully managed the Fidelity Magellan Fund for many years. Peter Lynch had a famous saying that you did not need to read economic statistics; all you needed to do was go to the mall and check out the people flow to determine how good the economy really was. I took a trip on Saturday, and I want to give you my impressions of the economy as I saw it while I was on the road.

Before I discuss all these incredibly exciting topics, I need to update you on the January trading period. For the month of January 2024, The Standard and Poor’s Index 500 stocks were up 1.7% for the month. This index would have been up much more except for a significant sell-off of 1.6% on the last trading day of the month. Federal Reserve chairman Jerome Powell made a speech that day indicating that no interest rate decrease would be in the cards for March 2024. The stock and bond markets sold off dramatically based on these statements. Theis interesting to note that both of those markets recovered and even went higher as the week progressed. But in any case, even a 1.7% increase in January is immensely satisfying. Remember that if each month this year has a similar return, the index would have an annual gain of over 20%.
Clients Wyatt and Beverly Foster doing a little sightseeing
in Singapore (try saying that 10 times)
With the S&P up 1.7% for the month, that gives it a one-year return of 20.8% for the one year period. The NASDAQ Composite was up 1.1% for January and 32% for the one year period ended. The Dow Jones Industrial Average was up 1.3% for the month of January and is up 14.4% for the one-year period then ended.

As a comparison, Barclay’s Aggregate Bond Index was down .1% for the month of January, and for the one-year period, it is up 2.2%. I always try to give you a bond equivalent so that you can understand the difference in returns between stocks and bonds. The long-term performance of stocks versus bonds is dramatic. The S&P over the last 10 years is up 12.6%, the NASDAQ Composite over 10 years is up 15.1%, and the Dow Jones Industrial Average is up 11.8% annually over the 10 years. Compare that with the Bond Index, which has averaged 1.6% for the last 10 years. I speak about this often in these postings, but if you had been invested in bonds over the last decade, your investments would not have generated even enough return to exceed the rate of inflation. I do not see bonds contributing significantly going forward, even though they may have a small gain in 2024.
Ava and her friend off to the Fox to see Hamilton.
On Friday, they announced the job market for January 2024. The so-called experts were predicting a gain in employment for that month of 187,000 workers. To shock everyone, the payroll numbers increased by 353,000 for the month. It is vital that you understand that for employment, January is one of the worst months of the year. You have the double negative effect that many construction workers are unable to work due to weather in the north, and the retailers are laying off excess employment for the month during Christmas. The reported number that is so dramatically higher than what is expected is extraordinary.

Not only was that number good, but they also increased the number of employments in December. Therefore, for two straight months, you have increased employment of more than 300,000 new employees, which is very strong. Unbelievably, the unemployment report was once again reported at 3.7%, which is a low level of unemployment, and it leads back to a sub-4% jobless rate, which goes back to December of 2021. Take into consideration that for all the months of 2021 and 2022 and the first month of January 2024, unemployment has been less than 4%.
DeNay enjoying the snow and sandstone at Red Rocks over the holiday.
Obviously, this is an extraordinarily strong labor market. I have quoted many times in this newsletter that recession is highly unlikely if employment continues to be full. When I went to college, they taught us in economics class that full employment was 5%. Here we have the last two years where unemployment has been less than 4%. That almost surely means that employment is full.

The good news continues to roll in with this employment report. It was announced that the average hourly earnings over the last year had risen 4.5%. An exceptionally large increase in earnings by employees. This increase will obviously flow into consumer dollars, as I will reflect later in this posting. As you recall, the so-called economists forecasted a recession in 2022, but here we are in 2024, and certainly, the recession is nowhere in sight.
Lauren and Jeff treating Henry to a day out at Fetch!
A year ago, economists saw a recession as highly likely and projected annual economic growth of only .2% for all of 2023. How surprised they must have been recently when it was reported that the GDP for all of 2023 grew at a 3.1% rate. It is hard to imagine that the so-called trained economists could have mis-forecasted the economy in such a dramatic fashion. Fortunately, in these postings, my projections were significantly better. What was interesting is that for the last two quarters of 2023, the GDP went up 4.9% in the third quarter and 3.3% in the fourth quarter. That would indicate that the economy is, in fact, slowing, which is a good thing. In order to slow down the Federal Reserve from increasing interest rates, the economy should moderate and settle in at a GDP growth of roughly 2.5% per quarter. If we were to get to that level with inflation down to 2% annually, I think you would see interest rates fall fairly dramatically by the Federal Reserve.
Ava posing next to her artwork – maybe the next Frida Kahlo?!
Everyone must have been in shock when the Atlanta Federal Reserve put out its most recent posting of the projected GDP for the first quarter of 2024. Their current projection for the GDP is at 4.2%. Can you even imagine the shock of economists seeing that print of 4.2% when you have been calling for a recession for over the last 25 months? People really do not understand what goes on when the chairman of the Federal Reserve comes out every six weeks and makes a projection of the economy. If you have ever watched the speech, you would see the stock market futures and the market itself move 200-300 points in a matter of minutes.

What is going on here is that the bond market, which is many times larger than the stock market, is trying to influence the Chairman and embarrass him on national television. There is no mistake about what the desire of the bond market is. To them, a good recession is extraordinarily profitable to them. If we have a recession, then clearly, interest rates would come down, and they would profit. I know it is a twisted philosophy that this segment of the invested public would really prefer mass unemployment so they would benefit. They must be terribly disappointed that the economy continues to do very well.
Client Sheryl Matton with daughter Caroline all dressed up
for a night out at Sunset Point in Bali.
For years, I have been saying in these postings that you must ignore the noise in the news and look to earnings. A couple of years ago, I had several clients who insisted that I sell the stock Facebook because of whatever philosophical difference they had with the company, they did not want to own it. I argued that at that time, regardless of how you felt about the company, you needed to look at earnings to evaluate it. What drives stock prices are earnings, and the misconception by the public on this subject is quite distressing.

