Let’s predict the future together

If you were perusing this space last month, then you’d read a bit about lagging indicators. You now understand some of the more popular metrics we use to gauge where the economy has been, you know, in the past. You’re pretty much an expert on that now. 

But do you know the future? No, not yet? 

After you make it through the rest of this column you will be a super hero. Your super power will be limited to a very narrow subset of economic metrics that will prepare you to sound like an economics professor at a cocktail party. I’ll give you a tip I use myself in these instances: don’t hang around one couple too long and you’ll still sound smart. 


Oh, I already know the future: you are going to make it halfway through this column, get bored, have a sip of coffee, answer an email, hit the head for a bio break and forget what you were doing. Before you know it, it’s going to be time for a meal and we will have ended our reader/writer relationship. 

But thank you for making it as far as you did, it’s been an enjoyable ride.  

Yield curve 

You’ve likely heard about this one, but you may not totally get it yet. Let’s dig in. 

The yield curve helps us to see, in pictorial form, the difference in yield between shorter and longer term Treasury bonds.  

A bond is a contract provided by a corporation or governmental entity guaranteeing that as long as the issuing entity remains solvent it will pay the lender, an investor, a specified interest rate for the money lent.  

It is reasonable for an investor to expect a higher interest rate for longer lending periods because as the bond maturity date stretches further and further into the future, the possibility of default, among other risks, increases. It stands to reason, then, that for shorter holding periods investors wouldn’t require as high of a rate as the longer periods.  

When a yield curve inverts, meaning when Treasury bills with shorter terms to maturity yield higher rates than the longer term bonds do, it is widely seen as predictive of a coming recession. If an investor is willing to accept a lower yield for a longer holding period, it may be indicative of a broader sentiment of concern about the economic future.  

While no leading indicator is fool-proof, a yield curve inversion has preceded each of the last seven recessions, and the curve is currently inverted.  

Then there must be a recession coming, right? Not so fast.  

While the inverted yield curve might tell us what happens next, it doesn’t tell us when. That’s the hard part, and it’s where my superpowers grow weak.  

Durable goods orders 

This one is a bit deeper in the economic weeds, but still mainstream enough that CNBC will regularly reference it.  

Durable goods orders track increases and decreases in consumers’ and businesses’ orders for new big-ticket items. Consumer durable goods include furniture, washing machines, and cars, while business durable goods include trucks, boats or planes. These items aren’t expected to quickly wear out, and should yield benefits for the purchaser over longer periods of time. 

When these orders increase it leads to ongoing or increased manufacturing activity which ultimately fuels the economy.  

A decrease in durable goods orders could lead to an increase in inventories and a decline in production.  

A larger than expected monthly increase can be considered inflationary, causing bond prices to drop and interest rates to rise. 

Housing starts and building permits 

These are exactly what they sound like, metrics that track new residential construction (housing starts) and permitting for new construction (building permits). 

Because of real estate’s significance in our economy, it accounts for nearly 17% of domestic GDP with housing representing 27% of domestic investment and comprising 5% of GDP, it can serve as a relatively reliable guide to our economy’s future health. 

Prolonged shifts or trends in this indicator signal eventual impacts on labor, construction, raw materials, banking, and real estate. Market watchers value this data as a leading indicator as do manufacturers (in planning production), property developers, insurers (in adjusting their rates), and banks (in allocating capital). 

When starts and permits decrease, it signifies shrinking demand and can portend a less robust economic future.  

As the Federal Reserve raises rates, it increases the cost of mortgages and is expected to reduce demand for housing, thus putting downward pressure on this metric and the economy. 

Conference board leading economic index 

For those of you who think that following all of these indicators is just too much work to handle, you will find this index particularly useful. 

The Conference Board Leading Economic Index tracks 10 economic indicators, some lagging and some leading, to give us a sense of where the economy is headed.  

Among the indicators it follows are average weekly manufacturing hours, average weekly unemployment claims, leading credit index, consumer confidence and stock prices. 

Wait, what? 

That’s right, stock prices are factored into this index because the stock market is widely viewed as a leading economic indicator. 

Stock prices 

If a company’s stock price is based on investors’ estimation of that company’s future profitability and earnings estimates, then the strength of the stock market might reasonably predict the future health of the economy. 

Some notable naysayers have pointed to 1987’s stock market crash and the ensuing fervency of economic growth to discredit the predictive nature of stock market pricing, but it is still widely used as an economic indicator. 

You deserve a high five 

You know, we’ve been through a lot together.  

