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What Happened Last Week and What It Means to You: Week Ending August 18, 2023

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Week Ending August 18, 2023

The FOMC minutes showed a hawkish bias…With inflation still well above the Committee’s longer-run goal and the labor market remaining tight, most participants continued to see significant upside risk to inflation, which may require further tightening of monetary policy.

What does it mean – While several FOMC members are becoming concerned about the impact of the increasingly restrictive policy, the FED does not look to be done as the numbers continue to point to a stubborn inflation.

 

Manufacturing gets big boost by auto industry…While the rest of the manufacturing industry is in a slump, autos had a great bump of 5.2% lifting the July numbers.

What does it mean – Auto industry outperformed while the broader manufacturing industry is in a slump. The Institute of Supply Management (ISM) continues to struggle with continued readings of under 50 and over 2 years of declining numbers.

 

Factory orders increased 0.2%…On the heels of a 0.4% decline in May. Factory orders got some relief.

What does it mean – Durable goods orders increased 4.6% month-over-month, bolstered by a 69.4% increase in orders for nondefense aircraft and parts. New orders for nondurable goods increased 0.1% month-over-month following a 1.1% decline in May.

The main takeaway from the report is that business spending was on the softer side in June, evidenced by the slight 0.1% increase in new orders for nondefense capital goods excluding aircraft.

 

China…Desperate for relevance and an economic model we should avoid at all costs.

What does it mean – John Carney from Breitbart reminded us of the character in Earnest Hemingway’s book, “The Sun Also Rises”, when he was asked, “how did you go bankrupt?” His response was, “gradually then suddenly.”

China is in a world of hurt. Evergrande, was the thought to be the largest property developer in China declared bankruptcy under U.S. law last Thursday. It is estimated to have around $28.1 billion of bonds outstanding, most of which come due in 2025. One day later one of China’s other large property developers, Country Garden, missed bond interest payments and suspended trading for its bonds. The company’s shares have been dropped from Hong Kong’s Hang Seng Index and are down more than 70 percent year-to-date.

China’s industrialized command economy that is so envied by corporations in the west due to an addiction to cheap labor and a dream of competing on an equal playing field in China are now only realizing they funded their Chinese based competition though intellectual theft, blackmail, and strong-arm tactics that would make Vito Corleone envious.

While China has moved nearly 100 million people out of poverty, it is now facing massive unemployment among its most educated and youngest workers. Real estate is falling, and the government is forcing companies to support falling assets and using its treasury to support failed communist policies. And for some reason this administration continues to put in place policies that mirror an industrial complex of command and control. We just make it sound pretty and call it Social Capitalism.

Below is another sign that things are going south. When you start to censure information or move the goal posts it is pretty evident things are not going your way. Unfortunately for the Chinese citizens they do not have a free press to hold their government accountable.

Retail devastated by organized theft…Since late 2019 it somehow became a “right” to loot stores in the name of social justice and this trend to not punish looters has continued to reap havoc on businesses across the country. And even worse, our elected leaders in almost 30 states have increased the felony theft thresholds from $500.00 to $1,000.00. Further incentivizing bad behavior. It is no wonder businesses are leaving large cities where crime is allowed and left unpunished by corrupt DA’s and city officials.

What does it mean – According to Yahoo Finance, the trend has nearly doubled in the last couple of years and continues to rise. The cost to protect these stores hurts the very citizens who shop and obey the law. This lawlessness is inflationary, destroys business, suffocates entrepreneurism, ruins the very fabric of society. Below is a look at the numbers. The cost and lack of arrests.

Below is a look at retail theft arrests in Chicago. Unfortunately for us all, the numbers are relatively the same and even worse in cities like LA, San Francisco, Chicago, NY, and Portland.

Mortgage applications are likely to keep slowing…As rates continue to move up the average home loan continues to price the average family out of the housing market.

What does it mean – With the current National Avg. for a 30 Year Fixed Mortgage at 7.58% per the chart below by Bankrate.com, many households are being priced out of the market. For example, in August of 2021 you could have refinanced your home or purchase a new home with a mortgage of close to 2.78%. Today, exactly 2 years later, that same rate is 7.58% for a 30-year fixed mortgage. This would mean your monthly mortgage payment would go from $3,278.66 to $5,637.61 per month for an increase of $2,358.95. Something has to give.

The Sirens are beautiful but deadly…The Fed and our elected officials are addicted to the sweet sound of their voices. It forms a schism between those who are grounded in principles of individual liberty and those willing to trade that liberty for the quick fix of a government program that they cannot afford anchoring the citizenry in a quagmire of uncertainty and future dependency on a handout.

What does it mean – The chart below is as ominous as the Sirens in Hommer’s Odyssey. When the government shut the country down and instituted massive spending programs based on debt our country could not afford. The sirens sprang their trap. We traded more of our individual liberty and financial freedom for a quick fix to a problem created by bad policy and fear. As a nation we slid deeper, captivated by the sweet sound of “free” and the trappings of dependency.

Per the Chart below, you can see in yellow the massive increase in government spending leading to the increased tax revenue in blue. Essentially, we accelerated huge growth in equities, real estate and almost every asset due to government handouts that lead to massive spending by folks who took their COVID bucks and turned it into COVID houses, boats, RV’s, cars, iPhones, etc., creating record inflation. This quick fix accelerated massive demand, putting huge pressure on our debt, and creating a false sense of economic security.

As you can see, the government’s response to now falling tax revenue due to accelerated spending caused by the COVID response has led to more government spending. Our elected officials, the demands of a bloated government, and citizenry that is now addicted to the quick fix of government stimulus continues to fall for the easy way out. The sweet sound of debt and even easier acceptance of a quick fix, like a drug addict, is more government dependency.

