A Personal Note from Cam – Dated January 27, 2022
It has been a remarkable two months since I last wrote a Personal Note to you.
The month of January 2022 represents CTA Wealth Advisors, Inc. 40th anniversary!
What started as an idea and hobby back in 1981, ultimately turned into a fee-only investment advisory and tax planning business in early 1982. As I reflect back on the past 40 years, I am amazed at the speed of change that continues to occur in America and around the world!!
Is this a Repeat of the Past?
If you are feeling a little anxious about the markets, you are certainly not alone.
Recently we have seen the biggest pull back since the markets fell nearly 9% ahead of the 2020 U.S. presidential election. Most importantly, some of the most popular and widely owned areas of the market have performed far worse than the S&P would suggest. For example, the NASDAQ 100 Index (NDX) - which has a great concentration in growth technology stocks has fallen more than 11% as of Friday, January 21, 2022.
The Small Cap Russell 2000 Index has lost more than 17% year-to-date.
Many individual stocks - ranging from blue-chip tech stocks have fallen 20% to 40% or more.
Despite the intense selling in some areas, the tools we use to help with our analytics are telling us at this moment we are witnessing a normal bull market correction so far. We have not yet detected any of the usual signals that proceed a crash or severe bear market.
We are not market timers. We know of no one who has been able to consistently call the short-term ups and downs in the market.
After a brutal downturn in the first quarter of 2020, when COVID-19 began sweeping the globe, we began recommending slight modifications to current asset allocation strategies, committing to higher quality stocks.
As luck would have it, at that time we were very near the bottom of the market downturn.
Why did we stray from our usual market neutral policy?
Because it was clear that fear had overtaken reason in investor's minds and the markets were in a freefall.
The very companies that would benefit from the economic lock-outs that the federal government and state governments were about to impose were tanking along with everything else.
That made no sense.
In addition, a number of chip manufacturers were also being pounded, right in the middle of an urgent global chip shortage.
That made no sense either.
This is a reminder that stocks do not just move based on the economy or outlook for individual businesses. They also move on human emotion: fear and greed.
We Believe Uncle Sam is Causing the Current Market Sell-Off
Today, there are a lot of uncertainties right now: high inflation, rising interest rates, company valuations, a continuing pandemic, weak leadership in Washington, and, of course, geopolitical tensions with Russia.
Inflation has been historically low for most of the last four decades. Today, producer prices are now raising at a 10% annual rate and consumer prices at a 7% clip, the highest level since 1982.
The increase in inflation is partly due to supply chain snags. In response to the pandemic-related recession of 2020 – the sharpest in U.S. history – Uncle Sam took unprecedented measures, including massive deficit spending.
As a result, the ratio of debt to gross domestic product ballooned to 136%, a record.
The Federal Reserve supported this action by buying up much of the newly issued debt to suppress yields.
This action, in turn, caused the M2 money supply – the value of cash and checking accounts – to skyrocket from $15 trillion in 2020 to $21 trillion by November, 2021.
The Fed also implemented a significant change to its long-term strategy, tossing aside the congressional mandate of “price stability” and explicitly allowing inflation to run higher than its traditional 2% target.
What do you get when the government floods the economy with money, holds short-term interest rates at zero and suppresses bond yields in the middle of the biggest global supply chain snarl in modern history?
A 10% rise in producer prices and a 7% rise in consumer prices, which is where things stand at this moment.
Yet, and I think this is the most amazing part of this story, the Fed still has short-term interest rates at zero and is buying billions of dollars of Treasury’s and mortgage-backed securities every month.
Interest rates. The Fed is set to raise short-term interest rates and taper its bond-buying program, likely beginning in March, 2022. Higher interest rates are considered negative for the stock market because it makes it more expensive for consumers and businesses to borrow.
The investment markets have generally counted on the Fed to backstop financial markets, cutting interest rates if necessary to protect them from serious downturns.
I do not think this will happen this time. With consumer price inflation at 7% and widespread criticism that the Fed is behind the curve, the central bank – barring some extreme emergency – will not back off.
We believe this is what has the market most unnerved at this time.
Valuations. Growth stocks (like technology companies) – which tend to have higher-than-average valuations – are being hammered at this time.
Value stocks (like consumer staples and oil and gas companies) – which tend to have lower-than-average valuations – have held up fine or appreciated.
Put another way, many companies smashed earnings expectations in 2021, due in part to the fact that the economy was shut down for many months in 2020.
We believe there is a long overdue reevaluation of risk underway, and ultimately the markets will return to equilibrium. While this plays out, many speculative assets are getting wacked, and what has been out-of-favor stocks are holding their own or even appreciating.
