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Transitions are Hard!

Transitions are Hard!

September 28, 2022
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September is typically a transition month. It starts out with the end of the hot and humid days at the beginning of the month, and by the end of the month, the days are noticeably shorter and there’s a cool nip in the air. For those of us with children, September also marks the transition from the lazy days of summer to the crazy days of school drop-offs and fall sports.

For us, here at Paragon Wealth Management, September also marked a couple of transitions: We transitioned to our new brand name, and we successfully transitioned to our new office at 515 N. Main Street in Doylestown. A well-deserved thank you goes out to everyone on the Paragon team that worked tirelessly to make the move to our new office as minimally disruptive as possible.

Transitions are hard; no matter how well people think they are prepared for them, there are always unknowns that surprise them.

Right now, the global economy is undergoing a transition; it is transitioning from a COVID-focused, damage-control economy with loose monetary and fiscal policy, to a more “normal” economy with tighter monetary policy. While the fact that COVID is affecting our lives less and less these days is a welcomed transition from recent years, economically speaking, it will be a harder transition for the global central banks.

Loose monetary and fiscal policy, supply chain issues from COVID lockdowns, and a tight labor market have increased the rate of inflation to levels not seen in years. Now that central banks are trying to lower the inflation rate by increasing overnight rates and reducing the size of their balance sheets (quantitative tightening), markets are responding by repricing the value of stocks, bonds, and global currencies.

Growth companies have been among the hardest hit in this year’s volatile market. Government bonds, usually a haven for conservative investors, have also been hit very hard. In fact, this may be the worst year in history for the bond market (https://www.reuters.com/markets/rates-bonds/brutal-first-half-puts-bonds-line-worst-year-decades-2022-06-30/). The Federal Reserve’s tighter monetary policy has increased the strength of the U.S. dollar, which creates havoc for the rest of the world, due to our dollar being held as the global currency of choice. Add in a war between Russia and Ukraine, a major energy exporter and commodities producers, and continued restrictive COVID policies in China – that gives us an investment scenario not seen in many years, if ever.

If there is one thing that investors hate, it is unpredictability. Pundits have been guessing all year when the Fed will “pivot” and stop raising rates. Analysts have been looking at inflation data with extreme detail to predict what the future rate of inflation will be, and political commentators discuss when the war in Ukraine may come to an end, but to no avail. No matter how hard anyone tries, the fact of the matter is no one can know for sure.

So, what can we do?  We have been very busy trying to take advantage of opportunities when we can. We used alternative asset classes to diversify away from bonds late last year, but still provide the capital preservation we need for that portion of our models. We added commodities earlier in the year and subsequently sold them off as the commodity market started to normalize. We have increased cash positions after market rallies to protect what gains we could. We have also deployed cash when we felt there were bargains to be had. More recently, we added long-term treasury bonds as bond rates have become more attractive, and we have also added a broad-based energy position to take advantage of the recent drop in energy commodity prices. With the Russia/Ukraine war still ongoing, hurricane season ramping up, and China yet to ease COVID restrictions, we believe energy prices will climb again.  

The market will go up, and the market will go down; there is nothing we can do about that no matter how much we try. However, we can try to take advantage of opportunities in the market as they present themselves to add as much value to you as we can. Our goal is to give you the best service we possibly can and providing you with an investment model positioned to take advantage of current market trends is one way we try to accomplish that goal.

It is our understanding that inflation has peaked, and we are on a journey to a more normal inflation environment, barring any unforeseen events. To that end, the Fed will stop raising interest rates and a more predictable investment environment may be underway in the future. Until then, if you have any questions or feel that you would like to sit down and review your situation with us, please contact us anytime.




 The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.