Hello, everybody. Welcome. Thank you so much for joining us today on our third quarter market insights call. I'd like to welcome all of you. My name is Anthony Nguyen. I am gonna help host and moderate our call today. Joining me today as always, probably a familiar face to all of you if you joined these calls in the past, is Kezia Samuel. She's our VP investment consultant. She's gonna share with us a lot of her insights around what's happened in the third quarter markets, et cetera. We're really excited to have her here with us today. Again, welcome and thank you all for joining us today. Let me give you all a little bit of a summary of sort of an outline of what we wanna cover today. Very similar outline in the past. First, we're gonna spend some time and hear from Kezia to give us a little bit of a third quarter market review. It was quite, you know, volatile quarter in a year that's been very volatile. Kezia is gonna share with us some of the key sort of takeaways from a market perspective and give us all just a little bit of a summary on what happened here in Q3 from a market perspective. From there, we're gonna shift to what I think is on a lot of people's minds, which is really around the economy and what's happening around the economy. I think the two topics or the two words that are front of mind for everybody is inflation, right? Inflation's been a big driver of some of this volatility. We're gonna talk a little bit about where we think we are and what some of the inflation data is telling us. Obviously the next question is there a recession pending? Are we in a recession already? Are we going to be in a recession? A lot of questions from an economic perspective around the state of the economy. Last, but certainly not least, as always, we wanna really talk about, you know, knowing that economic backdrop, what are some of the implications from an investment perspective? You know, should we be thinking about tweaks or changes in our portfolios? Should we be holding steady? You know, things around the implications around investments are gonna be also really important. That's our outline for today. We really appreciate you all joining. With that, you know, let's kick it off. Kezia, I'd like to bring you on and let's kick it off by just talking a little bit around, you know, the third quarter. What are some of the key themes that you saw from an investment perspective, as we look b ack to Q3? Thank you, Anthony. Good morning, good afternoon to all those that have joined us today. Thank you for taking time. I know that there's one thing that is not a renewable resource, and that is time, so I appreciate all of you joining us today. With that, the third quarter of 2022 clearly was a challenging quarter. On this page, you're seeing a variety of different investments, and there's a bunch of different colored bars. Let's set the stage on what are we looking at? I want you to take your eyes to the top and find yourself looking at something called the Global 60/40. Think of this as a proxy or a bogey for a moderate risk client with the portfolio of 60% in global stocks and 40% in global bonds. Anything to the left in green are investments that did slightly better and thus helped this moderate risk client. Anything to the right in orange or this peachy color are things or investments that did worse and thus hurt the portfolio. For the third quarter, which is from June to September of 2022, we saw this Global 60/40, this moderate client, down 6.8%. For the very first time, in fact, in just a handful of times in history, we saw this portfolio, which is meant to protect you, actually did worse than a portfolio of 100% invested in just global equities. You can see global equities eked out a slightly better gain than a diversified mixed portfolio that historically tends to do better given its don't put all your eggs in one basket type of a concept. What drove this? You can see to the right of that black bar is global bonds. Global bonds, in a rare event, actually did worse during the quarter as interest rates continued to rise amidst rising and persistently high inflation. This is where the investors perhaps aren't as perplexed with what's happening in the stock market, but the unusual nature in which bonds have reacted in 2022, specifically as seen in the last three months. That's what we saw. This has, by the way, happened only a handful of times in history where a diversified portfolio does worse than had you been invested just in 100% global equities. You could see for the quarter there was no place to hide. Commodities were down as energy prices retreated. We also saw maybe things that had tactical nature to limit losses did slightly better, but still negative. Across the equity complex in the bottom left-hand side, it didn't matter if you had big stocks, small stocks in Europe, stocks in emerging markets. Across the spectrum, stocks were down. Same thing on the bottom right-hand side. It didn't matter what type of bonds you owned. You had negative returns. In short, this was an extremely challenging quarter with stocks, bonds, and commodities all down. There's one thing that is actually positive on the far top left-hand side, something called managed futures. It's unlikely that many of you are familiar with this. It is not a type of investment like a stock or a bond. Rather, it's a style of investment, where the style of investment can buy or sell stocks, bonds, currencies, and commodities. In a market where bonds fell, it sold bonds in advance and thus made money in this environment. Again, a style of investment that did protect as it has very little to do with the traditional stock and bond markets. That's where we were in the three months. What about for the year? Now we're going to look at from January through September of 2022. Let's do the same exercise. Let's take our eye to the top and look at ourselves finding the Global 60/40, which is down 23.2%. I recognize that these times have been extremely challenging, perhaps