We expect market volatility to continue. Please understand that from our perspective, market volatility, like we have experienced lately is the historical norm. The smooth sailing in stock prices since the beginning of the second quarter of 2020 is an aberration.
20 Rules to Live By
I have grown to understand the importance of living my life with as much gratitude as possible.
I have a journal, added to over the years with thoughts and ideas, based on my personal life experiences. These thoughts have all impacted my life in a positive manner. I would like to share some these thoughts with you as we begin this New Year.
Treat everyone like you want to be treated. It is the golden rule.
Never give up on anybody. Miracles happen. Anything is possible. People recover from 30-year addictions and stay sober. People go into remission after being diagnosed with a terminal illness. People also turn around seemingly dire financial circumstances.
Never deprive someone of hope. It may be all they have. Hope is a powerful force in the human psyche. It gives us strength to believe in possibilities that seem impossible.
Watch a sunrise at least once a year - on a beach or in the mountains.
Be the first to say "Hello." This simple gesture is an acknowledgement of interest, openness and attention.
Compliment three people every day. Sincere compliments are not given enough. The best compliments are about the “human,” not an action taken or gesture made.
When you arrive at your job in the morning, let the first thing you say brighten everyone's day. Even if you are retired, you may have a chance to set the tone of someone's day at the local coffee shop.
Live beneath your means. This is the most basic wealth-building rule of all. If you do not live beneath your means or improve your means (through your career or investment returns, for example) there is only one possible outcome and it is one you do not want.
Forget the Joneses. The act of comparing ourselves to others has wasted more wealth and destroyed more happiness than almost any other thought pattern. Feeling wealthy starts with appreciating what you have.
Remember that overnight success usually takes about 15 years. It is easy to forget how far we have come so it is important to appreciate every little win and every bit of progress.
Pray not for things, but for wisdom and courage. The greatest source of satisfaction in life comes from progress. Any time we learn something new (wisdom) or expand beyond our threshold of control by facing fear (courage) we progress. We grow. There is no stronger force for creating pride in yourself.
Keep your promises. People who keep promises are remembered. They are trusted.
Learn to show cheerfulness, even when you don't feel like it. Our moods are contagious. By learning to be cheerful, you can spark greater emotional responses from others, which will help elevate your own mood.
Be tough minded but tender-hearted. Get in the habit of not negotiating with your mind. Be tough against your inner critic, and be persistent about what matters most.
Be kinder than necessary. There have been studies that show people need to hear five positive comments for every negative comment to remain in a healthy frame of mind. This applies to everyone.
Don't forget a person's greatest emotional need is to feel appreciated. We all want to feel like we matter. Appreciation is one of the greatest gifts you can give.
Leave everything better than you found it. This was instilled in me as a child.
Remember that winners do what losers don't want to do. Much of this comes down to discipline. It is important both in life and in wealth building.
Don't rain on other people's parades. Back to the golden rule.
Never waste an opportunity to tell someone you love them. Love is the oxygen of a life well lived. Never regret sharing your love with another.
Should you have any questions on what I have shared, please feel free to reach out to me or Trevor at (818) 841-1746.
The information provided is not a complete analysis of every material fact and are subject to change.
Securities and some investment advisory services are offered through Cetera Advisor Networks LLC, member FINRA/SIPC, a broker/dealer and Registered Investment Adviser.
Financial Planning and some investment advisory services are offered through CTA Wealth Advisors, Inc., a Registered Investment Adviser.
CTA Wealth Advisors, Inc. and Cetera Advisor Networks LLC are non-affiliated companies.
The opinions expressed in this letter are those of Cameron M. Thornton, CFP®. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Past performance does not guarantee results.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The S&P 500 is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Russell 3000 Index is a capitalization-weighted stock market index that seeks to be a benchmark of the entire U.S. stock market. The Russell 2000 Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index. The NASDAQ 100 Index is a large-cap growth index that includes 100 of the top domestic and international non-financial companies listed on the NASDAQ stock market, based on market capitalization.
Websites provided as a courtesy and are not under the control of Cetera Advisor Networks LLC or CTA Wealth Advisors, Inc.
Cameron M. Thornton, CFP® is a Registered Representative with Cetera Advisor Networks LLC and may be reached at www.ctawealthadvisors.com or
 Wall Street Journal. January 22, 2022.
 Ibid 1.
 Ibid 1.
 Wall Street Journal. January 26, 2022.
 Liberty through Wealth. January 24, 2022.
 Ibid 5.
It has been a remarkable two months since I last wrote a Personal Note to you.