2022 was a year many investors would like to forget. A lot of things happened in 2022 and we would like to reflect on the year that we just completed.
The first thing I do when I reflect on the past is to go back and re-read our past newsletters. Do our newsletters add value to our clients? We live in a world with 24-hour news, multiple channels dedicated to the markets, newspapers, magazines, internet, and everyone writes a newsletter!
Our January 2022 Newsletter was dedicated to discussing the Federal Reserve Policy related to interest rate hikes. We said, “If we see multiple rate increases in 2022, as projected, it would be safe to assume we will see negative returns again this year and possibly for a few years.” We went on to say, “We can also make a case that a less accommodative Fed could negatively impact the real estate market, the price of gold, and the media’s favorite topics of crypto currencies and NFTs. Just like earlier commentary on the stock market, we can list multiple reasons why each of these markets are due to correct and why each of these markets could continue to go higher. ”We concluded with explaining why we were shifting our clients from traditional bonds to Callable Yield Notes and private credit. This newsletter was correct on the impact of the Fed’s rate hikes. We saw seven rate hikes in 2022 (see chart below).
Those rate hikes contributed to a negative year in the markets. A late rally in October and November helped keep the markets from much worse returns.
Let’s look at the following returns around the World:
We saw inflation spike during the year causing the Fed to react with a series of 75 basis point rate hikes. Toward the end of the year, we saw inflation start to ease back lower with gasoline prices coming way off their summer highs, building materials as well and anticipate that we will continue to see inflation drop.
We discussed the rate hikes above. The Federal Reserve is using rate hikes to slow down the economy and housing market, to get people to save versus spend and slow inflation.
Russia invaded Ukraine on February 24 and in doing so started a war that impacts all parts of the world. Countries all over the world are sending money, weapons and other support to Ukraine, President Volodymry Zelensky has become a household name, that region produces a significant amount of the world’s wheat, natural resources, oil & gas, etc. We have seen international sanctions, the strengthening of NATO, and uncertainty of how this war will end.
China’s zero Covid policies have adversely affected the world with supply chain issues as many of the major technology components and other products are produced in China.
At the beginning of the year we were all familiar with Bitcoin. How many people had heard of FTX or Sam Bankman-Fried? FTX collapse has shook the crypto world and will most likely lead to increased regulation and legislation. John J Ray III, who oversaw the Enron liquidation, was appointed CEO of FTX, and called this the worst corporate failure he ever witnessed. Bitcoin began the year around $50,000/coin coming off a high of over $60,000/coin. Bitcoin ended the year at under $17,000/coin. 2021 was the year of NFT’s (non-fungible tokens) and 2022 was their collapse.
Ian made landfall in September. Many of our clients and friends live or have homes in Florida and our thoughts and prayers were with them during the storm and the aftermath of cleaning up from the storm.
The Supreme Court overturning Roe v Wade put the court in the news and topic of discussion across the country. Whether you were for or against the decision, it was one of the biggest stories of the year and sparked debates everywhere you went.
There has been plenty of news stories out of Washington D.C.this year that we could write an entire newsletter just on politics (which I assure you will never happen!). Specifically for this list is the latest $1.7 trillion spending 4bill recently passed that will provide more funding for Ukraine, more spending on Defense and over 4,000 pages of other spending that will get more news in weeks and months to come.
Elon is always a lightning rod of media attention, whether with Tesla, SpaceX, or his latest purchase of Twitter. Tesla had grown to one of the larger companies by market cap but saw its stock price drop almost 70% in 2022 as investors are concerned Elon’s focus is on Twitter and not on Tesla.
The Metaverse was officially announced by Mark Zuckerberg in 2021, but Facebook changed its stock symbol and officially transitioned in June 2022, going from FB to META. Over a year later, investors are still trying
1) OSCARS- Will Smith Slapping Chris Rock at the Oscars.
2) WINTER OLYMPICS- The Winter Olympics in Beijing happened in 2022, had the worst ratings in Winter Olympic history!
3) WORLD CUP- On the contrary, the 2022 World Cup was extremely successful and saw record audiences tuning in to watch Argentina win the Cup. In four years, the World Cup comes to North America and here in Kansas City we are excited to be one of the host cities.
4) JOHNNY DEPP- for some reason people like to watch celebrity drama and nothing got people talking in 2022 like the trial between Johnny Depp and Amber Heard.
5) ENGLAND- The world took a moment to grieve and celebrate the amazing life of Queen Elizabeth who passed at age 96 in September.
6) KU- Since I write the newsletter, I get to include the amazing comeback victory for the Kansas Jayhawks, down 15 points at halftime to win the college basketball National Championship- Rock Chalk!!
Many of our clients have invested in Blackstone’s BCRED and BREIT. For those that did not, these are private investments in private credit and real estate. There were two different share classes available, I-shares and D-shares. The I-shares offered a 25-basis point discount in fees but required a $1 million investment. One of our good clients informed me that other custodians had different requirements to get in the I-shares. We advocated with both Blackstone and Schwab throughout the year to get this changed. We are not taking credit, not sure we had anything to do with it, but Schwab and Blackstone have agreed to change their policies and all our clients will be converted to the I-shares in the first part of 2023.
Years ago, we were able to lower the prime broker fee for our clients from $25 to $15. Neither the prime broker fee or Blackstone share class generates any income for Paragon, but we will always advocate on your behalf to create value and lower expenses where we can.
We are receiving great feedback on the use of Calendly to book appointments for quarterly reviews. Kelly has been reaching out to schedule meetings with your wealth manager and will continue to proactively reach out throughout the year. Calendly provides updated access to your wealth manager’s calendar and to a meeting time that is convenient for you! These meetings can be in person, video or by phone.
We take your security very seriously. Our security protocols require verbal confirmation of all money movements. If you email or message us to move money from your account to your bank, we will be calling to verify. We understand this creates an additional step in the process and may be viewed as an inconvenience, but it is for your security!
For up-to-date news and thoughts from Paragon, plus interesting articles on topics like saving and investing for children, taking care of elderly parents and their finances and other timely topics, we encourage you to follow us on LinkedIn and/or Facebook. We have company pages for both and appreciate your liking and/or following us. Also, please share your experiences with friends and family; we love the opportunity to help those you know with their financial success. Even though Paragon’s offices remain temporarily closed due to COVID-19, we are all working from home and staying in contact with each other daily. We are available to meet with clients at our office by appointment only and are also available to schedule account reviews via video or phone conference.