Have you ever looked at a situation, or a person, and wondered if and how luck plays into success? Luck is real, as is risk. And these two factors show us the reality that every outcome in life has forces that exist in addition to, and beyond our individual effort. Fact is, they both play a role in life and must be respected. We don’t know how much luck plays into anyone’s success. As Housel says, “when judging others, attributing success to luck makes you look jealous and mean. Even though we know it exists. And when judging yourself, attributing success to luck can be too demoralizing to accept.” (end quote) If we try too hard to pick apart what is due to luck and what is due to risk, versus what is do to the decisions and actions a person takes we find it far too complex. As I like to say, you’ll never truly understand another person’s situation fully. The influences, motives, all of the variables that went into a person’s upbringing and adult life. We’re all trying to learn what strategies work best, with money, business, getting wealthy (or financially independent). We try to make it simple by looking at what someone did and copying it. By reading a checklist of these 5 things or 7 things or 50 things that one must do. But we can’t see clearly what was brought forth by decisions and repeatable actions and what things have been affected randomly by luck and risk. “The difficulty in identifying what is luck, what is skill, and what is risk is one of the biggest problems we face when trying to learn about the best way to manage money.” And remember along the way, nothing is as good or as bad as it seems.

This is a quick market note for today, given the news on global banking, risk, and signs that we could be seeing a sovereign debt crisis unfold. Here’s a pertinent take from J. Kyle Bass this morning. If you don’t know Kyle Bass, he is the Dallas-based Hayman Capital hedge fund manager who first came to public prominence for shorting the subprime fallout. Since then he has become a nearly unmatched financial analyst on China. One of his tweets this morning in regards to the global banking situation is as follow: “First, banking crisis globally. Then “country runs” for countries with poor balance-of-payment situations and highly-levered banking systems. The U.S. will be a safe haven when things move into “country runs”, which is just around the corner. Over a decade of zero rates, followed by reckless rate hikes will break many banks and countries. EM’s (Emerging Markets) are going to be smashed, along with highly-levered DM’s (Developed Markets)” In 2008 we had the failure of 25 banks with $373 billion in combined assets. So far in 2023 we’ve had the failure of 2 banks with $319 billion in combined assets, and more banks globally coming under stress. To make the right comparison we need to look at the dollar figure accurately. The $373 billion in 2008 is ballpark equivalent to $521 billion in 2023 dollars. More to drop on this in the coming days. Thanks.

Since we’ve talked quite a bit about inflation over the course of this podcast, given that it launched last year, it’s important to note that the calculation of inflation just underwent a change. And February’s CPI report was the first to be calculated using a new methodology. Here’s the change. Measuring CPI in 2022, you would take 2021+2020 consumption. 2023 = ONLY 2022 consumption. Previously, CPI was calculated using 2 years of data. Now it will be just 1. From the page of the Bureau Of Labor Statistics page: With the release of January 2023 indexes, the BLS updated the spending weights used to calculate the Consumer Price Index (CPI). Previously, weights reflected consumer spending in 2019 and 2020 and were replaced to reflect changes to consumer spending in 2021. In May 2022, the BLS announced the change to use a single calendar year of data and update weights annually from the prior practice of using two calendar years of data and update weights biennially. It goes on to say, “The COVID-19 pandemic and sudden changes to consumer spending provided motivation to further study this change. After announcing a change to annual weights in May 2022, the BLS published a Federal Register Notice in August 2022 further announcing the methodology change. So previously, CPI was calculated using 2 years of data. Now it will be just 1. It’s not the first time a change has been made in the methodology. But it’s certainly a convenient time to change it again now. What we’ve done is erased the big jump in inflation during 2021 from exiting covid and dealing with supply chain disruption. To bring perspective to the current methods of measuring.. if we were to use the standard calculations from the 1990’s or 1980’s as a current gauge, inflation would be into the double-digits. Something we might want to consider when making comparisons to inflation comps from decades ago. If you want to have some fun with this. check out ShadowStats.com Regarding inflation and the Fed, as we’ve mentioned in prior podcasts and via LinkedIn content, the Fed is in a very tough position right now. They cannot simultaneously shore up the banking system and raise rates muvh further to continue fighting against inflation. What happens now can be rationalized in several very different ways. We’ll find out next week where they stand. Is it raise, pause, or cut?

