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  • Writer's pictureWilliam Combs

Letter to Investors: Keeping Focus

Dear colleagues, clients and friends,

I hope that the last year was wonderful and productive, spent building on the things that are important to you and your family. We are grateful for our clients and their diligence in allowing us to lead them through what we perceive may be some of the most significant years in U.S. history. If you’ve been reading my letters for very long, then you’re sure to understand that we have taken a substantially different position than many outlets. We encourage you consider expanding your view on the current economic reality and help us to communicate this by sharing with your family and friends whom may have shown an interest.

As we reflect on the year, there are a few themes that we’d like to draw your attention to, and some thoughts we have as we move through the new year. And you may have guessed, our primary consideration is inflation and interest rates.

Inflation and Interest Rates:

A brief recap of where we stand:

  • Inflation is a monetary phenomenon (here is a book we love on "what is money")

  • Manipulation of the money supply creates distortions in markets (.com vs crypto bubble, growth vs inflation)

  • Markets can stay irrational longer than you can stay solvent (watch The Big Short – Michael Burry made a gamble – he was right, but took a lot of losses to get there)

  • Be fearful when others are greedy (take gains, color up)

A brief recap of the events and where we are:

  • 2019, December – US economy showing signs of slowing down

  • 2020, February – Covid begins to expand into the world,

  • 2020, March – US and other countries begin to shut down “non-essential” work, central banks and governments begin to craft plans for maintaining demand (printing money via PPP loans, SBA disaster loans, etc) to keep the economy afloat. We predict inflation.

  • 2021, April – With the US beginning to show signs of COVID recovery, it is also showing signs of price increases through CPI. The Federal Reserve communicates that the price increases are “transitory”. We anticipate the Fed will NOT raise rates, that the inflation is NOT transitory and that it will ultimately require action from the Fed.

  • 2021, November – Fed Chairman Powell says “transitory” no longer the most accurate word. “It is probably a good time to retire that word” - Powell

  • 2022, January – Fed admits that inflation may be more of a problem than previously thought. We suggest that the Fed will have a tough time raising rates as it will cause economic and financial trouble

  • 2022, March – Fed begins the first of many interest rate increases Q1 and Q2 of 2022 GDP show negative growth. Prior to this, any two consecutive quarters with negative GDP growth was considered recessionary. Note that the yield curve was also inverted, a long-standing metric to anticipate potential recession. The Fed, and all major outlets, informed us that this wasn’t technically a recession.

  • 2023, March – Silicon Valley Bank failure followed by Signature Bank. Fed begins emergency action to prevent a financial collapse. This, for some reason, is not seen as dovish and is largely ignored by financial media who is happy to report on the health of the financial sector and the economy without acknowledging that the Fed is making cheap money available to failing banks (banks that are collapsing do to the increase in rates destroying the capital value on their balance sheets).

  • 2023, May – First Republic Bank fails.

  • 2023, July – Heartland Tri-State Bank fails

  • 2023, November – Citizens Bank fails

  • 2023, December – S&P 500 returns 24.2% for the calendar year

Expectations and communications from the Fed:

As expected, the rate of increase in consumer prices has slowed (prices are still going up, just not as fast as they were) with the increase of interest rates from the Fed. Our expectation was that rising interest rates would cause problems for anyone holding onto long-term bonds, and those are primarily held by financial institutions. Reading some articles from the WSJ, one would think that the positive S&P 500 performance outweighed any of the problems created by increased interest rates. The Fed has begun to hint that they may not have any more rate increases and they may move towards the “soft-landing” we were promised. There will however be a lot of focus on the CPI as this is seen a primary measure for the Fed and its ability to lower interest rates. If CPI increases, it will be difficult for the Fed to justify lowering rates.


Concerns and opportunities:

We do have concerns that the health of the economy and the money supply aren’t as great as we’re being told (have you heard that our debt payments now surpass our military spending?). And, we do believe that the next move from the Fed will be rate cuts. How, how much and when they cut rates is yet to be determined. Consider that this has two dramatically different outcomes. One, which is touted as the most likely by our investment banking friends, is expansive growth led by the Fed pausing and eventually beginning to lower interest rates[1]. This lowering of interest rates could continue to spur the economy and stock market (this also has the effect of making banking balance sheets healthy again) – and all could be well in the world. The other outcome is one we’ve experienced. Either by choice or by the data, the Fed may not lower interest rates, and the result could be similar to 2008 in which we’re told everything is well until it isn’t. And if history is a teacher, it is after this potential correction that the Fed makes a move on interest rates (i.e. a lot of people lost a lot of money before the Fed took any action in 2008).

Without knowing which direction the future will take, we encourage our clients to maintain their long-term strategy. Some assets may lag big performers in these environments, and while we’re extending risk into growth-areas, we do not want to ignore the larger, macro picture in which we believe we are in a cycle of inflation with peaks and troughs and expect this to continue until there are substantial changes in the spending, taxing and money printing in the United States.


