Our mission is to help you Preserve Your Assets and Protect Your Lifestyle. Our newsletter aims to educate you on the economic environment and provide life perspectives and financial planning ideas to help you!

Quarterly Market Review

iM Global Partner’s Market Slides

-  Following two consecutive years of strong returns for U.S. stocks, valuations are expensive and reflect a significant amount of investor optimism. Another concern is the high level of concentration in the S&P 500’s top-weighted stocks. The weight of the Top 10 stocks in the index reached an all-time high at nearly 39%. Outside of expensive starting valuations and market concentration, there are the usual suspects that could cause market volatility, including inflation, monetary policy, and uncertainty surrounding incoming President Elect Trump’s fiscal and global trade policy.

-  The Fed delivered it’s first rate cut in September, an aggressive 50 basis point reduction followed by a 25 bps cut in November and yet another in December. Interestingly, since the Fed started cutting rates in mid-September, longer term interest rates have increased by roughly 100 bps. We believe the risk of higher inflation due to tariffs and deglobalization and more importantly the increasing and unsustainable federal deficits are the main culprits for the current conundrum in Fed cuts and longer-term rate reaction.

NDR Digest

- Global Asset Allocation Current :

• 70% stocks (overweight compared to 55% benchmark)
• 10% cash (Underweight compared to 10% benchmark)
• 20% bonds (Underweight compared to 35% benchmark)

-  The U.S. economy enters 2025 in a strong position, with real GDP expected to grow 2.0%-2.5%, following a better-than-expected 2.7% increase in 2024. We’re maintaining our bullish outlook on U.S. stocks to start 2025, with our research supported by the pillars of disinflation, earnings growth and broad market participation.

-  Looking ahead in the new year, global GDP is expected to grow at 3.1%, sustained by easier monetary policy, rising real incomes, and fiscal stimulus, especially in the U.S. and China. Risks to this outlook include potential U.S. tariffs, geopolitical instability, and structural challenges in Europe.

-  Our fair value model for the 10-year U.S. Treasury suggests a theoretical range of 4.00%-5.25%. Credit markets remain favorable compared to the U.S. Aggregate Index, though valuations appear stretched. We prefer loans over fixed-rate debt due to strong economic growth, limited Fed rate cuts, and higher carry.

Schwab Market Perspective

-  The stock market did generally well in 2024 and may continue strong in 2025. However, we expect to see gears shift and increased market volatility. President-elect Donald Trump campaigned on a platform of lower taxes and less-stringent regulations – seen as growth-positive – but also higher tariffs and mass deportations – seen generally as stagflationary. These crosscurrents and uncertainties have created an environment of caution and concern.

-  Based on a five-year normalized price-to-earnings ratio, the S&P 500 is looking quite stretched, and in fact has only been more expensive in the late 1990s and 2021 – of course, periods which preceded weakness in the market.

-  If inflation pressure rise – whether through stronger-than-expected economic growth or government policy changes, such as higher tariffs or tax cuts without spending cuts – the Fed’s scope of lowering rates in 2025 will be limited. The path for the Fed rate cuts is likely to be slower and shallower than previously expected. An ending or “terminal” rate between 3.50% and 4.0% seems reasonable to us for this cycle.

What GFP is saying with the information from the above:

-  We believe we will be seeing game theory play out in real life as it relates to the President Elect Trump’s tariff and tax reduction plans. How the other players in the game (China and other trade partners, the bond market) react will shape the investment markets for the year.

-  We concur with IG’s second bullet concerning the conundrum with Fed cuts and the longer term rates reaction to them. Call it the 80/20 Rule, probably 20% relating to sustained and embedded inflationary pressures and the other 80% on the out-of-control debt/deficit. Nothing stops that train…sadly.

- NDR’s third bullet point referring to bond credit yields over the Aggregate bond index is essentially our thesis for our private credit exposure  in lieu of owning traditional bonds. While the steep rise in interest rates and subsequent decline  to bond  prices is likely behind us. The ability to out earn a higher inflationary world is very difficult. The nominal interest rates might be higher but real interest rates (rates minus inflation) is still low.

This is Life: The California Wildfires

The recent wildfires that swept across California have left a trail of destruction, heartbreak, and resilience in their wake. Entire communities have been uprooted, homes reduced to ashes, and lives forever altered. As the embers settle and survivors begin the arduous process of rebuilding, these events serve as a poignant reminder of life’s unpredictability and the importance of embracing gratitude, striving for our best, and resilience. As we reflect on these recent events, we wanted to share what we have learned.