I thought maybe you might be interested in a look at earnings for the fourth quarter of 2023 and see what we could learn from those earnings. Let us compare some old-line companies that have been blue chips for our entire lifetime as compared to the new tech companies that have risen to prominence in recent years. For the fourth quarter of 2024, Exxon made a $9 billion profit and Chevron made a profit of $6.5 billion. If you compare the two, General Motors made a profit of $2.2 billion and General Electric had a profit of a measly $348,000 for the quarter. All these are old line blue chip companies that have been around for generations.
Holy Moly! Sheryl taking a dive with her new friend
at the site of the USS Liberty in Amed, Bali.
If you compare the earnings in the fourth quarter of the tech companies, you can see why tech is profitable and a good investment and those companies are less profitable. For the fourth quarter of 2023, Apple made a cool profit of $34 billion, and for the year, had a profit in excess of $100 billion. The company Google, now called Alphabet, had a profit of $20 billion for the fourth quarter and an annual profit of $73 billion. Microsoft turned in a profit in the fourth quarter of $22 billion and has an annual profit of $82 billion. Even Amazon had a profit in the fourth quarter of 2023 with an income of $10 billion and an annual profit of $30 billion. The so-called Facebook, now called Meta, added a profit of $14 billion in the fourth quarter and an annual profit of $39 billion.

You really do not need to be a rocket scientist to understand the magnitude of these numbers. The earnings by these tech companies are extraordinary by any definition and, as an investor, cannot be ignored. It is interesting that after the massive sell-off in 2022, the so-called Wall Street experts project that it would be 2025 or 2026 until we got back to all-time highs. Interestingly, the Standard and Poor’s Index 500 Stocks and the Dow Jones Industrials both reached all-time highs in January 2024. Therefore, it only took less than 13 months for the market to recover all its losses and go to all-time highs. Much of this gain has been led by these tech companies, and rightly, their gain is based upon their extraordinary earnings. There is nothing in the evidence that indicates these earnings will do nothing but increase as the economy strengthens into 2024.
DeNay relaxing, recharging, and reflecting at the Red Rocks.
Historically, the presidential election year is almost always good for the stock market. There just seems to always be a way that an incumbent president can flood the economy with money and, therefore, increasing the possibility of re-election. That is precisely what is happening now in Washington. Last week, the House passed an income tax reduction bill that would increase the deduction for each dependent a taxpayer has. Interestingly, this reduction would go into effect retroactively on January 1, 2024. Notwithstanding, many people have already filed their tax returns, they want to give larger refunds to taxpayers with the intention of buying more votes in the presidential election.

You must understand now that the Federal deficit budget in 2023 is already forecasted to be more than $2 trillion. That is 7.5% of GDP, which is roughly double what the average has been in the economy from 2016 to 2019. What this means is that the deficit has run at roughly 3% of GDP in the years prior to COVID-19. Since COVID-19, the Federal deficit has not been lower than $2 trillion annually and continues to grow. I give you this information so that you can see that there could not be a worse time to propose a decrease in income tax rates. With Federal deficits running at extraordinarily high rates, why would you contribute to those deficits by cutting income taxes, unless you wanted to pour money into the hands of consumers? Buy votes?
Ava catching a few waves down in Florida.
It has been projected by the San Fransisco Federal Reserve that consumers continue to hold $430 billion in excess savings that came to them by the virtue of the pandemic. It is only a matter of time before these amounts start to go down as consumers start to spend more money. However, that is not good enough for the bureaucrats in Washington. Currently, they are flooding the economy with trillions of dollars from the INFLATION REDUCTION ACT, CHIPS, and the INFRASTRUCTURE BILL. The Administration, almost daily, announces funding from these various acts to companies that will benefit from this outflow of money.

Even though Congress has previously funded these programs, it is pretty obvious what is going on with the money flowing out of Washington directly into the hands of companies that will spend it, which will then improve the economy. You would not be terribly concerned by all of this since this is standard politics if the deficit were not so high.

At some point we need to start making progress on reducing the deficit. I know that I have written in my previous postings that deficits are not really a problem. As long as you can print your own money, you can overcome the problems with deficit. However, in so doing, you create inflation, which is a negative for all consumers.
“Live life with no excuses. Travel with no regret.”
I often quote the reality that, “How could Germany during World War II, launch war against the entire world?” Germany had a relatively small economy and certainly did not have the financial recourses to launch a war on the rest of the world. However, by virtue of them printing money in order to fund their military desires, they created hyperinflation. At the end of the war, it was said that Germany had devalued their currency so far that they had to pay their soldiers on a daily basis since inflation was so bad.

I do not intend to make a direct reference to compare the German economy to the American economy, but only to point out that continuing deficits will eventually create inflation. At some point we need to get serious about balancing the budget with the revenue, but it now seems that at this point, Washington is only focused on spending more and more money regardless of the financial outcome.

Not many people are focused on China these days, but they should be. China is, of course, the second largest economic power in the world and controls an enormous amount of financial influence in the worldwide economy. A few years ago, they decided that they would attack private industries within China and bring them back under the control of the Communist Party. The result of that has been that many American companies are pulling out and moving their operations to other Southeastern Asian countries.
“Traveling – it leaves you speechless, then turns you into a storyteller.”
– Ibn Battuta
Clearly, Vietnam, Indonesia, and Malaysia have benefited from these moves. More importantly now, we have seen a significant shift in manufacturing capacity from China into India. India has a similar number of citizens as does China. However, the population in China is dropping compared to India, where it continues to grow.

For many decades, the Chinese government promoted the one-child per couple limit. The idea was that the limit would slow down the growth of the population by limiting the number of babies being born. The data shows that there is a significant imbalance in the ratio of men to women. Last year, employment in China fell, and the population is increasingly getting too old. As the population continues to age, the cost of healthcare and maintaining a reasonable lifestyle for the elderly will grow and that will create a major deficit to the national economy. At the current time, along with Japan, China has one of the oldest average of its citizens in the world. This, along with their anti-private enterprise and huge debts that are owed to China, has forced many industries out of the country and caused them to move to other parts of the world to create commerce.

What is interesting is that this major shift in philosophy has dramatically reduced the desirability of investing in that country. It is hard to believe that the stock market in China was down in 2023 and that it was the third straight year of decline in that market. Even more importantly, Hong Kong’s Hang Seng Index dropped for the fourth consecutive year. As you can see, your money is not treated well in China, which is a direct reflection of how they treat private enterprises in their country. As has been proven so often in the history of the world, when a communist government starts to privatize businesses, everything goes down. It happened in Cuba, it happened in Russia, it happened in Venezuela, and it is currently happening in China.