 

I hope this chart is a sobering reality to those desperately clinging to their perceived power that we citizens have unfortunately given with little fight or discussion. Like our founding fathers, we should be guarding our Constitution with our sacred honor and with a fundamental understanding of the role our elected officials and the agencies that serve the American Citizens are limited to by our constitution.

Let’s roll America!!

Doug De Groote, CFP®, MBA, CTC
Managing Director

De Groote Financial Group, LLC is a federally registered investment adviser that maintains a principal office in the State of California. The information contained in this message is confidential, protected from disclosure and may be legally privileged. If the reader of this message is not the intended recipient or an employee or agent responsible for delivering this message to the intended recipient, you are hereby notified that any disclosure, distribution, copying, or any action taken or action omitted in reliance on it, is strictly prohibited and may be unlawful. If you have received this communication in error, please notify us immediately by replying to this message and destroy the material in its entirety, whether in electronic or hard copy format.

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Jeannie Ewing-Nicholson

Operations Manager

Jeannie started her career in the Financial Services industry in 1994 with Oppenheimer & Company. As part of the De Groote Financial Group, Jeannie is responsible for the operational needs of the firm including cash management and account administration. With her upbeat attitude and attention to detail, Jeannie provides an efficient streamlines experience to ensure clients meet their goals. Jeannie enjoys travel, outdoor activities, Pilates, and is a football and basketball fan. She resides in Westlake Village with her husband, daughter and son.

Mary-Ellen Lykken

Executive Assistant

Mary-Ellen, Executive Assistant at DFG, keeps the office running smoothly by providing administrative support and assisting with scheduling and organization. With a background in human resource and office management, Mary-Ellen comes from the non-profit and services industries.

Outside of the office, Mary-Ellen is committed to the advancement of independence and productivity for those with disabilities. By telling her story of the challenges and joys of raising a child with complicated disabilities, she hopes to help others navigate similar circumstances.

She is happiest when visiting her two grown sons. Otherwise, you can find her competing on the pickleball courts.

Sara Mariniello

Operations Manager

Sara is new to the financial industry only starting in 2022 when she was hired at De Groote Financial. As Operations Manager, Sara is responsible for all the paperwork surrounding opening accounts and investment paperwork and is also responsible for much of the client communication. Sara has her bachelor’s in science and nursing from Concordia University, Texas and worked as nurse for over a year prior to moving back to California. She loves all things sports and church related and is likely spending every free moment with her Husband visiting family in Texas and New Jersey.

Fadi Ahmed

Chief Operations Officer and Chief Compliance Officer

Fadi works with clients to ensure an exceptional experience. He coordinates and assures the planning process and wealth management tools are at your fingertips to provide the clarity you deserve and the transparency and access to all your accounts. Fadi ensures the data and information is reflective in our planning software. All changes and updates flow through his desk and he coordinates those changes with the rest of our team.

Andrew Krout

Wealth Advisor, Co-Chief Investment Officer

Andrew Krout is a Wealth Advisor at De Groote Financial Group, LLC. He also serves as a Co-Chief Investment Officer for the firm, focused on wealth management.

Previously, Andrew served as CIO with Kelly Financial in Boston Massachusetts since 2013. He is a licensed investment advisor representative and insurance producer. He graduated from Saint Francis University with a bachelor’s degree in both finance and accounting. He is a candidate for CERTIFIED FINANCIAL PLANNER™ designation. Andrew holds life insurance licenses in Massachusetts, New Hampshire and Connecticut.

Andrew is passionate about serving his clients and investment management and how to apply news and current events to investment decisions. He played Division 1 golf in college, and still enjoys playing and watching the sport in his free time.

David Darst

Co-Chief Information Officer

David Martin Darst, CFA is an Investment Advisor to DeGroote Financial Group, specializing in asset allocation and product selection. Previously, David served for 17 years as a Managing Director and Chief Investment Strategist at Morgan Stanley Wealth Management, with the responsibility for Asset Allocation and Investment Strategy. He joined Morgan Stanley in 1996 from Goldman Sachs, where he held Senior Management Posts within the Equities Division and earlier, for six years as Resident Manager of their Private Bank in Zurich.

David is the author of 13 books, including bestsellers The Art of Asset Allocation, 2nd Edition (McGraw-Hill), and The Little Book that Still Saves Your Assets (John Wiley & Sons). He also appears as a frequent guest on CNBC, Bloomberg, FOX, PBS, and others, and has contributed articles across a variety of publications.

David graduated with a BA in Economics from Yale University, and earned his MBA from Harvard Business School. He has lectured extensively at Wharton, Columbia, INSEAD, and New York University Business Schools, and for nine years, David served as a visiting member at Yale College, Yale School of Management, and Harvard Business School. He is a CFA Charterholder and a member of the New York Society of Security Analysts and the CFA Institute. 

Doug De Groote

Managing Director

Doug is a Certified Financial Planner™ (CFP®) with an MBA in Financial Planning, and is an active member of the Financial Planning Association (FPA). Before establishing De Groote Financial Group, Doug founded the United Wealth Management division of United Capital. Prior to that, Doug was a partner at Crowell, Weedon and Co. He regularly contributes to a variety of financial and general media.

Doug’s passion, and what he believes, is that everyone deserves the opportunity; they deserve to have the freedom and responsibility to be pro-active in achieving independence and financial success.

Doug’s life is focused around his family, wife and three children, and making sure they get the foundation that is necessary for them to have the awareness of the opportunities that abound in our great country.

Doug helps increase his client’s awareness and success, to identify and take advantage of opportunities that present themselves and help protect them from some of the pitfalls or obstacles that are thrown in our paths. With regards to their financial circumstances, Doug helps his clients identify their goals, plan for various outcomes and manage their assets to help them make their vision a reality.