not because of the stock side, but primarily because of what global bonds in the U.S. across the spectrum have done. If we were to end the year, Anthony, just to put some perspective, if we were to end the year as of September, this year's returns, given the stocks and bonds have done poorly, would mark the third-worst in history. The only other two time periods that did worse than where we are today were 1931 and 1937. For the history buffs, going back to the 1930s, we know those two time periods were both associated with the Great Depression. Yes, we acknowledge what we have experienced in 2022, given stocks and bonds have fallen simultaneously, has been extremely unusual. This is where I say, you know, it's. We've opened our statements, we feel terrible about what we're seeing, but this is where the wallowing will stop, because investing is about the future, not necessarily the past. The past is about understanding what has happened. You can see here again, outside of commodities, which was up only because of what energy prices did in the first three months, everything else has not worked. There isn't a hidden investment that has been working, but instead, stocks, bonds across the globe have struggled, and that 2022 would mark one of the worst years in the historic time period. Again, investing is about the future, so I think as we get a reference point with what's happened so far year to date and the last three months, I think I wanna spend much more of our conversation, as Anthony alluded, in looking forward. What's next in regards to, is this going to continue? When will this pain end? What does this all mean for the economy? Hopefully, Anthony, giving some context in regards to what has happened, but I think for most investors, what's likely to come ahead is going to be much more of interest with where we are today. Yeah. Kezia, thank you so much. I wanna just kinda quickly summarize, sort of what you just said here from a market perspective, and then we'll start to look forward. Clearly very challenging quarter. What made it incredibly challenging was that there was no place to hide. Asset classes across the board, for the most part, were down and down significantly. It sounds like one of the things that really made this quarter extra challenging, is how, much of a struggle global bonds were and in the fixed income area. Because of the struggles in the fixed income arena, your typical sort of 60/40 moderate type of clients, which most of the clients that we work with are, actually performed, you know, worse off than an all-equity portfolio, which rarely ever happens. I think all of those things coming together made it obviously a very, very challenging quarter. We'll put a bow on that and then start to shift our eyes forward here. Next, let's shift over a little bit to what we believe is the catalyst for a lot of this volatility, which is inflation. That's a word that has been used quite a bit this year. Kezia, I would love for you to share a little bit, you know, around the data around where we are from an inflation perspective and what we should be expecting on the inflation front. Indeed. I think that is the elephant in the room, and this is likely going to be something that markets are going to watch closely in order to anticipate what's next. Let's start with where is inflation? We're going to put ourselves into the shoes of the Federal Reserve. I know we've got lots of judgments on shouldn't they have known, but what are they looking at to make the determination on what to do with interest rates? On this page, on the right-hand side, we're showing you a variety of different inflation readings from June, July, and August to give you a snapshot of how inflation is moving. Let's start with the very top one that says headline inflation. For those of you that may go, "What is headline inflation?" Anything we buy within our lifestyle and on. Within our balance sheet, your home, the cars you purchase, the food you purchase, the gas you put into your cars. Anything you spend to live your daily life is counted in this headline inflation. Think of it as the biggest picture on inflation. You can see from June, inflation was at 9.1%, and since then has fallen to 8.3% in August. In fact, in September's reading, which was released, but not in this chart, it's at 8.2%. We are seeing the big picture of inflation actually starting to come down. What's driving this? Some of this is coming from, we've seen gas prices fall. We've also seen supply chain disruption, which continues to be, but not as bad as it was. I know, Anthony, you live in Los Angeles, so I don't know how many of you have joined us from California, but remember the ports and all those ships stuck out there that couldn't even get to the port? Well, that's no longer the case. We are seeing trucks moving across the country. We are seeing ships being able to port things around. It doesn't mean that all of it has been resolved, but we are seeing resolution on that front, and that is likely being reflected in this headline inflation. However, when you look at the line right underneath it called core inflation, what is the difference here? You take headline, you take out of the headline, you subtract food, and you subtract energy. Now, we're not trying to do, you know, magic math here, but we know that food and energy tends to be extremely bumpy. If we have a flood and the farms have to shut down, food prices tends to move around. Similarly, if you have a hurricane and energy supply is disrupted, it tends to be bumpy, so to speak. What we're trying to isolate is the things we can't live without. Shelter. I cannot live without shelter. We look at that core inflation. Look at the trend in core inflation. We are actually going up. The reason that summer rally fizzled out, Anthony, when the markets were like, "Oh, maybe things are doing well," and all of a sudden it turned around, it's because of this core inflation reading. It actually has trended higher from 5.9% in June