When the cost of capital goes up, and quickly, things break. We've reached that point.

I'm going drop a risk-grenade in the room and walk out. When you deal w/publicly-traded securities, there's regulation. There's also (generally) liquidity and some sort of market value even if markets sell off. Yes, technically all stocks and all funds could go to zero. I think if that were to occur, society/civilization as we know it would cease to exist. Those left would be rendered back to hunter-gatherer status. There's an unknown risk remaining for crypto markets and all associated coins, tokens, and investments. What happens in the event that regulators step in and decide to shut the whole thing down? Where's the risk-hedge for that? This is why we don't advise on crypto-related assets. This is likely an unpopular view from a Gen X/Y-founded firm. Strangely, I posted a note to LinkedIn and hit save, and then the news article popped up confirming what we knew might be coming - the liquidation of the 2nd largest crypto bank, Silvergate Capital. We’ve known for a while that they’ve been in deep water. But not even a Fed bailout loan of $4.3 billion earlier this year could save them. Take it seriously. Note that Silvergate, in addition to quoting losses as a reason for liquidating, is also quoting regulatory conditions. Is this a Lehman Brothers moment for the space? Time will tell. I still can't make sense of these #'s in crypto, and I don't know how you hedge the risk of total implosion for that portion/% of a client's allocation. And for that reason, I'm out. *Note - we don't discourage. We just don't offer oversight/guidance/advice on that part of a client's portfolio. YOYO (You're On Your Own) on that one.

Wages are "sticky". Once raised, they tend not to drop. Wages and benefits are also the largest cost a business has to cover. Yes, inflation is hitting our wallets. And further squeezing a huge swath of the American public. 👉🏼 50% of Americans do not own a single share of stock, or an index fund, mutual fund, or ETF. 👉🏼 40% of Americans report that they could not come up with $400 in the event of an emergency. 👉🏼 More American than ever are reporting living paycheck-to-paycheck, including 6-figure households 👉🏼 Credit card balances are increasing 📈 👉🏼 Household savings are decreasing 📉 💡 side note: these households need help w/lifestyle mgt, budgeting, planning, and cash flow / cash mgt Raising rates full-force, and as history shows - to the point of overshooting and "breaking something": ✅ will accelerate market selloff ✅ will send demand lower ✅ will increase unemployment And while it may work to: ✅ temper, slow down, decrease inflation ✅ help the American public with household costs ✅ help cool down a hot real estate market ✅ help deflate asset bubbles It also functions to help corporations and businesses in this one massive way: ✅ It helps keep them from having to raise wages further. And that hits the bottom line.

Money in-and-of itself is just a tool. It’s a thing that is supposed to represent the exchange of energy that you put into work for its return. I personally believe that huge piles of cash stored away is a disservice in that it’s not being invested or put into flow, whereby more money can be made, people can start businesses and be funded, etc. Money should not be the cause of losing your closest relationships. If this is the case, then one or both parties might want to rediscover and reprioritize their list of what they value most. You’re not crazy. That person sitting next to you, as much as you want to believe it, probably isn’t crazy. Truth is, we’re all new to this. And we have outsized expectations that were set FOR us, not BY us. Give yourself some grace. Give a little then to your spouse, partner, parent, child. None of us were equipped with the tools. But together, we’re gonna get better.

Earnings are continuing into further decline. 86 of 100 companies in the NASDAQ 100 are calling for in aggregate earnings decline. Mortgage originations (purchase applications) are down 41% YoY. That’s the worst in 28 years. The yield curve continues to signal trouble ahead. Rates are continuing to go up. Corporate bankruptcies are rising. Credit is continuing to contract. The bad news on employment is that more layoffs have been announced in areas such as tech and finance. The good news on employment is that there are many job openings being reported, and wage growth in lower-wage, hourly jobs is increasing, and increasing rapidly. That’s good to see because it’s been much needed. Younger people, and people with less experience are able to be paid much more now. Social Security Cost Of Living Adjusments kicked in for January at just over 8%, raising incomes for many. Spending is still strong. Although personal spending is hotter than personal income growth. Savings rates are declining, and use of credit cards is increasing. Take what you will from all of that. Another half-percent rate hike is on deck for March. The Fed isn’t pausing, let alone pivoting or cutting. We don’t believe there’s a soft landing ahead.