It is unlikely that China will turn the corner back to prosperity until they adopt a more pro-business mentality than what they are currently exhibiting. It is currently the policy in China that they would like to increase their population. They are encouraging couples to have more babies and even giving them financial incentives. The way China has maintained control over the population is that they have kept them busy by building and working in manufacturing plants. It is believed that in many cases that China has built entire cities with no one in them, just to keep workers busy. But the end result is that China is extraordinarily indebted. With the debt they owe, the only way that they can maintain the lifestyle of the population is by increasing their own GDP. They know as does the rest of the world, that if a major unemployment period strikes China, in all likelihood, the communist government will fail. I fully expect to see China change their philosophy regarding private industry before it is too late, and they suffer political negative ramifications.

As I mentioned earlier, Peter Lynch says that all you have to do is go to the mall and see what the flow is like. I had to run an errand on Saturday to a city outside of Atlanta, which was a 45-minute drive from my house. I was absolutely blown when I saw what was going on. Along the way I passed not less than 10 major buildings under construction. I passed a Golden Corral, and not only was the parking lot full but there was a line wrapped around the building of people waiting to get in. At 10 o’clock on Saturday morning, you would not expect such a show of consumer support. There is no question that the cost of eating out in restaurants has gone up dramatically, but that is for good reason due to the high cost of food and service in the industry. Even though the cost of eating out is high, restaurants are enjoying record participation.
I mean, who doesn’t love seeing a picture of a giraffe?
You can only draw the conclusion that people would not be eating out in restaurants that are on the more expensive side if they did not have the discretionary income to spend. Coupled with the huge traffic jams on my way to this city and observing the huge turnout in the restaurants, you have to assume that the consumers are in really good shape. Maybe you have read that Christmas sales this year were up from the preceding years even though the projections proposed that they would decrease close to 10%. Virtually everything the consumer does these days is higher than anyone could possibly project.

I recognize that this is a very limited anecdote evidence of the economy, but it should illustrate a point. Consumer spending is currently very strong, and 60% of the GDP is consumer spending. If you assume that the consumer is strong and fully employed, and inflation is down and interest rates will fall, you cannot project anything other than an increase in equity prices in 2024.

I get up every morning and watch the news, both financially and otherwise. I read about the Ukrainian War in more detail than most people do. I am also very aware of the conflict in Israel and the issues with Iran, Iraq and our soldiers. I recognize that the world is a tinder box that can blow up almost anytime. It might be possible that Russia will win the war in Ukraine, but what on earth would they have won? They get to take over a bankrupt country that would have no place for the population to live. No industry, no utilities and certainly no desire to be Russian. I would hardly call that a victory under any circumstances.
Happy Birthday, Sweet Caroline – double digits and loving it!!
The issue with Israel and Palestine will shortly be over one way or the other. Either they will reach a compromise, or Israel will kill enough people to make the conflict go away. This will be short-term. The issue with Iran and Iraq, in my way of thinking, is relatively simple. If we withdrew all of the forces from Iraq, it is likely that this whole issue would also go away.

Yes, all of these areas are of concern and if any one of those were to blow up, it would massively affect the stock market. However, hopefully, by now, you have learned that you cannot invest due to geopolitical events. If one of these events occurred, you would react to that, but you cannot invest in anticipating one of these events will occur.

The other day, I had a client say that he would not invest until after the Presidential Election. I thought to myself, “You had an outstanding 2023 and are likely to have an outstanding 2024, and you are going to wait for an event that quite frankly has no economic effect on the markets whatsoever.” If you start to invest emotionally without analyzing the financial and economic effects of the market, you are more likely than not to fail in your investment future. The best philosophy is to be always invested, regardless of geopolitical and economic circumstances.
Little Penny laughing it up as usual!
In summary, I believe the markets will be as good in 2024 as they were in 2023. I do not anticipate a gain as high as 2023, but I do anticipate a gain that will be satisfying. The economic news starting in 2024 has been good, and I fully expect it to get better as Washington floods the economy with money. I mentioned in my last posting about people who are resisting doing IRAs in 2024. I continue to note that the resistance is a mistake.

If you invest early in the year, you earn tax-free returns that will benefit you for a lifetime. There is absolutely no better investment than earning tax-free returns.

If you would like to discuss any of these matters in further detail, please let me know.

As always, the foregoing includes my opinions, assumptions, and forecasts. It is perfectly possible that I am wrong.

Best Regards,
Joe Rollins

All investments carry a risk of loss, including the possible loss of principal.  There is no assurance that any investment will be profitable.

This commentary contains forward-looking statements, which are provided to allow clients and potential clients the opportunity to understand our beliefs and opinions in respect of the future.  These statements are not guarantees, and undue reliance should not be placed on them.  Forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual results in future periods to differ materially from our expectations.  There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.

Wednesday, January 10, 2024

“Everyone got burned: Wall Street missed the great stock rally of 2023”- they might have missed it, but we did not.

From the Desk of Joe Rollins

It is hard to explain how satisfying the financial year was for 2023. After the dire predictions of Wall Street for recession and a down financial market, we had one of the better financial performances in the U.S.’s economic history. The stock market rally resulted from improving inflation, the concept that the Federal Reserve was through increasing interest rates, and the clear indication that the economy was not falling into recession.
SGo Dawgs! Clients Payal and Ketan Patel enjoy
the Georgia game with their handsome sons!
Almost a year ago, on January 11, 2023, I forecasted that the financial markets would increase roughly 20% in 2023. I admit that I was called many unflattering names due to that projection. After the loss in 2022 of over 18% in the financial markets, how could I even conceive a gain of 20% in 2023?

As I have repeatedly pointed out, I did not think there would be a recession in 2023, and fortunately, I was correct. I also forecasted that Corporate America would continue to hire people, and as long as people were working, they would spend money. Consumers were the most crucial component of Gross National Product (GDP).