through 6.6% as of September. What is driving this? That's the next slide that I want to highlight. While we think inflation has peaked, the headline number, we don't think it's going to go to 2% as the Fed wants anytime soon for this very reason. On this chart, we're showing you a critical component of inflation, the houses we live in. It is the biggest cost for most individuals as rents or home prices are the big chunk of your balance sheet. What we wanna show you here is how rent gets measured within inflation. Your home prices, yes, they're starting to fall. That's the green line. You can see it's risen rapidly, and it's starting to fall. Why? Because mortgage rates have doubled. But rent, which is how we measure inflation, is actually not falling. I think of this in a simple term. You don't sign a lease, a rental lease for a day or a month. You typically sign it for a month. Most rents have locked in at these higher rates. Typically, we see a 12-month lag from when home prices tends to fall to when rent starts to fall. Given shelter is 30% of inflation, until this starts to roll over, which will take some time, it means that it's likely going to be stuck. What's the takeaway here? Yes, the big picture of inflation, we think the worst is behind us, but given components like rent and how big they are in how inflation gets measured, it's unlikely to come down to 2%. What does this mean for the Federal Reserve? It means that the Federal Reserve will continue on its interest rate hikes. They will continue to raise interest rates as a way to tamp down inflation until they see substantial declines in those inflation readings. That's where we are. We are seeing some alleviation. We are seeing some silver linings in regards to things moving around the country, but the wanting to see inflation go back to 2% instantly is unlikely to happen either. Hopefully given you some where are we in inflation, what's next, and I think a call on patience as investors because this is not something that subsides instantaneously. Yeah, Kezia, what a great summary. Thank you so much. I mean, I think that really is the takeaway in that, you know, I think the good news is the acceleration of the inflation has leveled off, and we're not accelerating like we were months ago. At the same time, we're not decelerating, and it's gonna take some time before some of the inflation numbers to come down in a way that we're all gonna feel. It sounds like some of that core inflationary components like shelter, rent, et cetera, is what's driving that. I think that's really helpful for people to have sort of that perspective. With that being said, you know, what's the impact then on the overall, the sort of economy, right? Knowing that we have this 8%-ish type of inflation that is a backdrop, how has that impacted the growth of the economy, which then leads to are we in a recession? Are we headed to an inevitable recession if we're not one already? What are your thoughts on that? Anthony, I go around talking to clients around the country, and I ask this question of the audience directly, and I get about a 50/50. 50% of the audience feels like we're in a recession, and the other is like, "Well, if we're not in one now, feels like we're going to get one." Instead of debating are we in a recession or not, I want us to do something. By the way, there is a group of individuals at the National Bureau of Economic Research. It's typically called NBER. These individuals have the fun job, I don't know how you sign up for this, the fun job of declaring when a recession starts and when a recession ends. We're gonna put ourselves in their shoes now, and we're going to see what would they look at in order to evaluate whether we're in a recession or not. Here are some items that they're likely looking at. First, the U.S. is not a widget producer. We're not a manufacturing economy. We're a service-oriented economy. We create intellectual property, those apps, those technology. On the left-hand side, we're showing you how all of that, if we were to aggregate it to see how it's contributing to our economy through that services index. The way to read this chart is very simple. If the blue shaded area is above zero, it is continuing to expand. The economy, as driven by services, is continuing to expand. When it drops below, as it did in 2020, you can see we're in a recession. That's what that chart reads. You can see in services side of things, it's still well above zero. Now it is clearly slowing. You can see from the 2021 trends down, we are starting to see things slow. However, I use this as an anecdotal question for all of us to think about. How many of you have been to a restaurant and it's packed? I travel weekly, and I know there's elbow to elbow space on plane seats. I wish there was an empty seat next to me, but it's unlikely to be the case. Hotels are full. The service side of things remains resilient to date, likely driven by those anecdotes that we have seen personally in our lives. On the other side is the manufacturing. By the way, services contributes around 75% to our economic growth. Manufacturing contributes about 10%. Let's talk about where that is on the right-hand side. You can see manufacturing is also above zero, but it is also starting to slow. If I look at these two things, it would be hard for those individuals at that NBER organization to say that today we're in a recession. Semantics aside, that's likely what they're going to see, that look, the economy is okay for now, but that doesn't mean that the trend is clearly telling us that things are slowing. Here's another reason why they're going to struggle with stating that we're in a recession today, and that is the job market. Again, anecdotally, how many of you have gone, walked past a sign next to your grocery store, "Help wanted," Starbucks, "Help wanted"? We have seen the job market is resilient today. The statistics that we have heard is that for every two jobs open out there's only one person actually in