Chapters of Change: Financial Stories that Defined 2023

2023, a year marked by unforeseen events and economic shifts, offered a dynamic canvas where global trade tensions, technological strides, and cultural influences converged, shaping the financial landscape and leaving a lasting imprint on the way we approach investments and plan for the future.

In today’s episode of Retire in Texas, Darryl Lyons takes us on a high-flying overview of the top ten financial events that shaped 2023. From balloons flying across the country to the Federal Reserve’s interest rate hikes, each event unfolds with economic implications and lessons for the future.

Some of today’s show highlights include:

*Significant themes and takeaways from the major events of 2023, offering a comprehensive perspective on the financial landscape of 2023 and beyond.

*A consideration of the evolving role of traditionally conservative investments in an ever-changing financial landscape.

*The “Swiftie Effect” and insight into the multifaceted economic effects of cultural phenomena beyond traditional sectors.

*An explanation of what is to be expected of AI’s continued impact on financial planning and global industries.

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Hey, this is Darryl Lyons, CEO and Co-Founder of PAX Financial Group. Thanks for tuning in to Retire in Texas. This information is general nature only. It’s not intended to provide specific investment, tax, or legal advice. Visit PAXFinancialGroup.com for more information. Also, be sure to go to the website. We’ve got an e-book. Faith Based Charitable Giving Strategies for 2024.

It’s a popular e-book. We have several e-books on our website for you to learn more about some of these things and the nuances in the financial and specifically the personal financial planning space. Today, I want to take a helicopter over 2023, and I’m going to discuss ten salient events that had financial implications in this past year and likely will have implications on a go forward basis.

I would say they’re probably organized more so by time than severity. The first one I would suggest to you that had an impact on our lives and financially that we’ve already forgotten about was in February of 2023, and that was balloons that flew across our country. Fortunately, the United States Air Force Raptor shot them down off the coast of South Carolina.

But those tensions with China still resonate today. The interesting thing about these tensions and this is my observation, is to a certain degree, we have seen China need us maybe even more than we need China. I say that because they have misstepped in their approach to post COVID recovery and they’re self-sustaining economic environment isn’t working, and they depend on the United States to purchase cheap products.

And if this trade relationship doesn’t work, it really hurts China. So the balloons flying across the country certainly didn’t resonate well with the United States. But I will say that it gave us all an awareness of how intertwined our trade relationships are with China. I know we think about that relationship as a potential World War three, but I have a challenge seeing that materialize, knowing that we exchange dollars and goods and services on a regular basis.

That was event number one, balloons flying across the country. Number two, the banking crisis. I mean, we had a collapse of Silicon Valley Bank Republic, several others, and it caused the FDIC to relook at the banks and their balance sheets to ensure that specifically that the regional banks were healthy and that there weren’t more threats that other banks around the country might default in some capacity or go under.

There are ramifications that have come from that one event of Silicon Valley Bank, and that’s a heightened awareness, heightened regulatory environment for regional banks that actually constricts the flow of money. When that happens. And interestingly enough, there’s actually been a burden of FDIC premium on bigger banks. So we may think it’s already past the Silicon Valley bank thing, but the consequences of bank failures continue throughout our banking system today.

Number three, demographic shifts across the world. India has just passed China, speaking of which, as the largest population in the world, 1.4 or 5 billion people, they have a younger workforce. And as they start to move up into the middle class and they decide to have a steak, they may want ice cream that helps the steak industry, that helps the ice cream industry.

Not really. Industries and the transportation industry got the ice cream there and then the refrigeration, of course. So it trickles all through the economy and through the system. And so watch out for India on a go forward basis. But in terms of demographic trends, there’s a couple of other things that are happening. I think everyone knows that there’s been a huge migration to Texas and Florida.

That’s certainly real and continues. One other thing that we haven’t talked about enough is that the Gen Z population is now overtaking the baby boomer population in the workforce. So that changes because there’s different priorities and values that are exhibited in the Gen Z generation versus the baby boomer generation. Number four, Chat GPT was a big event. I say events.

Steve Wozniak and Elon Musk said it poses a profound risk to humanity. It certainly has its merits. Chat GPT scored higher than 90% of humans on the BAR exam. We have at PAX already adopted some elements of artificial intelligence and some of our tax planning technology next year in our portfolio construction, the adoption of several elements of artificial intelligence.

So we are seeing it as an organization and I think globally we will see the impact of artificial intelligence going forward. Number five, Taylor Swift. You don’t think much about Taylor Swift when you think about economic impact. Some of you guys may have already been aware of her economic impact, but she’s had a $5 billion economic impact on our economy.

And there is a trickle effect for sure, not only resale ticket purchase prices because many people buy them at $250 and then sell them for $1,000. That’s a market in and of itself. But then you’ve got the merchandizing, you’ve got the hotels and the Ubers and the local restaurants. I mean, this is a trickle down economics microcosm at its best.

