Can midterms save us?

Happy Friday!

I wrote about why gold hasn’t been the inflation hedge that so many had expected. It’s down around 8% this year and 14% over the last six months. While it’s surprised many gold bugs, I’ve always felt that gold is more influenced by the U.S. dollar than inflation. 

But don’t take my word for it. Jim Grant, editor of the very closely followed Grant’s Interest Rate Observer, said it best:

“To me the gold price takes the form of a very uncomplicated formula, and all you have to do is divide one by ‘n.’ And ‘n’, I’m glad you ask, ‘n’ is the world’s trust in the institution of paper money and in the capacity of people like Ben Bernanke to manage it. So, the smaller ‘n’, the bigger the price. One divided by a receding number is the definition of a bull market.”

Moving along…

Can midterms save us?

Midterms are coming up, and historically it’s been a turning point. The first nine months suck, and the last three tend to not suck. There are data to support this pattern.

Here’s a great post this week from Gary Alexander at Navellier that shows the stock market has averaged a loss of 6.2% through the first three quarters of the last 15 midterm election years. The fourth quarter averaged a gain of 6.2%. 

As a result, the average of the mid-term year has been flat. Not only has this trend persisted, but the future six months going out to June have also been good to investors.

Hard to say why this happens so consistently, but if the Republicans split or take Congress, I’d wager that’s good for stocks. Not because Republicans have shown to be the stewards of capital they once were but rather because it creates one of the most magical and exciting outcomes for investors – gridlock.

As in, nothing will get done for the next two years if the Republicans win, and as long as the rules aren’t changing, traders and investors will find a way to make money because that’s what they do best. 

Cash solutions

Here’s another excellent post from Charlie Bilello on what to do with cash these days. His point is an obvious yet overlooked one by many advisors and investors. 

If you’re earning zero interest in your checking account at a large bank, why not park that cash in an equally secure account that pays a lot more? This chart is especially poignant. 

Bankrate has a list of FDIC-insured banks that protect up to $250,000 in deposits and pay above 2%. Sure, it won’t make you rich and certainly won’t beat inflation right now, but it’s better than zero.

Speaking of cash solutions, the one we offer our wealth management clients is from Flourish. Our clients love it (I think) for three reasons:

1. It pays well above anything you’ll get from a large bank and regularly resets (this is good in a rising rate environment).
2. It’s 100% liquid versus a CD that usually locks up your cash.
3. FDIC insurance is up to $1.25m for an individual account, $2.5m for a joint account, and $1m for a business account.
4. Setting up an account takes about 4 minutes, and moving money is literally a click of a button.
5. Flourish integrates with Orion and other reporting tools, so both the advisor and client can see their cash alongside other accounts during reviews.

Let’s spend some time explaining how #3 works. Flourish has created a network of banks to allow them to increase FDIC coverage. So, if a client deposited $1 million into a Flourish account, that would get broken into chunks (none to exceed $250k) and held at different banks. 

As of last week, here are the current yields offered:

Note that the APY is net of Flourish’s fee.

To be abundantly clear, there’s zero financial arrangement between us and Flourish. We don’t get any sort of commission or anything. Just trying to help. You can also reach out directly by going here.

Not so fun fact

I read this on Twitter earlier in the week, so it has to be true:

“If you secured a 30-year fixed mortgage on a $600,000 home at a 2.6% interest rate last year, you have the same monthly mortgage payment as someone who just bought a $392,000 home at today’s 6.2% interest rate.”

Ouch.

Recap

Here’s live footage of markets after this week’s FOMC meeting.

Enjoy the weekend, if that’s even possible after a week like this…