the unemployment pool applying for it. It's relatively upside down. What are we going to be looking for? What are these individuals going to look for to evaluate if we are going to be headed towards a recession? In this chart, we're looking in the blue bars, jobless claims, and the green line represents unemployment. Unemployment as of September is at 3.5%, and Anthony, that's at a 53-year low. We've also seen we have added on average 400,000 jobs per month in 2022. Yes, the jobless claims are starting to tick up, but perhaps not to the same extent we would if we were in a recession. The good news here, though, is that we're likely starting out at a better place so that if we were to see a recession, then we're giving ourselves a lot more buffer. Maybe all those open jobs would get eliminated, but the number of layoffs would be truncated. We are seeing layoffs, but it's more selective in types of economy, like the housing industry clearly has seen a contraction. I see this as a labor market and the services, the two key components that are currently still relatively high, that would call into question if we are in a recession. Given the Fed has a very, very hard job, and I say this, by the way, we all go, "Didn't the Federal Reserve know, by the way, that inflation was going to be sticky?" It's like saying, "Look, it's a lot easier to give Monday morning commentary on the Sunday night game." It is hard, this is a big economy to move things around. As such, if we have a recession, we expect it to be a relatively mild one, given the number of jobs open out there, as well as the consumer remains in a much more resilient state of mind. There's one chart, Anthony, that I think I want all of us to lean into. It will be this one. Perspective on, yes, we may have a recession. It's not a foregone conclusion, but we may. The chances have clearly risen. How do recessions compare in contrast to economic expansions? When we're waiting for one, it feels like endless amounts of pain. The anxiety is really high. What does this chart show us? In this chart, we go all the way back to 1950, and we look at economic expansions in the U.S. relative to economic contractions. Expansions in green, contractions in red. I want us to pause and have perspective. Look at the economic expansions relative to contractions. We spend so much time worrying about the red blips. When I take a look and span out, look at the forest instead of staring at the tree, you recognize, yes, recessions are painful, but they pale in comparison to economic expansions. Here are the statistics. Economic expansions last 7 x longer than any contraction. It is also 10 x more powerful, as you can see from the green peaks, than any economic contraction. Yes, the probability of a recession has risen, but today, the recessions that we're likely to experience, given we're in a better state, is unlikely to be like a 2008. Not all recessions are created the same. Last but not least, remember why we invest, because expansions last way longer than any contraction. Hopefully giving you some nuggets on are we in a recession debate, and if we are to enter a recession, what should we anticipate and provide context, I think most importantly on looking ahead past what's likely coming our way. That's so great, Kezia. Thank you so much. I mean, there's so much talk about, you know, where we are from an economic perspective. Are we in a recession? Are we not? What I took away from what you just sort of showed us all is, you know, yes, inflation is still there. It has slowed. It's gonna take us a while to bring down some of those inflationary pressures. When we start to look inside the economy, there are still signs of growth. The employment picture still remains relatively strong. Although things do seem to be slowing down a little bit, there are still signs of growth out there. That last chart, the one that's on the screen right now, I think is the most powerful one, because I think everything we've talked about is really a zoom-in short-term type of conversation. This, to me, is a really good zoom-out long-term type of view, which is quite simply, if you look at this chart, the green is good, the red is bad. Right now we're all anticipating and fretting over the red, which are the recessionary times. Perhaps we do enter one, early next year. Historically, big picture, they're usually followed by economic expansions, and those times last so much longer. I think the stat you gave was 7x longer than your typical recession. If we all zoom out and look at the big picture, I know we're all focused on the red components. The green components are really what sort of leads us to the economic expansion we're all looking for. Great summary, great slide. I think it's a great way to kinda keep everything in perspective, you know, for everybody. Now with that being said, Kezia, I think what everybody has on their mind is, okay, what does all this mean for me? What does all this mean for my investments, my ability to retire, what I'm seeing in my accounts? You know, with all the information you shared with us today around the economy and the markets, et cetera, what are the implications from an investment perspective? Because typically anytime you have these types of markets, there are always risks, which we all focus on, but then there's always opportunities, which we don't focus on enough. I'd love for you to kinda share sort of your view on sort of both of those areas. Indeed. Let's just start with I know when we are amidst a sell-off in the markets, we tend to not look at the opportunities. Let's start with something that has surprised many investors, which is the bond side, right? We have seen a significant decline that most investors haven't seen simultaneously as stocks have sold off. As interest rates have risen, and it has clearly hurt existing bond investors, it has also created an opportunity that has not been available to us in decades. How do I see this? I want us to look at this chart, and there's a