Letter to Stakeholders, August 2024

Tuesday, August 13th, 10:01 am EST. Even though the Summer Olympics and our US Presidential elections are typically the same year (2020 was an exception), usually we can escape the political news for a couple of weeks. But the Democratic nomination of Kamala Harris – and her subsequent pick of running mate –were inescapable, unforgettable news items.  A competitive presidential race brings volatility (ups and downs) to markets. You likely saw that last week. Expect more. There was other news including a specific reason for market volatility last week.

Bank of Japan

This past July 13^th, the 45^th President of the United States survived an assassination attempt. Almost exactly two years earlier on July 8^th, 2022, Japan’s longest serving Prime Minister, Shinzo Abe was not so lucky. Abe’s long tenure coincided with the longest serving Foreign Affairs Minister in Japanese history: Fumio Kishida who is now Japan’s Prime Minister. Unfortunately Kishida’s popularity is no where near that of Abe’s who’s legacy included saving the 10-nation Trans-Pacific Partnership and “charming” the International Olympic Committee (IOC) to host the 2020 Olympics three years ago in Tokyo. Japan’s struggling economy narrowly avoided a “technical recession” before the Bank of Japan (BOJ) – their central bank – raised interest rates. An attempt to strengthen their currency (the yen) and reduce the cost of oil imports triggered a sharp drop in their stock market and ours.

Yen Carry Trade

Last February Japan’s stock market (the Nikkei 225) reached an all-time high. Japan is infamously known for its lost decades of growth (dating back to December of 1989). In February, finally, there was reason to celebrate or so it seemed. By March Prime Minister Kishida’s approval rating was still at a record low. The BOJ had just raised interest rates and unbeknownst to many, the subsequent raise announced on July 31^st would be the catalyst for sharp one-day declines in the Nikkei and the US stock markets.  The “Yen Carry Trade” for advanced market participants has been a straightforward arbitrage play of borrowing the Japanese Yen at low interest rates (0.25%) and investing at higher interest rates (5.25%) in the United States. It’s similar to maintaining your (low) 2.75% mortgage rate payments while diverting extra cash to your (high interest) 4.5% savings account. It just all happened with much bigger numbers.  This “trade” may not be over but we are monitoring and prepared to respond if your plan requires it.

“The Fed,” Our Central Bank

All of this talk of Japan’s Central Bank has me pining for news about our own. How about you? News just came in today that the inflation measurement, the Producer Price Index (PPI), came in lower than expectations (rising only 0.1%). The PPI is different from the Consumer Price Index (CPI) which most people are used to correlating with inflation. The CPI measures the increase in prices we pay. The PPI measures the increase in the prices manufacturers (or “producers”) pay for goods and services. In theory higher prices for producers typically get passed down to consumers so they tend to rise and fall together. That said, the Federal Open Market Committee (FOMC) (our central bank) is in charge of raising or lowering our interest rates and they look to PPI. It’s highly expected that the FOMC – or “the Fed” – will lower interest rates next month. Lower rates may inspire lower rents, lower mortgage rates and lower costs for capital investments. This potentially positive news will add to market volatility this year and next. We’ll take the good with the bad as we manage your portfolio.

Stakeholder Spotlight

Tomorrow afternoon Lisa Humes will shine under our “stakeholder spotlight” representing the latest of our strategic partners who serve our family of clients. Lisa’s topic is “Healthcare After Sudden Wealth Events.” She’ll help us discuss how people navigate their medical care when a sudden and/or accumulated wealth event allow them to leave their employer but also their health insurance.

Join us by clicking here.

Jason J. Howell, CFP®, CPWA®, CSRIC®

President

Jason Howell Company is a family wealth management firm that strengthens the finances of families making the transition from first generation success to family wealth. We envision a world where wealthy families give, grow and govern themselves in ways that enrich their local communities. We do this by reducing the fear, isolation and guilt associated with financial success.

Jason J. Howell, CFP®, CPWA®, CSRIC® and Douglas W. Tees, MBA, CFP® CAP®, CBDA  have spent a lot of time in the Washington, DC area, and are aware that many people who are first generation wealth suffer from a kind of "financial imposter syndrome."  Successful entrepreneurs and family businesses are always looking over their shoulder; government contractors worry about the next contract; former Capitol Hill staffers privately wonder if they should "feel bad" for the money they now make. Imposter syndrome is common among people who work for the many corporate headquarters based in this area as well. These feelings get in the way of properly managing family wealth. We empower them to get organized, build a team of advisors and make decisions.

Our typical "first generation wealth" families include dual income parents who work, save and have just the right amount of fun. For long-time, family owned businesses we focus on much family preservation as we do wealth preservation. 

First generation wealth success stories and family business owners realize that they:

• Need to “do something” with the cash in their checking/savings
• Need to eventually diversify their portfolio away from the family business
• Need an investment strategy for “up” and “down” markets
• Need a plan to mitigate market, credit, inflation, and political risks
• Need to start tax planning instead of just tax paying
• Need to be sure they are choosing the right work benefits
• Need to reduce financial miscommunications between family members
• Need to separate business finances from personal finances
• Need to separate family wealth from individual wealth
• Need a plan to provide space for both family and individual philanthropy 
• Need to plan for money while alive and for what happens after death