Thoughts from the lake 2023 Edition

My annual observations from Northern Wisconsin

by Jon Aldrich

Well, here I am again at my favorite place in the world (on the deck overlooking the lake) up here at our vacation home in Lake Tomahawk, WI. Tammy and I just spent two weeks up here at our future retirement home. As I have mentioned before, my time up here refreshes and recharges me with new ideas and enthusiasm after getting through the first half of the year. It sure has been a lot more relaxing this year than it was last year in 2022 when inflation was screaming higher and the markets were tumbling lower, not a fun combination for a financial advisor looking to relax and forget about things. This year has been a lot more tranquil, and I could actually get away for a couple weeks without markets getting all crazy for a change.

So, what do I do up here with my time?

When I am not working up here, this is what occupies my time in the summer. Winter brings a whole new list of things we do:

Boating- Of course we get out on the water whenever possible. We can get about 14 people on our “tri-toon”, (it has 3 pontoons instead of two), and it helps it ride more like a speedboat if you want to go fast or tow skiers and tubers. It certainly is a “party barge”.
Hiking – There are so many great trails through the woods and around lakes up here and you can do short or long loops depending on how you feel or how bad the bugs are.
Biking – They have over 100 miles of paved trails as well as a lot of off-road trails if you like mountain biking. You can usually find an ice cream shop every so many miles on the paved trails as well as plenty of “watering holes” as well.
Side x Side – There are hundreds of miles of great off-road trails up here. This is becoming the snowmobiling of the summer up here as you can do this about 8 months of the year. It is a blast, but you do get awfully dusty and dirty. Here is a picture of my ride after a “clean” ride:

Golfing – There are some great golf courses up here, but you really do need to hit the ball straight as there are a lot of tree lined holes that have a tendency of gobbling up errant golf balls. Still, it is cool to often see deer, bald eagles and occasional bear while you are out looking for your ball.
Gaze out over the lake – I can spend hours just watching the water and the sunset, while waving to the occasional boats that ride by our shore. However, the main attractions are the ever-present bald eagles, osprey, loons, otters, blue herons, the occasional snake swimming by and of course the fish jumping.
Supper Clubs and great Wisconsin taverns – There are so many great, locally owned places up here, that you have trouble hitting them all. And of course, Friday fish fries like no other place. Oh, and don’t forget, getting an ice-cold Spotted Cow on tap.
Watch Snowshoe baseball & Fireworks- Here in our little town of Lake Tomahawk, every Monday night, they play softball wearing snowshoes on an infield of sawdust and wood shavings. The concession stand sells homemade pies and the bleachers are filled with locals, seasonals and tourists (even all those Illinois people) all having a great time together.
Fishing – Although I have not done much fishing recently, I do intend to get out and do more of it in the near future.
Work – Yes, I actually do get a lot of work done up here in my Northwoods office. We have good internet speed so I can do everything I do at my regular office except when I need a break, I can just go down to the water and reset my mind.

Now, onto a few other thoughts that have crossed my mind during my time gazing at sunsets, watching wildlife and having a cold adult beverage:

The Recession That Was Supposed to Be Here by Now:
Inflation is slowly cooling (the latest inflation report this week was lower than most prognosticators thought it would be and the markets are cheering this), job market is strong, travel is booming, it seems the economy is hanging in there, but we can’t run a victory lap yet. The 2nd half of 2023 could be challenging though as a lot of analysts think corporate earnings projections are too high, and the valuations on some of the tech companies (AAPL, NVDA, TSLA) are in the stratosphere. Also, the market has essentially been driving by about 8 of the largest tech stocks since they comprise almost 30% of the S & P 500 index.
The inverted yield curve has been that way for a year, but the median time for the signal has been 24 months before a recession arrives, so it is entirely possible the inverted yield curve signal still correctly predicts a recession.

The Fed Reserve has made it clear that their war on inflation is still ongoing and there will likely be another rate hike or two in the next couple of months. Will these next incremental rate hikes be the “straw that breaks the camel’s back?) and finally start putting the brakes on the economy and start the ball rolling on a recession? Get your popcorn ready!

The stock market just had one of its best 6 month starts to a year ever.
Who would have thought that going into 2023, even the big Wall Street firms that are bullish almost every year were predicting another negative year which is yet another reason to ignore all those bull crap predictions we see at the beginning of every year on TV, magazines and the internet. Just ignore that noise every year. This is the 13th best first half of a year ever. For the top 15 starts to a year going back to 1928, 13 of them finished the year with double digit gains and only 1987 finished without double digit gains, returning 2.3%, but remember, there was a big one-day crash of 22.6% that year and a total drop of 33% before starting to recover.

(Chart at beginning of year showing average of analysts 2023 predictions)

Also, we had some of the biggest bank failures ever (the 2nd, 3rd and 4th largest ever) and still the stock market managed to have an incredible first half of the year.
It all goes back to the fact that the best market returns seem to come when everything seems the worst. Try not to get too nervous when things are really bad or really excited when things are going really good.

Is the Bear Market Over?
Although we are still quite a way below the market highs for stocks and bonds, the stock market has recovered by 20% from it’s low on Oct 12,2022. So, some are saying we are now in a new bull market. Personally, I don’t get caught up in whether we are in a bull or bear market based on an arbitrary number such as 20% up or down. But investor sentiment is a whole lot different today than it was a year ago at this time.
If this “Bear Market” is indeed over, it was the tamest of the 5 bear markets we have had since the 1987 crash.
I have mentioned many times that I don’t make predictions, but I will make one prediction and that is we will have more bear markets in our lifetimes. Heck, I will go out on a limb and make another prediction, and that is, we will also have more bull markets in our lifetimes. Remember, even a stopped clock is right twice a day.

Apple is now the 7.6% of the S & P 500 Index:
Apple, which now has a market capitalization of 3 TRILLION dollars makes up 7.6% of the total index. This is by far the largest percentage an individual company has ever held in the 500 stock index. I can’t even fathom how much a Trillion is. $3,000,000,000,000. That is a lot of zeros. We probably all own a lot more Apple stock than we realize via index and mutual funds.

How do the Vegas casinos stay in business?

This is just the losses from Blackjack, imagine what the totals are when you add in slots, roulette, craps and all the other games. As my wife, Tammy says when she comes back from the casino down a couple hundred bucks, “at least I had fun”. There are probably a lot of people like that. As for me, it is only fun if I come home ahead. As Herm Edwards once said, “You Play to Win the Game!”

That concludes some of my random thoughts from my lake time, at least for now. It is a lot more fun writing these articles rather than writing articles when markets are not behaving so well. Hope you are enjoying summer!