We’ve laughed, we’ve cried, we’ve learned about how to predict the future in semi-reliable ways, you’ve taken a well-deserved bathroom break and probably eaten a snack to keep up your strength while powering through the boring parts of this column. 

I’m giving you a virtual high five now. I couldn’t have done this without you. 

If we ever get to meet in person, I owe you a drink. We make one hell of a team. 

Anthony M. Conte is managing partner at Conte Wealth Advisors based in Camp Hill. He can be reached at [email protected]. 

Registered Representative Securities offered through Cambridge Investment Research Inc., a broker/dealer, member FINRA/SIPC. Investment Advisor Representative Cambridge Investment Research Advisors Inc., a Registered Investment Advisor. Cambridge and Conte Wealth Advisors LLC are not affiliated. 







Retirement Planning Myths

Each years’ end gives all of us working stiffs a little push toward considering what it might be like to not ever work again. 

Yes, of course I’ve had too much eggnog at a holiday gathering or two, and on the ride home I roll down my window to freshen up with a little cool air and wonder to myself, “what if every day were a holiday?”  

It’s at this point that my designated driver usually asks what I’m mumbling about and tries to wind up my window with my arm still dangling out in the frigid air. 

Getting home safely from holiday parties is a function of either keeping the Uber app on your phone or enough teetotaling friends in your contacts for a reliable DD, but getting to a comfortable retirement isn’t nearly as fool-proof. 

Let’s take some time and parse through some retirement planning myths that could easily derail an otherwise well-intentioned retirement plan. 

Social Security Should Be Enough 

According to the Social Security Administration the average annual Social Security retirement benefit in early 2022 was about $19,370, and for an average 65 year old retiree this benefit covers only 37% of past earnings. This is not nearly enough for most retirees to live comfortably in retirement. 

Most retirees I have worked with would like to see 100% to 120% of their past income covered annually. So the idea that we might need only 70% of past income in retirement is clearly also a myth. 

That makes this one a two-fer.  

And have you heard that the financial underpinnings of the Social Security system itself aren’t nearly as stable as we had all once thought? 

Accordingly, the 2022 Social Security Trustees report finds itself a bit concerned with the near-imminent diminution of those benefits we all had considered ‘guaranteed’. According to that report, if Congress doesn’t get serious about shoring up its financial standing, then retirees will lose nearly 25% of their full benefits beginning in 2034.  

I will continue to tell anyone who might listen that expecting a reliable income in retirement from Social Security approximating what we had been promised might be a bit of wishful thinking. We would all do well to consider finding a way to fund our retirement without counting on the government to meet any meaningful portion of our expense needs. 

I’ll Need $1 million Saved For a Financially Stable Retirement 

Phooey, just phooey. 

Earlier in my career I’d heard this number bandied about quite a bit as if it was a reliable rule.  

Individuals who had spent the majority of their working lives earning over a quarter of a million dollars a year were so certain that they needn’t have more than $1 million saved for retirement that they had already begun saving only the necessary amount to meet this magical goal in 20 years.  

This isn’t to say that some individuals can’t stretch that money to last a full retirement. Taking 3.5% distributions from a $1 million portfolio provides a $35k gross income, but Traditional IRA and 401k distributions will be taxed as income leaving even less money to cover expenses.  

In this scenario, a family with a $175k net income must decrease expenses to ensure that social security retirement income, pensions, and income from other sources make up a roughly $140k annual shortfall. 

Spoiler Alert: You’d be lucky if Social Security retirement income generated even $50k for you in 2022, and pensions are about as rare as a sane tweet from Kanye West in 2022. 

Each person’s situation is different, though. 

Maybe that family makes up their income needs not just with a 3% to 4% spend from the $1 million portfolio but also relies on considerable rental income from a real estate portfolio to make up the rest.  

The bottom line is that no specific dollar-savings-goal is going to magically align with each person’s retirement income needs, and with 2022’s inflationary pressures that $1 million savings buys you less and less and less and… 

I’ll Be In a Lower Income Tax Bracket In Retirement 

Have you seen the federal deficit and debt? You know that someone somewhere is going to have to pay that down, right? 

Whether or not your legislators are willing to be honest with you, you are fortunate to have Uncle Tony here: your reliably candid bastion of truth and pragmatism.  

The bill will come due one day and unless someone in Washington figures out how to cut costs, then they will have to increase revenue. Where else would they get this revenue if not from taxpayers like us? 

Regardless of whether or not your income remains the same, increases, or even decreases in retirement, there is always the very real possibility that your annual tax consequence could worsen.  

The 3% Rule Really Works 

Admittedly, this myth was a bit of a trick. The rule is really called “The 4% Rule”. 

