Bates Real Estate and Financial Advisory Services

03/20/2025

Oh boy, there is that word again: "Transitory", speaking about the Trump tariffs. Because we all know that term served the Fed so well when Powell used it in relationship to the inflation we experienced the last couple of years. For the time being, the Fed is wise to hold off on the 2 rate cuts they project this year until they receive more inflation and jobs data, once tariffs are implemented on April 2

Fed officials see inflation moving up this year more rapidly than previously expected, but they also expect the trend to be short-lived.

02/23/2025

The attached post “the stock market is tanking so badly” is from Feb. 21, 2025. Yet, “the market”, US S&P 500, just hit an all-time high on Feb. 18, 2025 and is down a mere 2 % off this all-time high. So many people approach me using this verbiage like “tanking, plummeting, etc.” about the stock market on a regular basis. Even financial channels, like CNBC, over-sensationalize and in my opinion, misuse these terms habitually. So let’s give these terms some context:

Stock market analysts are widely in agreement that a 5 % decline is truly the first mile marker of concern in a market downturn. Therefore, the market being down 2 % off its Feb. 18 all-time high is a non-event, not even worthy of the “correction” designation. The market corrects 5 % nearly every year and since 1980 has corrected 5 % almost 5 times per year on average. In addition, February has been a negative month of market returns since 1928, and as of this writing, the market is still up almost 2.62 % year-to-date, which at its current pace would end the year with a 19 % annualized gain

Since 2017, when Trump took office during his first presidency, the market is up over 200 % and experienced 2 bear markets of 20 % or more declines (and one other one in 2018 that reached the 19.34 % decline mark). The market really did “tank” 3 times in the last 8 years and it is still up an astonishing amount during that time – 14.65 % annualized. Moreover, bear markets of 20 % or more declines occurring every 2 years during a 6-year period is unheard of in modern history. One has to go back before the end of World War II to find bear markets occurring every 1.4 years between 1928-1945. Since 1945, bear markets have occurred about every 5.1 years, and investors just experienced the second longest bull market ever from 2009 – 2020

That term “bankruptcy” is one of the most misunderstood and poorly labelled financial terms. A Chapter 7 bankruptcy is what people think of a true bankruptcy. A Chapter 11 bankruptcy should be called a “court-ordered reorganization plan”, where a debtor usually proposes a plan to the court of reorganization to keep its business afloat and pay its creditors over time. This “court-ordered reorganization plan” is what our current president went through in his 4 – 6 cases (however you want to count them). Further, some of the most successful people in our country went through some form of “bankruptcy”: Abraham Lincoln, Henry Ford, Walt Disney, Lady Gaga, Don Johnson and Sarasota’s own, PT Barnum, just to name a few

*All S&P 500 return figures include dividends. None of the above is meant to be or shall be construed as giving financial advice. Historical returns or market trends do not mean that these will continue in the future. For reference, none of our clients’ portfolios declined more than 2 % in the aforementioned 3-day period of Feb. 18 – 21, 2025

02/19/2025

This is outrageous! He can't do that! It is going to be pretty hard for the average taxpayimg American earning $66 k per year to find fault with receiving a $5 k tax-free check, while paying down the country''s $36 trillion debt at the same time

02/18/2025

They want the “proper people” to run this government audit and are worried about “sensitive personal info being sacrificed”

Price tag of government audit: $140 million of your tax monies (presumably, an engagement with one of the Big Four Accounting Firms) and after 40 years of doing no audit, sometime in 2029 this audit will be finalized...maybe

Financial advisors, like my myself, who handle personal financial info have to clear an FBI background check. This comes with finger prints and all. Ironically, I have an advanced degree in accounting/auditing/taxation and NO FBI profile check is required for me to prepare and sign an individual or company’s tax return, which all include a social and company tax ID. I am sure Elon et al had to pass the aforementioned FBI check as well, and it is extremely likely DOGE had to attain some higher levels of clearance in order to be able to access government agency data. Considering the fishing warden has your social and no FBI clearance check, I think you can sleep well at night knowing that your personal info is not being compromised by DOGE, or my firm, Bates Real Estate and Financial Advisory Services, for that matter. I can’t speak for DOGE, but I have been to that beach in Brazil already

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01/19/2025

The Numbers Are Out

As the Biden presidency comes to a close on Monday, we know the S&P 500 results over the last 4 years already, since tomorrow markets are closed in observance of Martin Luther King Jr.’s birthday.

The Biden presidency ended with an annual rate of return of 13.32 %, which is almost identical to the average annual return of his boss, Barack Obama, of 13.33 % during his second term. Both are solid returns, considering in my lifetime (1969) the average annual return has been 10.59 %.

Our incoming president is the first president to serve non-consecutive terms in 125 years and during Trump’s first term, the average annual return was 15.92 %.

Nevertheless, the above returns only paint half the picture, since they are not adjusted for inflation.