And say what you want about her music. Although I hate to say it because I’ve got three girls. I know many of her songs. She is a brilliant businesswoman and every city that has embraced her tour has reaped the economic rewards. Halfway through, number six, the Magnificent Seven. Microsoft, Amazon, Meta, Apple, Alphabet, Nvidia, Tesla. For much of the year, they were the only stocks.

Generally speaking, that provided any positive returns. We think about the stock market in terms of the S&P 500, the 500 largest stocks. I just told you, seven of those 500 stocks. So there’s 493 other stocks for much of the 2023 return. Of those 493 stocks outside of the Magnificent Seven, many of them were negative on the year, whereas the Magnificent Seven were double digit plus returns.

This created some confusion in the expectation of many investors. Why am I not getting returns when I’m seeing this happen in the Magnificent Seven? I think if we all went back in time, we would just put all our money in the Magnificent Seven, but none of us had any idea that was going to happen and that was a direct result of the massive event of artificial intelligence that took place.

When artificial intelligence happened in 2023, the major benefactors were these seven tech companies who had the scale to be able to adopt and implement it. So artificial intelligence really was the tailwind for these seven companies. But over time, you will see that the 493 other companies in the S&P 500 start to benefit from artificial intelligence over time.

And we’ve also started to see some maturation in performance numbers as we come into the latter part of 2023. Number seven, crypto returns. A lot of us no longer think about cryptocurrency because we all got burned on it, but Bitcoin is at an all time high, over 150% in gains in 2023 to a certain degree. I’m still of the opinion that it’s snake oil.

I still believe there’s a disconnect between Silicon Valley and the rest of America in terms of use cases. I hear the argument for Bitcoin and crypto and I have heard them all and I still don’t have conviction that it makes sense. But people made money on it this year. And so until I see some real use cases on it, I’m going to pass and other people will certainly disagree with me.

We actually still offer it at PAX, for those clients that do have conviction, we still have an opportunity for people to own cold storage cryptocurrency, but the popularity has waned quite a bit. Number eight, really happy to see bonds and even cash like CDs provide some sense of return on investment. And this is very important because we often use bonds and cash as a way to absorb losses and volatility from stock portfolios.

That’s how bonds have been used. If you think about a portfolio of, we think about 60% stocks, 40% bonds in the past ten years, that 40% of bonds was used to damper and soften stock volatility. Now it actually provides returns. Now provided modest returns in the past, but getting 3%, 1% in some cases wasn’t very attractive after inflation.

Now we’re seeing bonds in some cases get up to 12%. Now, granted, those are high yield or private credit, but very attractive bond returns. Now, for most people, the bonds aren’t going to be that high, but they are out there and it’s providing very attractive returns for specifically those that are considering retirement or are in retirement. Number nine, this was one of the biggest stories of 2023 and one that I watched nearly daily was one that began in March of 2022 and ended in July 2023.

The Federal Reserve raising interest rates by 525 basis points, or 5.25%. That’s the fastest they’ve ever raised in four decades. They’re hyper, hyper focused on getting that inflation rate down from 9% to 2%. That’s the target. Inflation rate is 2%, and they did whatever they could to get it down. They haven’t hit that 2% inflation rate number. It’s closer to 3% right now as I speak.

But that move in interest rate was the biggest story of 2023, when I talked about Silicon Valley Bank collapsing and the other regional bank issues. All of those collapses occurred because of the Federal Reserve’s rapid acceleration in raising interest rates. So all of it was connected in 2023, but it was a huge event. Most of us believe, I guess there could be a few people out there who believe that they’re done raising rates and now we either see them plateau or lower interest rates.

Finally, an event that happened that broke all of our hearts was October 7th of this year when Hamas attacked Israel. It was the deadliest day in Israel’s history. The reason I wanted to mention this economic impact is because it will impact higher education. Higher education was already in the crosshairs of many Americans because of the ability to engage in a remote education platform.

Because that happened in 2020 through COVID, we all recognize that learning can happen in a remote environment versus red brick buildings. So the higher education system was already under pressure, but now the reputation was tainted further as we recognized that there was extreme bias and antisemitism and much of the leadership at some of the most prestigious schools in our country.

And so what will that do to the higher education system on a go forward basis? And for those that know me, education is very important to me and I’m disappointed to see that we’ll see some problems as a result of this in our higher education system. So maybe it will just find other resources and those will become just as respected as the ones in our past.

So that’s our top ten events for 2023. Let me run through them one more time. Balloons flying across the country, specifically China. Number two, the banking crisis, Silicon Valley bank. Number three, the massive demographic shifts taking place. Number four, artificial intelligence. Number five, the Swifties. Number six, the Magnificent Seven returns. Number seven, Crypto currency. Number eight, cash and bonds are attractive.

Number nine, the Federal Reserve raising interest rates. And number ten, our friends in Israel, I hope that helps today. That’s a really high fly over at the events of 2023. We made it. And thank you for listening. Thank you for being a part of what we’ve been doing over the last 12 months. Thank you for walking alongside Retire in Texas and PAX, I hope you enjoyed the year.

Blessings to you and remember, you think different when you think long term. Have a great day.





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