I know, totally unfair. 

What is widely known as the 4% rule, the idea that one could begin distributions annually at 4% of a portfolio’s value each year, increase it each year to account for inflationary pressures, and expect that the funds would last at least 30 years, has proven, at times, to be a relatively reliable rule for some investors. 

Dropping that 4% distribution rate to a more conservative 3% allows for an even more stable and reliable portfolio balance to continue producing future distributions. 

The good folks at Morningstar have revised the reliable distribution rate from time to time to account for fluctuations in market valuations. They recommended a 3.3% rate in late 2021 and then bumped the number back up to 3.8% a year later. The rationale behind the vacillation is that market valuations present opportunities for greater distribution rates, counterintuitively, when the markets are devalued as those times present the greatest opportunity for portfolio growth in the future. 

With annual distributions at 4% and starting any year from 1926 through 1993, a portfolio would have supported those distributions for at least 28 years given market performance over those periods. 

So Many Myths 

We have only been able to cover a handful of the most prevalent retirement planning myths here, but rest assured, many more should be considered and debunked. But I will leave that your trusted advisors…or you can always call your Uncle Tony. 

A headshot of Tony Conte, author of the storyAnthony M. Conte is managing partner at Conte Wealth Advisors based in Camp Hill. He can be reached at [email protected]  

Registered Representative Securities offered through Cambridge Investment Research Inc., a broker/dealer, member FINRA/SIPC. Investment Advisor Representative Cambridge Investment Research Advisors Inc., a Registered Investment Advisor. Cambridge and Conte Wealth Advisors LLC are not affiliated. 

This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult a financial professional for your personal situation. 



Where to find opportunities during the COVID-19 downturn

While the Covid-19 pandemic has stalled the US economy to a near halt, any doubt remaining about the prospect of recession should be eliminated with the burgeoning unemployment numbers released over the past few weeks.

This economic rout was brought on by a grim cost and benefits analysis considered by nearly every state and local government across the US; Americans must either be put out of work through distancing measures or many more will die.

As such, the longest-ever expansionary period in domestic history has come to a halt, placing the American economy in an artificially-induced coma. Save the corpus and stall the spread, seems a reasonable mantra for these strange times.

The Macro View

In the end of a typical expansionary cycle equity valuations often extend beyond each firm’s capacity to produce profits to justify their cost. Traditional economic downturns are preceded by an overheating economy, and by many measures, this had not been the case when the novel coronavirus hit the US.

In typical market downturns that either precede or occur in tandem with an economic contraction, value stocks (relative to growth stocks) have been reliably defensive positions in many portfolios. Given the exposure of the value market to the energy sector, the dramatic losses in this sector, led by a decline in oil prices, have created an unfriendly environment for investors relying on securities, which are widely seen as somewhat protected from dramatic losses.

Meanwhile, the stocks that led the bull market — growth stocks — typically viewed as more volatile during times of economic distress, have been surprisingly defensive in the bear phase. Growth stocks have performed better while markets have slid given their exposure to technology, pharmaceuticals, and other sectors which are expected to remain resilient during this unique market environment.

Finding Opportunities: Planning and Investing

Through all of this, let’s not forget that losses in the markets and a downturn in the economy can create planning opportunities.

Roth Conversions: When markets lose value in such a precipitous way, savvy investors often look to their Traditional IRA balances for opportunities to convert some of those assets to a Roth IRA.

Pre-tax Traditional IRA savings have lost a bit of their luster in the wake of the passage of the SECURE Act late last year as it diminished the tax benefits of leaving pre-tax assets to younger beneficiaries. Now consider the fact that a greater holding in Roth IRA assets well into retirement can help to lighten the burden of required minimum distributions beyond age 72 since Roth IRAs don’t require minimum distributions.

When asset values become depressed, income from those assets may also decrease. Since conversions to Roth IRAs are taxed at ordinary income tax rates many investors are able to ameliorate the pain of a conversion by doing so while markets are down.

Converting a diminished Traditional IRA to a Roth IRA before the next uptick in the markets might cost less from an income tax perspective while creating the same benefit by the time the market rebound has occurred.

Gifting depreciated assets: Under some of that same logic, it may make sense for some high net worth investors to consider using some of their $11.6 million lifetime exclusion by gifting a markedly depreciated asset that is expected to appreciate dramatically. Because of the asset’s recent devaluation, much less of the exclusion will be used when markets are down for the same number of share of a security.

Another reasonable estate planning consideration during uncertain times like these is to pay close attention to beneficiary designations and ensure that estate plans have been reviewed recently by an estate planning attorney.