So, I finally admit in writing that I was wrong. I thought that the number I predicted in 2023 of 20% was a high-end number. The final number ended up being higher than my optimistic prediction. The S&P 500 was up 26.3% during 2023, considerably higher than my projected 20%. I am happy to report my error.
Caroline ready to compete!
There are many things I want to discuss in this posting, but first, I must reflect upon the excellent year we had in 2023. I also want to give my projections for 2024 and describe why it will be a fantastic financial year based on today's economic conditions. In addition, I want to try to explain the difference between the economic “soft-landing” and the so-called "hot-landing."

The main component is higher stock prices, with their most significant contributor being earnings. It looks like earnings are accelerating in the tech section, and I would be shocked if tech earnings in 2024 were not significantly higher than what they were in 2023. I also want to do some basic arithmetic regarding Roths and IRAs. I never entirely understood why there was such resistance by clients to funding IRAs or Roths annually. Lastly, I will not spend much time on it, but I need to describe why Chinese stocks are in a downturn and whether the likelihood of emerging market stocks taking off in 2024 is remote or attainable.
A sweet moment between Josh and his favorite little sister
Before we get to the exciting information, I do need to report the excellent financial year in 2023. The Standard and Poor’s Index 500 stocks were up 26.3% for the year. Those stocks gained 11.7% in the last three months of the year and have a 10-year average of 12%. The NASDAQ Composite was up 44.6% for 2023 and made 13.8% in the year's final three months. That five-year index is up 14.8% per year. The Dow Jones Industrial Average is up 16.2% for the year 2023 and was up 13.1% for the fourth quarter of 2023. That 10-year average is 11.1%.

I always point out the returns on the bond index so that you can see the comparison between investing in stocks and investing in bonds. For the first time in quite a while, the Bond Index actually rallied during the fourth quarter. The Bloomberg Barclay’s Aggregate Bond Index was up 5.5% for 2023, earning 6.6% for the final quarter of 2023. This bond rally was predicated by the fact that the Federal Reserve would not increase interest rates further.
Reid and Caroline in Montana discovering
the next best thing to having wings
It is likely that in 2024, interest rates will fall, further rallying bonds. I will warn you to be careful and temper your excitement regarding bonds. Even though the fourth quarter was excellent, the 10-year average for bond performance is 1.8%. If you compare the three major indexes, which have a 10-year annual average in double digits, the 1.8% return on bonds is disappointing. There is a high likelihood that bonds will perform well in 2024 due to the possibility the Federal Reserve will cut interest rates. However, that rally should be significantly less than the return from stock investing.

I do not want to insult your intelligence on Roths and IRAs, but I am confused about why the public resists funding these accounts annually. I question when you can put money on a tax-deferred basis in a traditional IRA and pass up that opportunity. The “Cadillac” in investing is a Roth IRA. If you can get money into a Roth account that accumulates tax-free for a lifetime, you can make no other wiser investment. Every year in January, I encourage people to make these contributions; these encouragements are usually ignored. I also encourage people to make Roth contributions for their children. Contributing to a Roth account is huge if your child has any earned income. The compound effect of Roth’s being tax-free adds financial stability to anyone’s retirement, but so much more for a young child.
Jennifer enjoying the lights with some of her favorite people
Take this simple arithmetic: If you add $100 a month to a Roth account when you start at age 25 and invest that in the S&P 500 until age 65, you will have over $1 million. However, if you wait until you are 35, that same amount goes down to $300,000. The dramatic difference in these two calculations is the compounding of interest. As Ben Franklin often said, “The most powerful force in the universe is compounded interest.”

By putting the money in earlier, you are compounding a more significant number at the end of your life, building financial wealth. I have never entirely understood why this concept is so universally misunderstood. Here, we have a situation where a relatively small amount of your net worth can be invested, and the compounding effect on a tax-free basis is unprecedented. Yet, every year, I am met with stiff resistance as I try to remind my clients to invest in IRAs or Roths. Retirement is imminent, and we want to set you up for success.

Going into 2022, the so-called experts on Wall Street forecasted a dreary economy with the U.S. economy falling into recession. Many of them have quoted the long-standing Wall Street axiom that any time the two-year Treasury Bond is greater than the 10-year Treasury Bond, you will shortly have a recession in the U.S. The so-called inverted bond yield has now existed for two and a half years. We see no chance at the current time that the U.S. will fall into recession, and with the Federal Reserve beginning to cut interest rates, there is a high likelihood that the inverted bond yield will be right-sided sometime in 2024.
Lindsay and her daughter Marissa sporting their new hiking jackets,
courtesy of “Santa." Looking good, ladies!
After the historically lousy year in 2022, the so-called experts on Wall Street forecasted a dismal 2023. Bloomberg polled 22 top strategists and found they expected the S&P 500 to rise only 7% on average in 2023. Of the central banks, JP Morgan, Bank of America, and Morgan Stanley were among the big names forecasting a so-so year for equities. The only ray of light you saw in this regard was my projection of a gain of 20%. How could all of these major financial institutions have been so wrong for the 2023 year when, rather than the 7% gain, you had a considerable stock market rally with an increase of 26.3%?

The Wall Street experts were wrong in forecasting the economy because they missed the basic concept that the most critical component of the economy is keeping Americans working. In many of their minds, they were forecasting that corporate America would start right-sizing their employees and laying people off dramatically. Also, the enormous increases in interest rates were perplexing to them. In just 18 months, from March 2022 through August 2023, the Federal Funds Rate went from a historic low level of 0% to 5.5%, making all borrowing more expensive. Under prior financial times, this massive increase in interest rates would have made a significant dent in the economy and may have supported the big bank’s analysis. However, in 2023, that did not happen.

What actually came to fruition in the second half of 2023 is that inflation began to fall pretty dramatically. In 2022, inflation was up to a concerning 8%, but in the fourth quarter of 2023, it had dropped to roughly 3.8%. Falling inflation is a huge driver of corporate earnings. People do not realize that lower inflation reduces manufacturers' input costs and increases their margins. The most critical component of falling inflation is that it entices the Federal Reserve to cut interest rates. The decrease in interest rates increases the economy in many regards.
Evan and Alexis celebrating New Year’s Eve at the Georgia Aquarium
If you mention lower interest rates, everyone thinks about house mortgage rates; however, cutting interest rates affects the economy much more than consumer mortgages. For example, interest rates are a significant component of the purchasing of vehicles. Lower interest rates dramatically impact monthly payments for cars. Also, interest rates on furniture purchases, credit card payments, and other monthly payments are affected by interest rates. At the end of 2023, it was clear that the Federal Reserve would not increase interest rates further. The following rate change by the Federal Reserve would likely be a decrease rather than another increase.