Adjusted for inflation, the real annual rate of return since 1969 has been 6.24 %. The real annual rate of return was 13.99 % during Trump’s first term and 12.05 % during Obama’s second term. Due to a higher annual rate of inflation of 4.95 %, the annual real rate of return was 8.37 % under Biden.

The last president whose annual rate of inflation was at levels this high was George H.W. Bush at 4.3 % in 1993. Bush was not re-elected to a second term as well, even though his real annual rate of return was 10.44 % and ranks 5th for stock market growth amongst presidents since the S&P 500’s inception in 1957.

So which president had the highest annual stock market returns ever? President Calvin Coolidge presided over annual Dow Jones market returns for 5 ½ years that averaged 26.1 % during the Roaring 1920s.

“Silent Cal” proved that small government, low inflation, lower taxes and massive debt reduction could make the economy and stock market thrive. In contrast, the US government has not had a budget surplus since 2001 under President Bill Clinton.

On the flip side, Coolidge proves that the president alone cannot control market returns. Investors were borrowing obscene amounts of monies, literally “betting the house”, and plunging them back into the stock market, assuming that it could only go higher. Overall rampant speculation caused the stock market to crash almost 8 months after Coolidge left office.

The president’s role on stock market performance has been overstated too often, and many would argue that it is the Federal Reserve Chairman, not the President, who is the most important person when it comes to market performance. Although Warren Buffet has said many times in interviews that it is the US government structure and free market system that makes the US and its markets a great place to invest, not one individual.

I believe the biggest factor over the next 4 years will likely be us, the American workers tooled with AI, who will generate the highest productivity and corporate profits in the world that will drive the US economy and financial markets. Like life itself, only time will tell. By the way, Buffet said another thing, “Never bet against America”, especially longterm

Note; This is definitely not financial advice, so please do not construe it as such. The annual inflation numbers are from “The Inflation Calculator”. Obama, Biden and Trump returns are based on ETF ticker symbol SPY, which tracks the S&P 500, and with dividends being reinvested over the 4 year period. The George H.W. Bush S&P 500 calculation is based on the index itself, full years from 1989-1992 and calculates dividend reinvestment over the 4 year period. Since the S&P 500 did not exist before 1957, the Dow Jones was used to calculate the average annual returns while Coolidge was in office and does not include dividend reinvestment. Annual averages calculate dividend reinvestment and adjusted annual returns for inflation since 1969 were compiled using various sources. The S&P 500 Index itself was used in these last two calculations

08/20/2024

When it comes to the economy and taxation, politicians should be required to back their statements with numbers, just like those of us who advise on taxes and finances have to

For instance, Alexandria Ocasio-Cortez’s DNC speech last night referred to Donald Trump “greasing the palms of his Wall St. friends”. Although the CNN graph below shows Wall St. monies overwhelmingly poured into the Hillary Clinton 2016 and Joe Biden 2020 campaigns

Like the majority of Americans, I welcome Ocasio-Cortez’s zeal to fight for middle-class Americans. Yet, I guess she forgot that her father was a small business owner? Her father would have benefitted from the 20 % Trump tax deduction for small businesses, just as over 94 % of US businesses who are sole proprietors, LLCs, partnerships and S-corps do. The 94 % of US businesses means those who work as realtors, software developers, plumbers, carpet cleaners, hair salons, consultants, tutors and many others. Probably most small business owners do not even know about this 20 % deduction, since it is something that their accountant handles during tax season. Instead, Cortez wanted to reverse the entire Trump tax cuts set to expire at the end of 2025 in order to eliminate $1.7 trillion in student debt. Harris/Walz want to eliminate the Trump tax cuts as well, increasing taxes for small businesses to a tax rate of 43.4 % as estimated by some Republican House Reps and by at least 20 % by my estimates. Federal tax revenues increased beyond what the Trump administration originally predicted themselves since Trump’s tax law was enacted and federal revenues as a share of GDP have not fallen

This morning, Secretary of Commerce, Gina Raimondo was on CNBC stating that Harris is for the small business owner, yet reiterated that Harris wants to abolish the Trump tax cuts, that include the aforementioned 20 % tax deduction on small businesses. Further, Raimondo stated Trump should have decreased the deficit in a “time of prosperity” and will “only balloon” the current deficit, if elected again. What she and the CNBC commentators failed to point out is Biden-Harris will likely oversee a net increase in the debt of more than $9 trillion in a single term—a new record that fueled inflation to close to 20 % in less than 4 years. Moreover, Biden-Harris wanted to spend another $2 trillion over the last 18 months, but conservatives in the House blocked this spending.

Both parties are on a spending binge that is out of control and should be forced to show their numbers along with their economic/tax statements, especially in the social media age of today. Free speech is no longer free, when the American taxpayer has to foot the bill

11/14/2023

And I am not just talking about the weather. I am pretty sure Santa Claus 🎅 is due to appear next Thursday afternoon as well?