variety of different bond investments here. First of all, there may be names on here that aren't familiar to you. As an example, you'll look at something that says U.S. Aggregate, and you may go, "What is that?" This particular index includes things like U.S. government bonds from corporations in the S&P 500 as an index. Think of this as very similar to the S&P 500, but in the bond world. In the bond world, we don't usually talk about bonds 'cause they're typically quite boring in history, but this year clearly has shown us a different picture. That's U.S. Aggregate. I want us to go from left to right on that chart. A year ago, it was offering us a whopping 1.5%, Anthony. It's hard to get excited by 1.5%. As interest rates have risen, today we're getting 4.75, nearly 5%. A year ago, to construct a bond portfolio with 5% in yield or coupon would've been very hard to do. You would've had to go to the bottom of the barrel, find some junk bonds, find some bonds in emerging market countries to do so. Today, you can get 4.5% without stretching too far while staying high quality in the investments that you select. Something similarly, look at the one right underneath it, where it says corporate investment-grade corporate bonds. These are high-quality U.S. companies, their bonds. Offering you nearly 6%. Again, we have gone through a decade of punishment for savers. For those that are uncomfortable to invest, stepping into short-term fixed income today, again, each of your scenarios are going to be vastly different, so you need to work with your financial advisors here, but stepping into short-term bonds that'll give you 4.5%-5% is a reasonable way to enter the market, given this dynamic just did not exist. That's the first part. Finally, the punishment on savers who've been earning under $10 in their checking and savings account, we now actually have opportunities that are more reasonable. The next question that I get is. You know, we mentioned, you said, Anthony, I said the chances of a recession have risen. This concept of shouldn't I just get out and wait for this recession to end before I make... Maybe I've got some cash on the sidelines, I know markets tend to do better, but I kinda just wanna wait. I'm really uncomfortable going in. Here's the dilemma that poses. Take a look at this chart here that has tracked, again, going back to 1950s. The blue line is the market, the green line is the proxy for the economy, and it shows the stock market and the economy, they're not one and the same. They do link. They take cues from each other, but one tends to move ahead and the other is lagging in itself. In this instance, find yourself looking at before the dotted line where it says market peak, that's the stock market. Stock market looks ahead and starts to fall well before the bad news in the economy starts to come out, somewhat like 6-8 months before. In fact, Anthony, remember January 2022, yes, we had inflation, but we didn't really get all the bad news until sometime later, and stock markets clearly had started to depreciate downwards. Now, similarly, as stocks fall before the bad news in the economy comes out, stocks recover well before the bad news in the economy ends. Look at the right-hand side after the dotted line. Look what comes out first. On average, stocks recover 6-8 months before the bad news in the economy ends. In fact, waiting for a recession to get even announced, which happens on average 14 months after the fact, is unlikely to be a good investment-related cue on timing the market. Last but not least, here's a statistic that we've learned. When you look back all the way to the twenties, 45% of a bull market's return comes from that first year. That means that I gotta be at the bottom, and I know no one likes to be at the bottom. In order to participate in that upside, I've got to be in the market as that recovery begins. Just a concept here that the stock market and the economy, while linked, stocks lead, economy lags. That also takes me to the We always when we're in it's hard to remember, well, what would our recovery look like? As investors, personally for me, you know, when I go to a store, I love a sale. When it comes to the stock market, we hate it. Here's why it is more interesting to invest after an episode of what we have experienced. On this chart here, I want us to all visualize what our recovery could look like. Here, we're looking at assuming that the peak in the markets was January third. That was the high, and clearly stocks have been falling for a while. If the bottom was September thirtieth, I don't know if that is, but if it was, what would it take for the markets to recover? If we recovered in one year, there are two numbers in here. The number in the bar is what would the annualized rate of return be, and on the top is what your cumulative, meaning it over the years, how much would you add because of compounding. If we did it in one year, that would be a 36% rate of return, both annually as well as cumulative, 'cause you did it in one year. On average, after we fall 20% or so, it takes us 2.5 years to come out. Take your eye between two and three years. That's still a 15% per year gain as we come out to recover back to that January peak. For the skeptics in the room that may say, "This time. This time it's really bad. This time really it's gonna take us as long as 2008, where it took us 5.5 years." That still is an annualized rate of return of 8% for a cumulative gain of 46%. While the pain of where we are today clearly doesn't feel good, remember the recovery and the returns on the other side are the reason why investing today becomes attractive. This is my last slide. You know, for the audience that may go the stock-bond combination, a diversified portfolio doesn't work. I want us to look at this chart, and there's a whole colored bars here. There's a reason, by the way, you're not supposed to read this. It is trying to tell you a color message. What is it? First of all, each of these colored