Why The US Consumer Thinks The Way They Do: The Psychology Of Money Series (Postscript)

Our intro to a series inspired by The Psychology Of Money by Morgan Housel. We share insights from his book as a read-along. Outside of direct quotes and paraphrasing, the additional views and comments contained are our own. We are not involved with Morgan Housel, his firm, or his publisher. We have no conflicts of interest regarding his book. We receive no compensation of any kind for recommending it. We simply found it to be inspiring and useful and wanted to share it with you in the interest of helping to create a more educated, financially secure public. Seriously, read this book. We're giving it to our current clients, and each new client when onboarding.

Your start to 2023: The madness of crowds, market makers, greed, short-squeezes, Fedfakes, & 0DTE options (those b*strds! they killed the market!)

We heard you speak via Spotify Wrapped and found out that we were in the top 15% most shared. Whoa! In the words of Ron Burgundy, "I don't believe you". Alas, here we are. Tripling down for 2023. Or tripping down. IDK. More content. More unique series. More somewhat possibly moderately above average stuff. Please listen and share. So my kids can be fed. Thank you.

FED FUN DAY and the hangover is real. Freeform thoughts on markets, wealth disparity, and being lied to by Wall Street.

An update on markets, economy for the end of October

Quick hits one gold, including misconceptions you should know

Thoughts on where we are in markets and economy Sat Oct 15th 2022

Stronger job reports = equities going lower. Weaker job reports = equities going lower. Meanwhile, people continue the myopic, binary-outcome argument about "when does the Fed pivot?" Not only is a Fed "pivot" not occurring, even if it did it's not resuming a secular bull market in stocks. ➡️Especially not in the pandemic story stocks. ➡️Especially not in high-beta (high-risk), and high P/E's. ➡️Especially not in the worst credit, junk bonds, and the pile of excrement that exists across a decent portion of private equity/private investments. ✍🏼 Weaker jobs reports would show further deterioration in our economy. ✍🏼 Stronger jobs reports provide more fuel for the Fed to continue on a hawkish path and raise rates further. ✍🏼 They've made clear that they have to impact demand, inflation and by doing so it impacts the job market negatively The Fed is interested in slowing the job market and slowing wage inflation. The higher the Fed Fund Rate goes, the more the cost of capital goes. What does that mean? It means the cost of anything of leverage, of loans, of purchases, of levering up for any type of investment goes up. And not just by a fraction. Simultaneously, the higher yields go, the more appealing the "risk-free rate" zone on UST's becomes. Because yields are So if you're holding high-beta stocks with a high P/E (that’s price to earnings ratio) and we’re experiencing higher market volatility and deteriorating economic data, what are you going to do? You might look over and see US Treasuries yielding more than they have in 15 years. Short term T-Bills (3mo, 6mo, 1yr maturities) up through the 5-yr UST is over 4% now. It hasn't been this high since mid-2007. To be serious about investing, you must understand the bond market, and understand the effect on risk assets when we have a rate-of-change move of this magnitude, this quickly, at a time when we've arguably been in the "everything bubble" of risk assets. The rate-of-change in Fed rate-hikes is rapid. One of the fastest moves in history. That means everything has to re-price. We’re in an everything bubble - zero rates pushed money into ever-riskier areas, seeking return, creating the everything asset bubbleWe’ve started the hikes from zero, which is a shock to the systemWe were in an ultra low or zero rate environment for a long time - this was a big buildup and will take some time to work through, in terms of repricing riskWe now have more complexity affecting markets, in the form of financial instruments known as derivates. And we have widespread availability of options. Everyone can trade options now, whereas say in the tech bubble and market crash of 2000-2002, options trading wasn’t available for most people. We are moving toward (not yet, but moving toward) a time when we may see 5% US Treasuries, and overlooked stocks with low P/E's and attractive dividends. Ideas you're probably not familiar with and haven't considered. And the "story stock" time will be solidified as over when it manifests itself in risk/return. If your investment language, following the noise from social media, has only been tech related you're going to have to sit and hold the stuff you paid a high price for, waiting for it to catch up and/or be acquired, merged away, etc. As we finish out the year, be cautious with where you get your info. People with two years of trading at home have hundred of thousands of followers and make a living on giving hot takes. ✅ You are not BTFD ("buying the f'ng dip") ✅ You are not YOLO'ing ✅ You are not "missing out" (FOMO) ✅ You should not be playing Investment Hero right now. Remember, this is your hard-earned capital. Be smart with it.