(The Stock Trader's Almanac defines the "Santa Claus Rally" as the last 5 trading days of the year and the first 2 trading days of the new year, although people's definitions vary. Many say it is the week leading up to Christmas, because this is the last week where traded volumes are high due to traders still being at their desks. Since November and December are 2 of the best performing months of the year for stocks historically, one can see how the entire rally into the year's end is often referred to as a "Santa Claus Rally". As a side note, certain commodities rally into year's end historically as well)

05/06/2023

12/15/2022

Johnny Carson: This year in securities was so bad...

Tonight Show Crowd interrupts and shouts in unison, “How Bad Was It?”

Johnny: Stocks and bonds were down more than 43 % combined, which is the second worst year since 1931. Even 2008 was down less at a total of 16.5 % for stocks and bonds combined

Crowd Hisses

Johnny: May your only son become a goalie on a nudist hockey team

06/23/2022

Now that the S&P 500 has officially entered bear market territory, being down 20 % (been closer to 24 % recently), many clients are worried about a market crash wiping out or drastically reducing their retirement monies.

Once the S&P 500 does hit the -20% threshold, since WWII stocks typically fall by another 12% and it takes the index an average of 95 days to hit the end of a bear market. As of this writing, we are looking at about 2 more months and another 10 % decline left in this cycle, if history since WWII is a guide.

Historically, stocks have taken 8.3 months to fall into a bear market. When the S&P 500 has fallen 20% at a faster clip, the index has averaged a loss of 28%. The S&P 500 fell into a bear market roughly around 5 months this time, which is almost half the time of the historical average. The last 4 bear or near bear markets in 2011, 2014, 2018 and 2020, the S&P 500 recovered fully to break even 4-5 months after hitting its bottom.

Somehow this time around, we are not so optimistic that returning to previous market highs will be so quick with supply chains remaining in disarray and inflation at 40-year highs of 8.6 % in May. Including this year, the S&P 500 has only posted a losing streak of seven weeks or more three other times. Returns in all three previous instances were negative over next 12 months with the economy going into Recession, even though over the last 50 years, there has never been a recession (aside from 2020's pandemic-induced plunge), when the Fed Funds rate was under 4%. The goal of the Fed in their last meeting is to reach a Fed funds rate of 3.4 % by year’s end and 3.8 % by the end of 2023.

Nevertheless, that inflation that was supposed to be ‘transitory’ has evolved into the same stickiness as that piece of gum stuck to the bottom of your shoe, and we are predicting a very mild recession by year’s end into the beginning of 2023. By “mild” we are predicting contraction will be the exact definition of a recession: 2 consecutive quarters of negative GDP growth. If inflation hovers around 6-7 % for a prolonged period and unemployment rises, we could see a drop in stocks of 50 % in total, which may take as long as 6-8 years from beginning to end to return to peak levels.

Before you hit the panic buttons and sell all of your equities, we view this period in time similar to the early 1980s. In 1980, the Soviet Union invaded Afghanistan, oil prices were high and household debt was relatively in check. All of this have a familiar ring to today? However, inflation was at 14.2 % in Feb. of 1980 compared to 8.6 % today. Unemployment was above 10 % by 1982 vs. 3.6 % today and the Fed funds rate went from 11.2 to 20 % (yes, you read that correctly…20 %!) vs. 3.8 % by the end of next year.

After reaching the -20 % bear market threshold, the market took less than a half a year to hit bottom at -27.11% in August of 1982. Less than 3 months later it was back to breakeven with the late November 1980 previous high. Roundtrip from market high to complete rebound took 1.9 years.

Now here is where it gets interesting. From that bottom in August 1982 to its peak in August of 1987, the market rose 329 % or 82.25 % per year. This is what most investors forget when investing in the stock market is that the natural pull of the market is up. From 1851 to today, the market is up 66 % of the time or every 2 out of 3 years.

Odds are very high that this will bear market represent a buying opportunity to buy stocks at lower prices, since 7 of the last 11 bear markets from their bottom and return to breakeven only lasted 1 year since WWII.

Think you can time the market, ie pull your money and put it into cash while you wait for a “more suitable” entry point? Keep in mind $1000 invested at the beginning of 2001 through the end of 2020 would be worth:

$4222 left untouched
$1699 missing the best 10 months
$866 missing the 20 best months, losing money in a 20-year period

During this time from 2001-2020, there were market declines of 49 % in 2002, 57 % in 2009 and 34 % as recent as 2020 as well as near bears or bears in 2011, 2014 and 2018. Bear markets exist about 18.9 % of the total time.

Bates Real Estate and Financial Advisory Services has over 3 decades of experience in working on Wall St. and advising Wall St. firms. Based on your individual circumstances, we tailor different solutions to meet our clients different needs and help grow and protect your longterm wealth. This article is for informational purposes only and is not intended to be used as investment advice suitable for every individual reader or groups of readers.

Data Attributable to Bespoke Investment Group, CBS News, Zacks Investments, Merriledge, Visual Capitalist, Invesco, The Balance and fourpillar.com