  • Real assets: we maintain that real assets are important to own in inflationary environments. Given the recent rise in interest rates that suppressed top-line home prices, it may provide an opportunity to purchase at a lower value. As the Fed pivots to lower rates, cash out refinancing and other debt leveraging opportunities may present themselves. As always, discuss this in detail specific to your situation before taking action.

  • Option buying/writing: we anticipate that while markets will move over time, we do believe that there will be opportunities to leverage options to accomplish your financial objectives, including potential income generation, asset protection and increasing risk/growth exposure.

  • Color up: If high-risk positions have been a benefit to you, consider taking some of those gains off of the table and storing reserves for the future and future price volatility.

Tax Considerations and Impact:

What you may observe from this chart is the long tax history and the significant top rates we have seen before. While we expect the Fed to continue printing money to satisfy the behemoth government and the indebtedness it has thrust upon the American people, it is safe to say – we expect taxes to rise. In the narrow context, it may be touted as a way to make rich people and corporations “pay their fair share” to support the sarcastically necessary and well-intentioned looting programs. In a broader context, it is in the empires best interest to maintain the façade that we will pay our debts. This keeps the dollar strong (at least in comparison to European countries) and the story of a “strong economy” intact during an election year. What should be becoming apparent to our clients is the reliance of the American economy on cheap money. Think about how much activity stalled while interest rates rose. We saw it in portfolios and 401(k)s, we noticed it at work and at the grocery store, we saw it in the data on real estate and refinance and M&A activity. The country stalls without cheap money. We saw long term treasuries drop nearly 30%[2] and watched banks fail. Not small, local banks. Large banks. Silicon Valley Bank. First Republic. And there would have been more if the Fed didn’t already start giving out free money (ahem, I mean…purchasing distressed debt from banks at par value using the Bank Term Funding Program).

Did you know that’s what helped prevent additional economic and financial sector consequences? More printed money. Which is why we continue to refocus our clients’ attention on the macro picture and not the short-sighted market returns.

In anticipation of the resulting deficits, persistent inflation and increasing debt burden – we expect that the United States (and struggling states like California and New York) will use the current environment and confusion to place the blame squarely on the productive members of society. They will aim to convince the masses that money printing and over-promising benefits are not the culprits, but it is those who show up to work, have created businesses and are the economy who must be taxed and must contribute. We’re already well aware what corporations and productive members of society do when there are greener tax pastures elsewhere. Expect the US and states like CA/NY to get creative on how to keep other people’s money in their coffers. Consider in how many ways we are currently taxed. In states like New York and California, we urge you to strongly consider your long-term tax planning – especially to include estate transfer and 199A deductions due to expire or “sunset” in 2025. Tax deferment vehicles may unintentionally be an expensive location to take distributions from in the future.


  • Anticipating tax increases will give life to strategic planning and cash flow allocation. Review your current tax situation and discuss implementation of strategies with a qualified tax professional.

  • Shifting ownership of assets (investments, real estate, businesses, etc.) may be prudent given the short timeframe before the tax sunsets in 2025

  • Intergenerational conversations are important to have. Gifting and proper planning can help to mitigate unnecessary probate, tax and legal processes and expenses.

  • Build vehicles that can be accessed tax free – it will be critically important to have assets that are outside of the US tax regime over the coming years.

Geo-politics and the US election cycle:

To be clear on our stance, we believe in individual liberty (liberty for all) and sound money. It is the segmentation of liberty into group identities, and the money-printing ad-infinitum that has caused the economic and societal issues that we see today. Make no mistake, we believe this to be independent of political party or ideology and that instead it is a simply the collective vs the individual and fiat currency vs sound money. These ideals are opposed to each other, and in today’s environment, we simply see people battling over who should control the collective and who should control the fiat money. Our position is that those roads will lead to the same outcome – larger concentration of wealth and centralized power. Our only venture out, is to reestablish those things that made this country great – individual liberty and sound money.

Traditionally, we have left politics out of our discussions on the market and our expectations for the economy. That was intentional as historically, the President or the political party in power has had little impact on the performance of the market. Even all the tax cuts/increases make only short-term movements in the markets. In it’s true form, the market is driven by the production of the economy and not the whims of politicians. Unfortunately, we are entering into a time period where the politics will be more consequential to the financial outcomes for the average American as their decisions are having large impacts on our currency. We do feel that the economy will be explicitly tied to the actions of the Federal Reserve. Their political tone (traditionally designed to be neutral) seems to be regularly geared towards Modern Monetary Theory (a revamped version of USSR/Keynesian economics) – in which they have no political issue in discussing and implementing additional money printing but do have political issue when confronted with the soaring national debt and its impact on federal programs and our money supply. In other words, when it comes to holding the government fiscally responsible, they are silent. So, we anticipate that there will be more of the same. And in order to obfuscate their clearly implicit and explicit involvement in the current wealth distribution of the United States, they will likely continue to point the finger at everyone else until power and control are fully consolidated. Price controls may be the first version we begin to see. More importantly, we are concerned with what justifications will be used and what will be communicated to the public. Anything can be justified. As Vasily Garbuzon (the Soviet Minister of Finance) said about USSR inflation in the 1960’s[3]:

“In the Soviet Union there is not and cannot be any inflation; the possibility of inflation is fully precluded by the very system of planned socialist economy. In our country both wholesale and retail prices are established by the government and, therefore, the purchasing power of the ruble is controlled on a planned basis…. The stability of Soviet currency is guaranteed by the monopoly of currency and the monopoly of foreign trade which is one of the most important advantages of the socialist economic system.”

Beware of Government propaganda this year. Garbuzon was technically, accurate. Unfortunately, it came at the expense of the standard of living and consumption options for the Soviet people. The Soviet Union would eventually collapse into a heap of hyperinflation.

At one point, the growth of the money supply being the cause of inflation was relatively common financial knowledge. As our institutions and economy become further enslaved to the promises we made to the future, beware of the shifting “knowledge” from financial pundits. We believe that having a clear stance here will allow clients to make decisions powerfully and proactively, instead of reacting to the latest headline news. Remember that in this environment, it will be easy to conflate inflation with growth. When a company like Amazon reports record earnings, the stock market and the financial media alike rush to tell us the good news. What we don’t see however, is how inflation has affected that number. For instance, are record revenues still such great news if they were the result of selling fewer goods at higher costs? The good news begins to sound more like rhetoric. Now, I’m not saying to buy or not buy Amazon. I’m simply highlighting how easy it is to conflate inflation with growth and to not let near-term upside pull us away from the economic foundation. It’s also worth noting that the government has a vested interest in understating inflation and it has changed the methodology and calculation for the CPI over the years.

Final Thoughts:

This article is not intended to give you a buy or a sell recommendation. It’s intended to paint economic color on a picture that seems to be devoid of it. We do not want to lose sight of the almighty dollar and its impact on the economy. It’s a fool’s logic to assume that the supply of the digital paper we price all of our productive activity on has no meaning in the economic landscape – no matter how many economists tell us otherwise. While we are clear there is a large underlying economic issue, markets can remain irrational longer than one can stay solvent – and as such, we recommend a broadly diversified position – beyond stocks and bonds:

  • Prepare you balance sheet for long term investment – expect volatility in both directions and establish your balance sheet in a way that gives you clarity, growth, and protection.

  • Don’t risk what you can’t lose – inflationary environments can potentially give us large positive market swings, increasing the temptation to chase more risk to capture more return. Position for this strategically and without risking more than you’re willing to lose.

  • Reassess your stable or conservative assets – with interest rates stalling and showing signs of coming down, the CDs/Money markets that have been giving yields of 4-6% will begin to drop as well. While some will take this as an opportunity to shift to equity markets, keep your balance sheet and total risk in focus. We suggest that there may be better ways to capture return without creating unnecessary long-term bond exposure. Consider the use of guaranteed income products and alternative investment strategies to potentially offset some of the equity market risk while still participating.

  • Here’s a couple books you might enjoy:

    • The Ascent of Money – Nail Furgeson

    • Outlive - Peter Attia

    • How to Lie with Statistics – Darrell Huff


Source: S&P 500

Source: US20Y


Additional Resources:


Michael Olivia, William Combs & Jacob Campbell are Registered Representatives and Financial Advisors of Park Avenue Securities LLC (PAS). OSJ: 5280 CARROLL CANYON ROAD, SUITE 300, SAN DIEGO CA, 92121, 619-6846400. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representatives of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. WestPac Wealth Partners LLC is not an affiliate or subsidiary of PAS or Guardian. Insurance products offered through WestPac Wealth Partners and Insurance Services, LLC, a DBA of WestPac Wealth Partners, LLC. | Olivia CA Insurance License #0E57168, AR Insurance License # | Combs CA Insurance License #0I49903 | Campbell CA Insurance License #0K27963 | 2024-169167 Exp. 02/26

Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. Past performance is not a guarantee of future results. Indices are unmanaged and one cannot invest directly in an index. Diversification does not guarantee profit or protect against market loss. All investments contain risk and may lose value. Investing in the bond market is subject to certain risks including market, interest rate, issuer, credit and inflation risk. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Data and rates used were indicative of market conditions as of the date shown. Opinions, estimates, forecasts and statements of financial market trends are based on current market conditions and are subject to change without notice. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer, or recommendation to purchase or sell a security. Past performance is not a guarantee of future results


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