Well, it’s getting real friends. Like the math said it would. Now, what do we do with it. First, we don’t panic. You were prepared , or you weren’t. If you were prepared, you’re sanguine. You’re accepting of the circumstances. If you weren’t prepared, that’s ok. Let’s talk about how you can approach this. Second, turn off financial media. They’re only going to stoke emotions, resulting in things like (but not limited to) getting submerged in the FUD (fear, uncertainty, and doubt), the FOMO (fear of missing out), the YOLO (you only live once) and might be thinking you’re buying the bottom, Anchoring (which is gluing yourself to a price of something in our mind, instead of letting it go), and a host of other behaviors that are driven by emotions and can result in catastrophe. We’re here to help you avoid that. Let’s talk about math for a minute, and then we’ll talk about portfolio management, or investment management if you need clarification. Math, in markets, is unfeeling. It doesn't care about your wallet, your sales program, or your need to be right. It doesn't care about your ego, or your fear. It doesn't care about matching your analysis of averages, or a "time in the market" chart, or your overconfidence in "timing' the market. It doesn't care how many analysts pound away at spreadsheets to try and produce an outcome, or match an expectation with a model. It just does its thing, and represents a set of conditions with a set of prices at any given time. 🧩 It does have probabilities, though! 👉🏼 Math states what "is". And what "is" right now, from a macro perspective, is that we are in . Things are going to work out after what we're going through. We agree that most people make poor portfolio managers of their own money. Because they usually: 🔹 Buy or sell emotionally 🔹 Don't have specific risk rules in place 🔹 Or they have risk rules but deviate from them, based on emotion 🔹 Don't habe a process 🔹 Don't know how to properly diversify (different types of stocks doesn't equal diversification) 🔹 Don't understand correlation 🔹 Don't know how to measure risk 🔹 Don't have an idea of min/max position sizing 🔹 Don't have sufficient research 🔹 Don't understand macro and how it moves sectors and affects outcomes 🔹 Are missing at least one or more of the following: Knowledge/Skills, Access, Time, Inclination For most people, IF they are not under active investment management/advisement, we agree that it's best to: ✅ Spend less than you earn ✅ Save what you can ✅ Set up a plan Invest what you can ✅ Keep buying through all conditions ✅ Stay invested and let compounding work over time, using strategic investment allocations ✅ Then focus on maxing out your own skills to produce more income. It will benefit you more than the time you spend trying to research how to manage your portfolios. This is not time to be an investing hero. Titan hedge fund managers get burned. You will, too. 🫣 Humility is the #1 trait of a good portfolio manager. And good managers will tell you about their mistakes, their losses. They don't hide those from you. 👺 Ego, pride, deception, ambition, and self-serving motives lead people to proclaim all of their winners and their prowess. But, it's bunk. Don't believe the hype. How you are invested is important. How you determine your course for the coming years has never been more important. If you have questions, do not delay. Seek guidance. The "macro" ship is taking on water. We will find ourselves in a position to take advantage of market opportunities. For now, decide how much cash you want on hand.