bars represents a different investment, and we stack it from best to worst performer from each calendar year. Notice the first pattern. No colored box stays on top forever. I don't know what the best investment is going to be each year. Nobody does, which is why we blend things together. Follow this white box, which is a blend of stocks and bonds. You can see it's not the best, it's not the worst, it's just in the middle. That's the entire point, building a portfolio that you're comfortable in, taking that risk, to stay invested. In 2022, which is the third column from the left, it is still, despite its challenges, the fourth best-performing investment this year. Diversification works over time, not all the time. We want an antidote that will replace all our pain. It doesn't exist. It is important that it's time in, not timing the market that really generates the sustainable returns. Hopefully some context. Like bonds, we're much better placed today. Yes, if we have a recession, it is really important not to try and connect the two. Giving you some ideas on where we're excited by in today's marketplace, Anthony. Kezia, thank you. It's such a great summary. You know, some of the key things that, you know, I took away from what you just talked about, first and foremost, there are some silver linings in this market. The revenge of the savers, right? Finally, we get some yields, where we've had a long period of time where rates were very low and you were getting almost zero in the bank, or any sort of interest rate driven vehicle. Now those rates are substantially higher. So for clients who are in those types of vehicles who are looking for income, I think it presents some great opportunities. I think, you know, your point about the market being an anticipatory mechanism, I think is so important for our clients to remember. It's times like this where I know you and I hear a lot from clients, where there's this real urge to do something, because of the fearful headlines and what we're seeing, there is an urge to say, "You know what? Maybe I should get out, and I'll wait to get back in when things get better." Right? That is the sentiment. The reality is that the stock market does an incredible job of being anticipatory, meaning that it'll go down a lot faster or before the economy actually starts to have the issues. In the same vein, it will go back up and recover so much quicker than when the economy does recover. Because of that, it's very difficult for people to be able to execute that, "Let me get out now. I'll wait till things get better, then I'll get back in." Typically, the people who go with that strategy, it's gonna be challenging because you're gonna miss, as you said, the biggest part of the recovery is typically in that first year. I think just important concepts for everybody to remember. You know, this last chart here about, you know, how important it is to be diversified over time, I think is so key. You know, this is the periodic table chart that we always use quite a bit in this industry. What we wanna tell people is the colors bounce all over the place because there is no one solution that works all the time. The combination is what's gonna give you sort of the smoothest sort of return pattern. Really appreciate you sharing those, insights, Kezia. I think those are all really, really great, you know, reminders for all of us as investors. Couple of the key, you know, sort of takeaways I would say from the call today. Couple of areas that I think we focused on quite a bit. You know, the third quarter was definitely challenging. We had, you know, really tough performance in stocks and bonds, in almost all areas. A lot of that was driven by, inflationary concerns. As Kezia shared today, you know, the inflation numbers, although it has slowed down, it's still gonna be high, and it's gonna probably be there for a while. It could take a little while before the inflation numbers go down, and that's gonna have an impact on economic growth. With all that being said, what we see out there today, there is still good signs of economic growth out there. The employment picture is still relatively good, although we start to see some areas that are starting to slow. This debate, whether we're in a recession, not in recession, you know, I think that's to be seen. The risk have obviously increased here. There are still signs out there where the economy is still expanding. I think again, what does it all mean for all of us from an investment perspective? Well, you know, one, you know, you wanna talk to your financial advisor on your own individual, you know, situation. Obviously, people have different timelines, different risk tolerance. I would say big picture, there are some opportunities out there, particularly in the areas where they're providing much higher yields as we talked about, much higher than what we've had before. Longer term, historically, these are the types of times where they actually provide incredible entry points. For people who are dollar-cost averaging, have some cash on the sidelines, these are the times where it could make sense to put some of that to work. Those are some of the things you wanna discuss with your financial advisor. I think those are all sort of themes. You know, we all know Warren Buffett. He has that famous saying, "Be fearful when others are greedy, and be greedy when others are fearful." I think really what he's getting at is, you know, perhaps these times where it feels really hard to do. These are historically probably the best times to start looking at potentially entering the market. Again, Kezia, thank you. Great summary of the third quarter. I hope that was helpful for everybody. We do have time for a couple of questions. I've been fielding a couple of questions here in the Q&A. I think we have time for a couple. Let me, Kezia, if I could bring you back and give you a couple of questions that I've seen in the box. The first one, and it doesn't surprise me at all because this is