Life Can Change in an Instant

Wildfires are nature’s stark testament to how quickly circumstances can shift. One moment, families are enjoying the comforts of their homes; the next, they’re fleeing with only the clothes on their backs. Such sudden upheavals force us to confront an often-overlooked truth: nothing in life is guaranteed.

This realization, while sobering, also carries a powerful message. It urges us to focus on what truly matters – our loved ones, our health, and the memories we create. When life’s fragility is laid bare, it underscores the value of cherishing each moment and nurturing the connections that enrich our lives.

Gratitude Amidst Loss

In the face of devastation, gratitude might seem like a distant notion. Yet, for many wildfire survivors, it becomes a lifeline. Gratitude for the safety of loved ones, for the first responders risking their lives, and for the outpouring of community support often shines through even in the darkest moments.

This perspective is not about diminishing the pain of loss but rather about finding strength in what remains. It’s a reminder that gratitude can coexist with grief, providing a foundation for resilience and hope as communities begin to rebuild.

The Call to Always Do Our Best

The stories emerging from the wildfires highlight the incredible bravery and determination of individuals and communities. Neighbors helping neighbors, firefighters working tirelessly, and volunteers offering aid exemplify the human spirit’s ability to rise to the occasion.

These acts of courage remind us of the importance of giving our all in whatever we do. Whether it’s supporting those in need, preparing for unforeseen challenges, or pursuing personal goals, committing to our best efforts helps us navigate life’s uncertainties with purpose and integrity.

Moving Forward Together

As California begins the recovery process, the resilience of its people will undoubtedly shine through. Communities will rebuild, memories will be honored, and lessons will be learned. For all of us, near and far, these wildfires offer an opportunity to reflect on our own lives.

Let’s take these moments to embrace gratitude for what we have, commit to doing our best in the face of challenges, and cherish the present. In doing so, we honor those affected by the wildfires and remind ourselves of the strength and beauty of the human spirit.

Pat, Hung and Casey

Education to Empower You: How to Protect Your Assets and Stay Safe

The recent wildfires have stressed the importance of preparedness and protection. Wildfires can have devastating effects on homes, businesses, and entire communities, and it’s crucial to ensure that you’re equipped to handle such risks. Below, we’ve outlined key proactive steps you can take to safeguard your home, property, and finances when it comes to your insurance coverage.

1. Review Your Homeowner’s Insurance Policy

• Coverage Limits: Ensure your policy provides adequate coverage to rebuild your home at current construction costs. Many homeowners are underinsured due to rising labor and material costs.
• Additional Living Expenses (ALE): Confirm that your policy includes ALE, which covers temporary housing and other expenses if you’re displaced.
• Personal Property: Take inventory of your belongings and ensure your policy adequately covers high-value items such as jewelry, electronics, and art.

2. Understand Wildfire Coverage

• Most standard homeowner’s insurance policies cover fire damage, including damage caused by wildfires. However, double-check to ensure there are no exclusions or limitations related to wildfires.
• If you live in a high-risk area, consider a separate policy or endorsement to cover gaps, such as a California Fair Access to Insurance Requirements (FAIR) Plan.

3. Evaluate Auto and Other Policies

• Auto Insurance: Confirm that your comprehensive coverage includes damage caused by wildfires.
• Umbrella Policies: Ensure you have liability coverage beyond your homeowner’s and auto policies to protect against unforeseen claims.

4. Mitigate Risk with Home Hardening

• Install fire-resistant roofing, siding, and vents.
• Clear vegetation and flammable materials within 100 feet of your home.
• Use non-combustible materials for decks, fences, and patios.
• Install ember-resistant screens on vents and gutters.

5. Document Your Property

• Create an Inventory: Use photos or videos to document the condition and contents of your home. Store these records securely in the cloud or off-site.
• Receipts and Appraisals: Keep copies of receipts and appraisals for valuable items to simplify the claims process.

6. Stay Prepared

• Develop an emergency evacuation plan and practice it with your family.
• Assemble an emergency kit that includes important documents, medications, and essentials.
• Sign up for local emergency alerts to stay informed about wildfire risks in your area.

7. Consult Your Insurance Professional

Reach out to us to review your current policies and discuss any additional coverage you may need. Our team can help ensure you have the appropriate protection tailored to your unique circumstances.

By taking these proactive measures, you can mitigate potential losses and navigate the complexities of insurance claims more effectively in the event of a wildfire.

Stay safe and prepared, and please don’t hesitate to contact us with any questions or concerns.