So, you can say that you read it here first: the U.S. economy has now achieved the so-called infamous “soft-landing.” As I reported last month, we are in the Goldilocks economy of solid GDP growth, lower inflation, and potentially lower interest rates. We do not want an economy that is too hot or slow. The projected increase in GDP for the fourth quarter of 2023 is 2.5%. That is perfect. Not too hot, not too cold. The Goldilocks economy.

It is not like the Wall Street gurus do not have enough tools to create negativity. For the last two years, we have been talking about the fact that an increase in interest rates by the Federal Reserve would throw the economy into recession. It is clear that those fears of Wall Street were incorrect. So, the desired result was for the economy to fall into a “soft landing.” As mentioned above, I think we have accomplished that economic move. However, now, the so-called experts cannot control their concern about what is called a “hot landing.”
Mal isn’t quite ready to say goodbye to Christmas
Under this concept, the Federal Reserve would cut interest rates too fast, accelerating inflation, which would be highly detrimental to the U.S. economy. Based on the information at my disposal, it would appear that the Federal Reserve will cut interest rates slower than Wall Street anticipates. Most forecasts now are to cut interest rates six times during 2024, reducing the current interest rates from 5.5% to 4%. Most people would say that it is only a 1.5% decrease in interest rates, and how could that help the economy? Such a decrease would be massive in so many regards. Not only would it reduce home mortgage rates, but it would also reduce interest rates throughout the economy and likely create a new boom in consumer spending on cars, appliances, and basic credit cards.

There are so many examples of Wall Street warning us of potential financial disasters in 2022 and 2023 where they were wrong. The one that I find the most interesting is the price of oil. We all heard that due to the invasion of Ukraine by Russia and, lately, the unrest between Israel and Gaza, there would be a high likelihood that there would be a surge in oil prices to well over $100 per barrel. The oil price would surely increase with the U.S. sanctions on Russia and its oil exportations. In addition to those world conflicts, the OPEC Coalition vowed to raise oil prices by cutting back supply. These actions appeared to give oil the scarcity needed to dramatically increase the price per barrel.
A hole-in-one for client Lloyd King
But something interesting happened. Due to better technology, the U.S. began producing more oil per day than ever in its history. The U.S. average daily oil consumption in 2023 was roughly 12.9 million barrels. That is over a million barrels per day more significant than what was produced even in 2022, and more than 600,000 barrels per day than ever produced in the U.S. In addition, the U.S. became a major oil exporter, sending oil to oil-starved Europe and worldwide, filling in for Russia, which could no longer legally export. Suddenly, in one year, U.S. oil production filled the rest of the world’s needs, decreasing the price of oil instead of increasing.

Even though oil stocks were the best-producing financial stocks in 2022, they were one of the worst in 2023, having a negative rate of return. It is now anticipated that going into 2024, the price of oil will stay stable during the year due to the massive increase in production in the U.S. One of the significant components of the considerable rise in inflation in 2022 was the acceleration of the price of oil due to the Russia and Ukraine conflict. The U.S. has taken the lead in providing much-needed oil to the world, controlling the oil price.

The most important question that needs to be raised is, “What are we looking at for 2024?” When you look at the so-called economic indicators for 2024, it is pretty clear they are very favorable. Consider where we stand in the economy and what we expect in 2024. We know interest rates will fall in 2024, which is a massive positive for stocks and bonds. We also know that the economy is in a “Goldilocks” state, where the GDP is not too high or not too low. Once again, this is an excellent environment for stock market performance.
22-year-old client Phillip Hensley enjoying a round of golf at
Jack’s Point in Queenstown, New Zealand. Stunning view!
We also know that when there is a significant decline in the stock market, as we did in 2022, there are typically multiple years of positive performance. For example, in 2008, there was a 37% sell-off in the S&P 500 due to the economic downturn in the financial crisis. Not many people realize that after that terrible year, there were nine consecutive years of positive gain. I always think about this when clients want to go to cash when there is economic uncertainty. If you had gone to cash in 2008 and missed nine consecutive years of profitable operations, you would have endangered your retirement possibilities.

The most critical component related to future stock market performance is earnings. There was no question that we suffered from an earnings decline due to high inflation. Much of this earnings decline is related to Corporate America not wanting to increase prices too quickly and absorbing many costs associated with higher inflation. That was undoubtedly a good thing for the consumer, but a terrible outcome for corporate profits. In the first two quarters of 2023, corporate earnings were down 1.7% and 4.1%, respectively. It was not a pretty sight that corporate earnings were decreasing more throughout the year. I saw a significant change in Corporate America, where corporate payrolls were adjusted with falling inflation and improved profitability going forward. In the second and third quarters of 2023, corporate profits rose 4.9% and 2.4%, respectively. As you can see, as the year progressed in 2023, corporate earnings did a significant turnaround from negative to positive by the end of the year. So now, let me explain the good news.
A big congratulations to client/CNN anchor Michael Holmes on his win at the 44th Annual News and Documentary Emmy Awards.
Due to the proper sizing of Corporate America, corporate profits are anticipated to be higher in 2024 than in 2023. For example, it is expected that corporate earnings in the tech sector, in many cases, should be double what they were in 2023. However, the most critical component is the overall earnings of major corporations. FactSet’s survey of analysis projects 2024 earnings to accelerate through each of the following four quarters. They are projecting that by the fourth quarter of 2024, earnings will be 18.2% higher than in 2023. I cannot emphasize enough how vital this increase in corporate profits will be to stock market performance.

It is often said that while we sit and reflect on 2023 and how good a financial year we had, it is not an essential component of the valuation 2024. To evaluate 2024, you must be forward-looking. Celebrating the earnings of 2023 is excellent, but that is history. We do not care about prior financial information; we only care about forward-looking analysis. The stock market is always forward-looking and never backward-looking. If you analyze stock market performance based on previous history, you will miss the trends as Wall Street did for 2023. My favorite quote on the subject is from the famous economist Paul Samuelson, “The stock market has predicted nine of the past five recessions.”