There’s another hurricane that is strengthening. In the form of a global economic downturn. It’s affecting our shores and moving up in Cat strength. Prepare wisely for this one because its looks to be a Category 5 storm, the effects of which could last the next 4 quarters. Unfortunately, the industry hasn’t prepared you for this. Big banks, financial media, the inexperienced social media personalities, even the Fed, Treasury, and White House. It’s been disappointing. You will see green on the screen, as these long down cycles are interspersed with bear market bounces. We’ve already had several this year. In the 2000-2002 tech bust, there were about 15. Each setting lower highs and lower lows. We’ve talked about this many times, but it’s important to repeat. What worked for the last 12 years is not working now, and we’re not going back to that scenario. We can’t tell you what to do, because that could be deemed advice and we don’t know your particular situation. What we can say is that preparing for hurricanes to strengthen can be helpful. We’re not in the business of trying to time the market. That’s a fool’s game and has wrecked hedge fund managers and retail investors alike. It’s not about being entirely in cash, because there’s always a place to invest. But, sometimes it’s nice to have some cash ready, or as we say”raise cash” during times of high volatility and increasing economic concern. Volatility is high right now, as measured by the VIX. When it’s over 30, as a rule, we don’t try to be heroes trading anything. We’re not all cash, but we did start raising cash positions at the turn of this year, increasing to present date. We think the future market situation is going to call for a different allocation that what we’ve been accustomed to for the last 12 years. Stay tuned as we’ll be doing some special content, episodes, and live talks on cash management. It looks to be worthwhile, maybe even fun again to consider how you can manage cash positions in different ways. Until then, be vigilant, and take care of your hard-earned assets. Disclosures: This is not financial advice. We don’t know your individual or organizational situation. Consult a professional if you are looking for guidance. We seek research from many institutional sources, work to make sense of it, find patterns, compare date points, and put perspectives together that the public can understand. These views may influence the manner in which we manage assets for clients of our firm. This podcast is produced by Mission Advisory Group, an independent Registered Investment Adviser. If you like this content, please subscribe, and give a rating. For more info on who we are, please visit followthemission.com. For other timely and insightful, professional content, connect and follow us on LinkedIn. You can that link easily our website at followthemission.com.

THE RISK YOU DIDN’T KNOW YOU HAVE Move over FANG. The new crew is AMATA. Remember “FAANG?” Facebook, Apple, Amazon, Netflix, and Google? They were the talk for quite some time. But, things always change. Netflix and Facebook dropped out of the top 5, Google changed its name, and Tesla became the new darling of the market. The new crew, let’s call it AMATA, is Apple, Microsoft, Amazon, Tesla, Alphabet. These 5 stocks compose: 42% of the NASDAQ 100 22% of the S&P500 That is a high and concerning # from our perspective. That’s called concentrated risk. Everyone owns them. Institutions, hedge funds, the bulge bracket firms, the big banks, individual accounts at Fido, Schwab, TD, Robinhood, WeBull, et al. Some people unwittingly own index funds or ETF’s with high exposure PLUS owning individual stock positions. Everyone owns these 5. Even to some extent unwittingly large exposures via index funds and ETF's that replicate these indices. The S&P500 Index is the most widely owned equity-exposure index. Retirement plans are a major driver of this, as is the decade + long wave of money moving from active management to passive (index funds & ETF's). This means that you're largely at the whim of how these 5 companies perform, and how the remainder of assets in your accounts is risk-managed. You're also at the whim of what large institutions and hedge funds decide to do with their long positions in these 5. Now, can you determine some of the most common characteristics of these 5? And determine what their course will look like over the next 3-5 years? Is this "diversified"? In 1999 just before the dot-com crash and extended bear market in tech, 3 of the 6 largest companies by market cap were Microsoft, Cisco, and Intel. After a massive run-up in stock price in the late 90’s, all three of these companies crashed, and returns were fairly flat for the next 8 years leading into the Global Financial Crisis of 2008. That’s not to say that the AMATA crew will experience the same. But, we are in a transitioning economic environment globally. And when you’re considering risk and diversification, having this much exposure to these 5 is a caution flag for us. Knowing what you own is important. This podcast is for educational purposes only. Nothing mentioned here should be deemed financial advice. Consult a professional if you’re looking for guidance. This podcast is produced by Mission Advisory Group, an independent Registered Investment Adviser. If you like this content, please subscribe, and give a rating. For more info on who we are, please visit followthemission.com. For other timely and insightful, professional content, connect and follow us on LinkedIn. You can that link easily our website at followthemission.com.