probably top of mind for everybody, is we have the midterm elections coming up in a week or two here. We see it all over the internet, all over the TV, all the advertisement. What's your view on how that impacts the market or does it impact the market? Historically, what happens after midterm elections from a market perspective? How have markets typically performed post-election? Thoughts on that. Yeah. We'll break this down. By the way, you and I were discussing earlier how many text messages we have both received. Yeah. from a variety of different campaigns. It clearly is top of mind. I'm going to break this answer down into two parts, Anthony. One, what does this mean from a balance of power in Congress? What do we know historically? How does this impact the markets, if any? Let's start with the balance of power in Congress. Historically, the midterm elections have seen, especially in the House of Representatives, a change in power from the incumbent party. The incumbent presidential party tends to lose, on average, 25 seats, and this is going back to last 19 midterm elections. A big data set here. The only two exceptions were one time period during Clinton's era, where the economy was strong, and the other in 2002 for Bush, when we saw the. It was right past 9/11. Outside of that, it tends to be a switch in the midterms from the incumbent power to the other side. What does all this mean for? What about the Senate? The Senate we see a very mixed race. We have not seen a clear trend, and that's likely because they have a longer election cycle. That's the balance of power. What does this mean for the markets? Now, midterm election years are interestingly, they do have a very unique pattern. They tend to, if you look at the years of midterms, the first quarter of the first three months are good. The next two quarters, the next six months, it tends to slump and fall. That uncertainty, all those text messages we keep getting about what's going to happen, the rhetoric is dialed up. The final quarter, it tends to be very strong. In the past, though, going all the way back to thirties, you'll find this interesting, that after the midterm election years, on average, the one-year return after, during those midterm election years is something like 13%, and in nonelection years it's 5.5%. You may say, "Why is that? Why do we see this pattern?" I don't know. Maybe it's finally the text messages stop coming and the uncertainties are gone, and so things start to rotate. Over the longer term, beyond that one-year span, is there a pattern that politics tends to play into the markets? I say this. As investors, we see red, blue, and in some instances, I'm in Colorado, purple, but the markets only see shades of green. Can companies make money? That is really important to remember, that utilizing our political inclinations to make decisions within portfolios has historically not shown a consistent relationship. Again, markets care about profits, not politics. The long-term behavior of politics on markets, we have not seen a clear pattern develop. Hopefully, maybe the historic 12-month after range does bode well in this instance. Clearly there's a whole host of other issues plaguing the market today that has broken that pattern. Hopefully given you some points from a what does it mean from Congress's perspective as well as markets. Yeah, that's great, Kezia, and I appreciate that. I think it's important to point out that those stats that you quoted, it's regardless of what the outcome is, right? Regardless of the outcome of the election, I think the removal and the finality of it typically is what drives it. I'm hanging my hat on those numbers that you quoted, 13% or so on average, the year or the 12 months after the elections are over. We hope those historical trends will continue. At least from a historical perspective, I think that gives us you know a silver lining or some something to really hang on to, which I think are positive. Regardless of what happens in the next couple of weeks and what the outcomes are, hopefully that will then start, you know, some of the move up in the markets. You know, another question I'm getting a lot is around the fixed income arena and bond yields. We talked about it a little bit earlier. We talked about how the third quarter had this historical down move, you know, in bonds, and that's what caused the 60/40 to have such a challenging quarter. What are your thoughts around do we see that continuing? Do we see what could drive that to go the other way, or do we see that as something that could play out for a little bit longer period of time? Any thoughts around that? Yeah. You know what? I think it is important to acknowledge the shock that most investors have experienced in 2022, given that bonds were down double digits same time as stocks, and we've said this numerous times. Let's also set the stage of how that came about. First, we were at zero interest rates. Think of our cushion that we typically would get from the coupon or the yield didn't exist. Absolutely zero cushion. Then we saw interest rates rise by 3.5x, meaning it went from 1.5 to nearly 5 in a matter of 10 months. That pace of increase is what really hurt bonds in a very short period of time. We had a big one-time hit or pain, but at the cost of, for us, you know, Anthony mentioned, the revenge of the savers for that long-term gain. What does this mean going forward? The question I get is, "Well, if interest rates were to continue rising, does that mean my pain will double? What I've already experienced, is that where we're going?" Very different environment today. Remember we started at zero nearly, and now we're sitting at something like 5%. That 5% is your starting cushion. Even if interest rates were to rise, you have that as a cushion to reduce the pain that would come from bonds losing value as interest rates rise. That's the first part. The cushion built in through higher interest rates provides a much better, softer cushion against potential