So, what do we have for 2024 that is important? We have a moderate economy, potentially lower interest rates, and accelerating corporate earnings. That is the trifecta of components that lead to higher stock pricing. If the Federal Reserve does decrease interest rates throughout the year, corporate profits will begin to accelerate, and we will not have a significant fluctuation in the economy. Stock prices in 2024 will be higher than they were in 2023.
The fondest memories are made when gathered around the table
Every year, I predict what the market will do during the upcoming year. In 2023, I happened to be on the right side of that projection, indicating an increase of 20% in the markets, although the actual number was over 25%. I project that in 2024, the markets will be 11% higher, and then, if you add the dividends, the market should be 13% higher at the end of 2024 than at the end of 2023.

If you want to pick out sectors likely to accelerate, you once again have to give a nod to the tech sector due to its ability to produce revenue without incremental cost. I anticipate tech in 2024 will be substantially more profitable than in 2023. You should also see increases in anything related to interest rates. Utilities had an unbelievably lousy year in 2023 but will likely have a good year in 2024. Bonds had a modest gain in 2023, but I anticipate a more substantial increase in 2024. If interest rates significantly affect a stock, 2024 should be a good year. Therefore, 2024 should be a good year for virtually all financial segments, notwithstanding any significant political or world crisis.

I received a lot of interest in whether or not to invest in China and emerging markets. There are certainly times to do that, but people do not realize the difficulty the Chinese and emerging markets are having at the current time. China is undergoing a revolutionary change in its economy, which is not going well. China is one of the most indebted countries in the world. Their debts are so overwhelming that they must keep the economy going to break even.
Ava allowing for a quick photo during her gift opening regime
Due to the current philosophy in China, they are doing what they can to run non-Chinese enterprises in their country, and it is working. You are seeing a significant transfer of corporate America moving their facilities over to Vietnam, Southeast Asia, and now India. These companies leaving China to avoid the political repercussions of their government will significantly hurt China in terms of jobs and commerce. Currently, China is not investable until they resolve their internal issues and how they will treat foreign manufacturers going forward in their economy. It is the foreign manufacturers that made China powerful and the foreign manufacturers that will make China weak. Hopefully, there can be some compromise in the year to come.

Oil prices significantly impact emerging market countries and also interest rates. Since virtually all borrow money from capital, higher interest rates affect them more than others. You are starting to see some significant increases in productivity in some Latin American countries. Still, many of these countries cannot be created due to political unrest, corruption, and the lack of capital. Currently, emerging markets are not a buy due to the flat nature of the price of oil. This can change suddenly with a significant worldwide crisis, but I do not foresee that happening. The war in Ukraine or the war in Gaza is unlikely to begin a worldwide crisis. However, nothing is inevitable, and we will watch it closely.

It has been a great year in 2023, and I look forward to another great year in 2024. Now is the time to fund your IRA and 401(k). As we move into tax season, we look forward to sitting down with you and learning more about you and your finances so we can help you achieve a more secure retirement.

As always, the foregoing includes my opinions, assumptions, and forecasts. It is perfectly possible that I am wrong.

Best Regards,
Joe Rollins

All investments carry a risk of loss, including the possible loss of principal.  There is no assurance that any investment will be profitable.

This commentary contains forward-looking statements, which are provided to allow clients and potential clients the opportunity to understand our beliefs and opinions in respect of the future.  These statements are not guarantees, and undue reliance should not be placed on them.  Forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual results in future periods to differ materially from our expectations.  There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.

Thursday, December 14, 2023

The “Goldilocks Economy” Has Finally Arrived

From the Desk of Joe Rollins

For the last two years, I have been expressing my opinion in these postings that the economy needed to slow down in order for us to realize future stock gains. That is precisely what is taking place at the current time and that is a very good thing. The Federal Reserve has increased interest rates numerous times over the last several years, thinking that higher interest rates would slow the economy dramatically and therefore would reduce inflation. While the economy has slowed down for sure, it is also true that the economy continues to be strong, with employment and earnings continuing to be excellent.

This week, it was announced that the economy during the month of November added 199,000 jobs and the unemployment rate fell from 3.9% to 3.7%. These substantial employment numbers seem to shock these so-called experts since they have for years forecasted the country would go into recession almost immediately after the Federal Reserve began increasing interest rates. It is clear now that they were very wrong and my opinion that recession would not occur was clearly evident in my postings.

Penny’s first Christmas!
But what is most interesting about the employment report is that suddenly, the number of employed people in the United States is going up. Year over year, the number of employed has gone up 2.17% over the last year in an economy that was forecasted to be going down. As I have pointed out on numerous postings, the more people working, the better for the economy. When you have more people contributing to the economy by paying taxes and using their salaries to promote their own family’s well-being, it is better for the economy for everyone.

In this posting, I would like to cover some topics that are interesting to me and, hopefully, will interest you. One of the things that I would like to cover is the high likelihood that the Federal Reserve has now engineered a “soft-landing” and that this soft-landing would not result in a recession. Also, I would like to discuss the upcoming GDP going forward and what to expect in 2024. I would also like to review the Supreme Court's recent ruling indicating that the commissions on real estate houses were anti-competitive and, therefore illegal.

Caroline and Reid know how to pose for a photo -
especially when Christmas is right around the corner.
I would also like to cover all these truly interesting items, but first, I have to give you the results for November, which was an excellent month for both stocks and bonds. As I indicated to you, we were “locked and loaded” going into November, which is historically the strongest time of the year for equity investments. I could not have been more correct in forecasting a strong November since it was quite a spectacular performance during this month.

For the month of November, the Standard and Poor’s Index of 500 stocks was up 9.1% and its year-to-date performance is 20.8% for this year so far. Once again, it emphasizes the ten-year record of this index, which is at 11.8%. The NASDAQ Composite was up 10.8% for the month of November and year-to-date is up 37%. The 10-year average on this index is 14.5%. The Dow Jones Industrial Average was up 9.1% for the month of November and is up 10.7% for the year 2023. The 10-year average on this index is 10.9% annually.