Embracing aggressive savings strategies: For those still saving regularly into their 401k, 403b, SIMPLE IRA or other investment plan, an economic downturn and the attendant loss in market valuations represents an opportunity to consider “buying low.”

In a profit sharing plan, for instance, many participants are able to allocate their current balances differently than their future contributions to the plan. With regards to the current balance, investors are encouraged to consider investing the balance in line with their own timelines for using the money and shifting that allocation in accordance with market movements may not serve many participants well.

It may make sense to some investors to consider allocating future contributions to very aggressive equity positions. It is these same positions that have lost considerable value in the downturn and that kind of volatility just means that an investor is able to buy something dramatically less expensive than it had been, in this instance, just a month or two ago.

Anthony M. Conte, managing partner at Conte Wealth Advisors – Submitted photo

Anthony M. Conte is managing partner at Conte Wealth Advisors based in Camp Hill. He can be reached at [email protected]

Registered Representative Securities offered through Cambridge Investment Research Inc., a broker/dealer, member FINRA/SIPC. Investment Advisor Representative Cambridge Investment Research Advisors Inc., a Registered Investment Advisor. Cambridge and Conte Wealth Advisors LLC are not affiliated. 

Think interest rates are low now? Just wait

Do you remember when banks used to pay a reasonable sum for cash deposits?

It may seem like quite a while ago, but money market investments used to yield between 3% and 4% while a 13 month CD could earn you a whopping 4.5% or even 5%.

Now imagine a world in which your deposits at the bank actually COST you money.  The safety and security of holding funds in the bank has value, and in a world of negative interest rates a bank can extol that value by charging savers a sum to simply hold money there.

This may sound far-fetched, but for the Japanese and for many in the European Union, this has been a reality for quite some time. And America may not be far behind.

What had always been

It wasn’t long ago that the consensus understanding surrounding interest rates involved the Federal Reserve decreasing rates to spur economic activity and encourage inflationary pressure.

While the economy continues on its longest ongoing recovery in our country’s history, the Federal Reserve’s Fed Funds Rate, having seen its third cut this year, stands between 1.75% and 2%, which is remarkably low relative to historical standards.  For context, consider the fact that the average rate cut during recessions has been around 5%.

Clearly, if the Federal Reserve is not willing to cut rates below zero it does not have the same firepower available to it this time around to fight any coming economic slowdown.  Sure, there might be another round of quantitative easing (QE) available in the near term, but after each successive round of bond buybacks we have seen diminishing returns for the strategy.

Is it reasonable to expect that another round of QE in the face of financial dire straits would support the US economy during the next recession?

Workers and wages

Historically, when the rate of unemployment has been relatively high, employers haven’t needed to incentivize workers to jump ship from competitors with an increase in wage from their previous employment.  When unemployment is high the supply of workers relative to the number of jobs available does not require an increase in wages across the economy to support those workers.  This is supply and demand, pure and simple.

The inverse is true as well; when unemployment rates have dropped dramatically employers must provide much more competitive offers for the limited supply of workers available in the workforce.  This generally means that wages will increase during periods of low unemployment, and this wage growth is a key component of inflation.

While this basic tenet of economic theory has held true for many years, since the Great Recession of ’08-’09 it has become an unreliable theory.  According to Jerome Powell, the current chair of the Federal Reserve, the Fed’s key estimate of “one of the most important indicators – the unemployment rate, that is the so-called ‘natural rate,’ the rate that it should be targeting – has been wrong. And not just wrong, badly wrong.”

While the models had predicted that slipping unemployment rates would spur inflation, the numbers simply did not budge in any way predicted by the models. The inverse correlation between unemployment and inflation seemed to have come untethered, and according to Powell, the relationship “seems to be absent without leave.”

Negative interest rates

While in theory negative interest rates are relatively simple, in practice they remain an uncertainty.

Theoretically, in a negative interest rate environment, depositers would pay banks regularly for the safe-keeping of their deposits. Think of it as payment for a service. This, in turn, would encourage banks to lend more freely and willingly since any bank walks a tight rope between securing sufficient deposits to support a certain amount of lending. This incentive may be necessary during deflationary periods in the economy when banks are most risk-averse and least willing to continue to lend.

While banks in Europe, Scandinavia and Japan have been functioning for a number of years in negative interest rate territory, it remains uncertain to what extent any economic recovery may be linked to the negative-interest-rate environment.

And this unproven theory may soon find itself a new home in the United States should our economy sour.


Anthony M. Conte is managing partner at Conte Wealth Advisors based in Camp Hill. He can be reached at [email protected].