for higher interest rates. The second is we don't think interest rates are going to double from here. We saw that rise happen very rapidly over a short period of time, but the expectation is not to go from somewhere at the 4% on the 10-year U.S. government bond to 8%. Also puts in perspective that much of the pain has already happened, and that likely any gain is likely to be much smaller in nature. Then last but not least, I'm a math girl, Anthony, so bear with me as we do a little bond math. With bonds are mathematical instruments. They're not like stocks. When I give you a loan for $100 with 5% interest, you're going to give me back $105, not $205. With that said, the starting yield of bonds is a great reflection of your subsequent five year returns for as bond investors. If we're getting something like 5.5%, that's what you can make per year going forward. That starting yield is a good reflection of what you can make. I broke it up into a multi-part, longer than you wanted answer, but how did we get here? That one-time sharp pain, will we experience the same or double going forward? Unlikely, because of that added cushion. Then last but not least, what can I anticipate? You should anticipate better returns given this better starting point that we are at. Great. Thank you. I think that's very helpful. I think for a lot of people, you know, the bond component maybe is a little bit more difficult to understand or they're not as familiar with, and so I think that breakdown, I hope is helpful for everybody to sort of have a better understanding of what to expect there. I think we have time maybe for one more question. Around the idea of the recession, you know, a lot of talk and so if we make the assumption that perhaps the odds of a recession are very high or almost inevitable, are all recessions the same? Should clients be thinking about, is it a different flavor of recession? Is it a shorter recession, longer recession? How should people think about that and what are the different types of recessions that could potentially play out? You know, I ask this question, and it's a fabulous question for those that posed it out there. I ask this question of the audience as I go around the country, and I usually get the, "I know not all recessions are the same. I know they're not all the same, but I don't know how to quantify what are the differences and where are we today relative to the recent two that we as investors experienced." First, not all recessions are the same. When you think of a recession, the one we immediately go to is 2008, which was a devastating one. I recognize. That was the, you know, the whammy of all recessions out there. We saw the global economy crater as the crux of how financial markets work, which is borrowing, basically stopped. You couldn't get a loan even if you wanted to. Today, are we in that same boat? We see a fundamental difference to where we are today relative to 2008. I'm gonna break it down from a very simple perspective. Let's look at the consumer, all of us, and then let's also look at corporations. The consumer. The consumer today is in a much healthier state. Why? Because look at the job market. They also have a lot more savings than they did in 2008. Last but not least, Anthony, remember the NINJA loans, the no income, no jobs, no problem, we'll give you three loans? That doesn't exist today. Why do I say it this way? That tells me that the average debt on the consumer's balance sheet relative to their income is not upside down as it was in 2008. We can make our debt payment, especially as wages have gone up. The consumer today is in a vastly different position. Remember, 75% of our economy is driven by all of us shopping. That side of the things remains okay. The second is corporations. Similarly, corporations have also shored up higher cash on their balance sheet to ride through likely the challenges that are coming our way. Those two instances, the leverage and the debt scenario that we saw in two instances across consumers as well as companies, just not the same. We know even if we were to enter a recession, it's unlikely to be as devastating as it was in 2008, given the starting buffer that we have built in from where we will see potentially a slowdown. Such an important point. The last recession that we all remember was the 2008, 2009 financial crisis. I think sometimes when people hear a recession's coming, they think, "Oh, we're gonna go through that again." That was historically, obviously very painful. Not necessarily what all recessions will look like. To your point, it feels like we're in a much more solid standing from an economic perspective, that even if you have something that's defined as a recession, it certainly is unlikely to feel like what we went through in 2008 and 2009. I appreciate you pointing that out because I think that's what probably drove some of the questions, is people thinking like, "Oh my gosh, are we going back to something like that again?" Because we all know how painful that was. That really, you know, wraps it up here. We're at the top of the hour. I wanna thank you, Kezia, for sharing all of your thoughts. I wanna thank everybody for joining us today. We hope that this was helpful. A couple of quick reminders. Please contact your financial advisor to talk about anything specific to your portfolios, and things that pertain to your investments. The other thing is, we get asked a lot about the slides, you know, "Can I get a copy of the slides?" The answer is absolutely yes. We are gonna send an email out to all of you after this call. On that email is gonna be a couple of things. One, there will be a survey. We'd love for you to share your feedback on how we can make these calls more helpful and impactful. There will also be a link on there for you to go ahead and click on and get access to all of the slides. Again, thank you all for joining us today. We appreciate you taking the time to join us, and we will see you next quarter. Thank you very much.