Once again, for the month of November, the Bloomberg Barclay’s Aggregate Bond Index was up at a very satisfying rate at 4.5%. To date, this index was up 1.7%. For the 10-year period, this index averages 1.4% annually. As you can tell, the three stock indexes above reported double-digit returns, while the bond index over the last 10 years has come nowhere close to covering inflation. Therefore, holding bonds you are losing wealth to inflation.

Ava and friends all dressed up and ready to go!
There is so much on the financial news that is either misleading or downright incorrect. The one news item they continually report is how bad the real estate market is. Rightly so, they indicate that the market is terrible because sales are down 50% year over year. However, to assume that the statement means the real estate market is bad is not only absurd, but it is also incorrect.

One of the reasons home sales are down is that during the pandemic, many homeowners refinanced and are now sitting on mortgages that are 3% or lower. Why would they be willing to upgrade their housing to go to a mortgage that is closer to 7% from 3%? Therefore, there is basically a seller strike on selling their homes, which is creating adverse numbers. But correspondingly, there is also a shortage of houses for people to purchase, meaning that in many cases here in Atlanta, people are paying above asking prices just to get into the doors. The real estate market is as strong as ever today, but there are just not as many houses selling, therefore leading to the misplaced perception that the real estate market is bad.

Harper and Lucy standin’ on the dock of the bay in Tampa
It was recently ruled that the real estate commission of 6% was anti-competitive and therefore illegal. For many years, I have personally questioned this 6% rate, where it came from and why it was not price fixing among the real estate agents. To give you an example, the thought pattern is if you found your own buyer for a real estate transaction on your home and therefore there was no buyer commission, you would still pay the 6% rate. This means that the agent would get the entire 6%. In many cases, the commission rate really has no correlation to the amount of work the agent puts into actually selling your home. As indicated, I recently had a client sell a home where they had 10 bidders over the listing price. This had nothing to do with the talent of the agent, but more with the nature of the real estate market today.

There is no question that the trial attorneys will now sue every real estate agent in America to recover prior commissions. How successful they will be is a mystery. What is good for the economy and good for home ownership is that going forward, real estate commissions will be fully negotiable and there will be no fundamental 6% rate. This is good for consumers and good for real estate, but not so good for realtors.

Robby’s first hole-in-one! At Pelican Hill Golf Club in California
The reason that the stock market was so bad in 2022 had little to do with the performance of the stocks, but instead had everything to do with the public's perception that the economy was going into recession. These so-called experts in the field predicted that there would be a long downturn recession in 2022 due to the inverted bond yield and the increase in interest rates by the Federal Reserve. As we now know, two years later, they were incorrect. You would think that they would now revise their projections to a more reasonable projection of the economy.

Just this week, the Wall Street Journal did a survey of economists and the survey indicated that 48% of those so-called experts predicted a recession within the next one year. What is fascinating about this projection is that it is the first time they put the number below 50% since mid-2022. It seems that these economists just will not concede the fact that they were incorrect in projecting a recession. They are going to hold on to their projection so that maybe they could be redeemed by a downturn in the economy. As the old saying goes, “Even a broken clock is right twice a day.” What do we know about the economy based on the information that is readily available? As you are aware, for the third quarter of 2023, the GDP was recently revised up from 4.9% to 5.2%. That was an incredibly sterling report on the economy, but quite frankly, too high going forward. As I indicated numerous times in these postings, we needed to moderate the economy and slow it down.

Penny and Cecilia enjoying the spooky spirit of Halloween… in Joe’s office!
For the fourth quarter of 2023, the Atlanta Federal Reserve is forecasting GDP growth at 1.2%, which is almost perfect. Also, as we know, inflation is falling and is now at 3.2%, which is moving quickly towards the Federal Reserve’s target of 2% inflation growth. Therefore, we have an unusual situation where we have extremely low unemployment, moderating job gains and easing inflation. All of those are extraordinarily positive things for the economy and clearly should lead to a “soft-landing” in 2024. The definition of a “soft-landing” is the time when inflation cools, but the economy does not fall into recession. I really do not see any potential for a recession coming up in 2024.

There is also an interesting set of projections going on regarding the 2024 economy. Even the Federal Reserve is now forecasting that there will be two interest rate decreases during the 2024 year. The so-called experts on Wall Street are taking that even one step further. They are forecasting that there will be a total of four rate increases during the 2024 year. My personal opinion is that I would lean more toward the former than the latter as a moderate projection. These experts are rarely correct.

Rise up, Falcons! Lauren and Jeff enjoying the game
As you know, if interest rates start to fall, it is particularly good for both stocks and bonds. It looks like 2024 could also be another positive year for equity investing. Now, we are seeing forecasts that earnings by corporations will grow by 10% in the year 2024. Put all of this in perspective; we are talking about a year when the economy moderates and does not fall into recession, yet corporate earnings grow and interest rates fall. You could not ask for a better combination for setting equity growth higher.

The reason that the markets climbed so high during the month of November was the realization that the Federal Reserve would not be increasing interest rates any further. As pointed out above, it was the good news of moderating inflation, the economy slowing on its own, yet employment stands high and unemployment stands low. The Federal Reserve has a dual mandate in control in the economy. The first is price stability, which means no inflation and low unemployment. Since they have always had low unemployment over the last three years, they basically had a free hand in increasing interest rates whenever they wanted to accomplish the goal of reducing inflation.

Clients Andree Ljutica and Robin Thurau-Ljutica, along with their son, Julian, and friends. Leaving a little sparkle wherever they go…
As has now been proven, they were successful in reducing inflation and since the unemployment rate today is the same as it was a year ago, they have not increased unemployment. There were so many experts who predicted that we would see job layoffs in the 500,000 to 600,000 number per month back at the beginning of 2022. In fact, over the last two years, we have not had a single month where we had negative job gains. For the year 2023, the stock market has been extraordinarily volatile. We had a major run-up in January and February and then a major pullback in August, September and October. It just seems like a roller coaster going up and down based on every speech given by the Federal Reserve or any reference to higher interest rates.

But November was completely different. We had a period of time in November for 16 straight trading days where the market did not move greater than 1%. We should all like such boring stock markets. Over that 16-day trading period, the index was actually up 1.8%. Even during the start of December, volatility has gone down dramatically and the market has moved up marginally.

Ava and the girls having fun at their Christmas party.
“The sky is full of stars and there is room for them all to shine.”
There are many out there that are forecasting that the market is grossly overvalued and, therefore, is due to a pullback. I guess maybe they do not keep up with current financial information. Currently, analysts are projecting a call for growth in earnings next year in 2024 of 10% to 12 %. While that number seems aggressive, it clearly is obtainable. Remember, going into 2024 many corporations have right-size their employment and with lower interest rates in the economy, the consumer should be again holding the economy to a higher level. But with this increase in earnings, you also have right size the valuation of the markets.

The most important consideration in valuing the stock market is what earnings are going forward, not what earnings were in the past. As of November 15th, the S&P Index was trading at 19.7 times forward earnings. While that may seem high, that is exactly near the average over the last seven years. As I have indicated before, this is the “Goldilocks” where you could not argue that stocks are cheap, but they also do not appear to be overvalued.

Evan and Alexis dressed to the nines for a holiday party!
There is no question that the economy has been helped over the last several years after the pandemic with the extraordinary spending by the U.S. government. The deficits incurred over the last four years are staggering in their proportion to the GDP of the U.S. economy. There is no question that the economy has benefited from all this money being spent by the U.S. government to support the economy. But it also is true that there will be a day of reckoning to come. The U.S. cannot continue to spend money in such a reckless fashion as they have done recently. It would be easy to argue that the government is justified in spending this money to support the economy after the downturn of Covid. However, it cannot continue to be so extravagant with its spending; otherwise, we will be a net debtor country and that is just not sustainable.

A recent parallel appeared in the papers over the weekend regarding this same matter. The state of California, due to the stock market increases of new technology companies two years ago, had a $100 billion surplus in its budget. This weekend, they are forecasting the current budget would have a deficit of $68 billion and they are projecting a four-year deficit in their budget of $155 billion. Basically, what California did was that during the good times, they expanded their budget to waste a lot of money on social causes and when the financial crutch came, they had overspent and therefore could never catch up. Just to give you an example of the difference, they are forecasting a $68 billion deficit for this year, while the entire budget for the state of Florida is only $46.1 billion. As you can see, the spending differential is enormous and will not be easily covered by future tax revenues.

Reid and Caroline just discovered that
the actual movie came out over 30 years ago!
California has recently decided that the way they could balance their budget would be to tax the rich at a higher level than everyone else to cover their deficits. By enacting a super high tax rate for the wealthy, they have basically run the wealthy out of the state. Two years ago, everyone was fascinated by the fact that Elon Musk decided to sell all of his principal residences in the state of California. At that time, he owned four homes that had a valuation of close to $30 million. Everyone was perplexed as to why Elon Musk would be selling all of his principal residences since everyone has to have somewhere to live.

After selling all of these homes, Elon Musk ended up living in Austin, Texas. As you may know, Austin, Texas is a zero-income tax state as compared to California, which has the highest individual tax rate. In order for Elon Musk to change his residency from the state of California to the state of Texas, he had to sever all financial ties to California, which meant selling all of his principal residences. Shortly after establishing residency in Texas, Elon sold $15 billion in stock, which in California would have cost him $2 billion in income tax. Since he was currently living in Texas, he was able to save that $2 billion that he would have owed.

Still a kid at heart… Happy 51st, Robby!
That is what is happening to many wealthy taxpayers in the state of California. They are severing all ties with that state and moving to a tax-free state in close proximity. You may have heard recently that Mark Wahlberg moved his entire family from Los Angeles to Las Vegas. When you consider the amount of income he earns as an actor and the fact that he can reduce his tax rate by 12.3% since Nevada is a zero-income tax state, you would have to be somewhat illiterate not to make a similar move. So, it can be said that the U.S. economy has clearly moved into the “Goldilocks” economy that we so desired. Inflation is down from 9% to roughly 3.2%. Unemployment has stayed steady below 4% and in fact, we have more people working in America today than we did one year ago. Job openings have fallen roughly 20% over the last year, which is a good thing since employers are finding people to actually do the work.

GDP has fallen from 5.2% in the third quarter of 2023 to a projected 1.2% in the fourth quarter of 2023. This moderating economy will help significantly reduce inflation rates. They are forecasting now that earnings growth is no longer falling but will increase by 10%-12% in 2024. The most important consideration in the economy is that even the Federal Reserve is projecting for 2024 two rate cuts by them, which will stimulate more consumer spending, such as car purchases and new home purchases.

Overall, you could not forecast a more moderate or favorable economy going forward. As I have said many times in these postings, while we all enjoy a strong economy, it is not in the best interest for equity investing to have an economy that is too hot. We are much better off with the “Goldilocks” economy, “Not too hot and not too cold.”

Bobby trying to convert dog years into days
for the countdown to Christmas!
As we start the holiday season, I just want to emphasize again the strength of the equity cycles during the November through May investing period. We started out with an extraordinary month in November and this year has proven to be an extraordinarily good year for investing. I do not anticipate a falloff in the coming months. I would not expect the growing increase in November but rather a gradual move that would push the indexes higher during the coming months.

The title on last month’s posting was "Locked and Loaded." Well, it is time to reload in anticipation of the 2024 year. Roughly two weeks from now, you will be allowed to make a new IRA contribution for the 2024 year. If you are under the age of 50, that amount will be $7,000. Over the age of 50, your amount will be $8,000. Anyone reading this post who has earned income should make an IRA contribution as early as January, if possible. This is a particularly good financial vehicle for children. If your child has any type of earned income, you should make a Roth contribution on their behalf. The earlier you contribute within the year, the more your account will build up to assist you financially in your retirement years.

As always, the foregoing includes my opinions, assumptions, and forecasts. It is perfectly possible that I am wrong.

Best Regards,
Joe Rollins

All investments carry a risk of loss, including the possible loss of principal.  There is no assurance that any investment will be profitable.

This commentary contains forward-looking statements, which are provided to allow clients and potential clients the opportunity to understand our beliefs and opinions in respect of the future.  These statements are not guarantees, and undue reliance should not be placed on them.  Forward-looking statements necessarily involve known and unknown risks and uncertainties, which may cause actual results in future periods to differ materially from our expectations.  There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements.