As we begin our seventh year of serving clients from coast to coast, I would first like to thank you once again for choosing to work with our team. We are honored to earn your business each and every day, never taking our relationship for granted. It is humbling to be surrounded by such incredible people, from our team members and clients to the local communities that surround us and support us. Without you, we would not get to perform the work we love every single day. From the bottom of our hearts, thank you.
Every year, I publish this annual letter to all clients of the firm as well as publicly on our Facebook page, LinkedIn page, Google Business Page, and our website. It is broken down into two main sections. The first large section of the letter will discuss how the markets have performed this past year, what I am most concerned with moving forward, and what to consider in your own finances in 2024. The second section will talk about the firm’s health and growth and key achievements for our team members. As I have said in previous years, I feel strongly that we should treat our clients like stakeholders in the company, so my hope apart from fulfilling our regulatory obligations to deliver our firm’s Form ADV and Privacy Policy is to help educate you about what I am thinking about to help you make better decisions with your money, to help you do better for you.
2023: A Year of Recovery and Increasing Optimism
After a year challenged by all sorts of negative headlines in 2022, followed by a year of market recovery in 2023, 2024 seems to be filling up with rosy projections for future growth and increasing optimism about where the overall health of the economy is heading. There are reasons to be at least celebratory. Inflation has decreased precipitously and solid real wage growth (growth above inflation) is happening without meaningfully increasing unemployment, The annual GDP growth of the United States is 3%, far outpacing the Eurozone (literally 0% growth this year), Japan (1.5%), Australia (2.1%), and Canada (0.5%). There are a lot of reasons to be bullish on continued American growth.
The Titanic and The Great Recession
However, much as the Titanic was celebrated leaving port on its maiden voyage, unbeknownst to its passengers and crew in just four days’ time, they would encounter an iceberg. That iceberg would tear open her starboard side, leading to her sinking less than three hours later and the loss of over 1,500 lives. For me, one of the saddest aspects of that tragedy is that the crew was informed of the dangers in the waters. They knew that the ice existed. They were warned of its perils. But frustrated by the idea of even so much as slowing down, the Titanic instead continued to forge at full speed through the ice field, which led to it becoming unable to avoid the iceberg that would eventually lead to its demise.
Similarly, in 2007 a number of lenders backing risky mortgages started to go under. As that year progressed, it was clear that there were significant issues in the debt and housing market, yet no one heeded the warnings. Many bond traders continued to sell increasingly risky products at some of the lowest rates in decades, while the Federal Reserve sat on its hands watching the market continue to churn. It was only until just before Bear Stearns collapsed in the beginning of 2008 that the market even seemed to consider or care about the credit quality of the lending institutions – but once it did, it violently reacted, causing a chain reaction of failures and threats of failure. The American banking system was in crisis, forcing the Federal Reserve to step in. The data was there, but much like how a crew member said that “Not even God himself could sink this ship” upon the Titanic’s launch, there was a broadly held belief and ego attached similar about housing never losing value.
Until the economy hit the iceberg.
And when it did hit the iceberg, unemployment in the United States doubled, taking people over six months to find new work. The stock market dropped by over half in value; those who did not have enough emergency savings were forced to liquidate investment and retirement accounts, locking in major losses that would cripple many people’s ability to retire at all. An estimated 20,000 additional people committed suicide as a result of the collapse of either their careers or their personal finances. Heart attack, stroke, drug and alcohol abuse, depression, and other health complications from the sudden loss of wealth increased dramatically. The consequences of not respecting the financial icebergs were devastating.
The Iceberg of Today: Corporate Debt and CLOs
Over the next three years, the amount of debt held by risky companies, companies that could fail at any time, will grow by nearly three-fold in the next two years, reaching over $800 billion due in 2025, of which the United States is estimated to hold about 61% of. If current interest rates are maintained, or anything near where they are at now, there is going to be not only a massive supply of risky debt hitting the market, but there are companies that will close simply because they know they would not be able to pay back these loans. Back in September, I wrote an article detailing how businesses may react, including layoffs and mergers. Since writing that article, we have already seen hundreds of billions of dollars in mergers agreed to and hundreds of thousands of employees laid off. We expect this trend to accelerate as we get closer to 2025 – more layoffs, more business closures, and then the trickle effect on small businesses as well.
We can see the iceberg. It is right in front of us, plain as day. So we most certainly will learn from the previous financial catastrophe and avoid it, right? Not at all. Risky bond yield spreads have fallen back to multi-year lows. The same apathy the bond market had in 2007 is exactly how it is behaving in 2024. Collateralized Loan Obligations (CLOs) are bundles of business debt of various credit ratings, but are considered “safer” because of how the risk is allegedly diluted among the basket of bond holdings. You know, just like what they did with CMOs back in 2007.
Yes, they are making the same greedy mistake, just differently. They are not terribly clever. In my opinion, it is only a question of when do we hit this iceberg, and when we hit it, how hard do we hit it. Presently, it sure seems as though we are aiming right for it. If we do hit it squarely, we could see over $1 trillion dollars in corporate debt default, approximately double what defaulted during the great recession. Unemployment could be well north of 10%, and the broader market would likely drop precipitously in overall value once the market discovers that not all companies are built equally. Index investors may be crushed with permanent losses.
2024: Discipline is Our Anthem
Knowing the potential for economic calamity exists in the short to medium term, it is important that you do everything you can to be prepared.
- Having cash savings is crucial to stave off dipping into investments during periods of unemployment.
- Paying off high-interest debt will improve your cash flow and ability to save.
- Reviewing and revising your lifestyle to be less consumptive means more money in your accounts to save and/or invest.
- Refreshing your LinkedIn and resume, networking with other professionals, and examining not just new positions but the quality of the companies offering those positions is another important defense.
These are prudent first opportunities you can act on right now to improve your household economic foundation without a crisis at your door. Once you have built these areas up successfully, you can continue to invest and play the long-term game with confidence, knowing that should bad fortune come your way, you are prepared. And if the worst case doesn’t end up happening to you – well let’s just say that I have never had a client complain about having too much peace of mind from having lots of cash saved in their bank accounts (that’s not a challenge by the way).
Welcome Alexis to Briggs Financial!
In September, we hired Alexis Richards to be our part-time Associate Firm Administrator, helping us develop and implement best practices in our operations. With our firm expected to continue to grow substantially for the foreseeable future, not only will her contributions help Shawn and I be better at how we do our jobs, but will help future hires have a strong operational foundation to lean into (and admittedly, considerably less stress for me). Alexis was recently offered and accepted her position being upgraded to full-time, which will begin in February. Congratulations Alexis and welcome to the Briggs Financial team!
Congratulations Shawn on Completing Your Masters Degree!
Shawn Block completed his Master of Science in Personal Financial Planning this past August and with that along with his three years of experience working for the firm earned a title change and promotion. Shawn has grown tremendously as a financial planner over these past years working with us, and it has been a joy for me personally to be a part of his mentorship and development. I am very excited to see Shawn continue to grow in the years to come as he enters the journeyman phase of his career.
Tax Season is Here Again!
Thanks to Alexis, we were able to send to all previous tax clients new contracts for this upcoming filing season, offering our services with no increase in fee from last year. Having received approximately 90% of these back already, I estimate that we will have approximately 75 households/clients of additional capacity that we can prepare for this season – and those seats will likely go very quickly! If you have not done taxes with us before and are interested, please reach out to us as soon as possible so we can reserve a spot for you. You do not need to pay until you file, so do not delay.
The Schwab Transition is Complete!
Over the Labor Day weekend, Schwab successfully converted thousands of independent firms including ourselves from TD Ameritrade (TDA). Schwab purchased TDA back in 2019, and the resulting transition is the product of over three years of planning and work by their team. There are some things Schwab does significantly better than TDA did, and some things TDA did better, but overall I believe we have a very solid custodial partner holding investor assets at Schwab. Thank you very much to investment management clients for your patience and diligence in helping us make this transition as smooth as possible for you.
If you have not already logged into your Schwab account, you should do that and get your account setup. If you have any questions about logging in on the platform, please reach out to Alexis for assistance in getting started.
Annual Delivery of Form ADV and Privacy Policy Attached
Attached to this email is the annual electronic delivery of our Form ADV and Privacy Policy. The only changes to this document from a year ago involve adding language pertaining to the switch in custodial platform from TD Ameritrade to Schwab.
In Closing
I am deeply thankful to have earned your business and your continued love, trust, and support not just this past year, but particularly those who have been with us the last several years. We have experienced the steep pullbacks stemming from both the onset of the COVID-19 pandemic as well as the whole of 2022, both of which were 30%+ downside events. Yet in spite of these challenges, we have retained over 98% of our clients every year we have been open, far exceeding how typical firms perform; I am humbled and grateful for the faith you have placed in our team. As I said last year and will reiterate, we have gone through multiple world wars, various social and political challenges, sicknesses, depressions and recessions and market crashes, and we have come back stronger time and time again through all these adversities. I believe the United States is in pole position globally as a powerhouse of economic development and growth. While I do believe in the short term we could see some potentially very difficult circumstances emerge, I also believe that we come out of that period stronger top to bottom.
That said, this outlook does not absolve us of the responsibility to do our level best to build a strong foundation. I believe you have chosen to work with us, at least in part if not primarily, because you want to build a financial future that is independent of what and how others might behave. This is not how most Americans live. 82% of retired Americans rely on Social Security as their primary source of income. And while a small percentage of that 82% may be choosing not to use other assets for retirement, the vast majority of that population could not survive without it. That’s a big problem, and I do not think it is a problem that our government has the appetite nor acumen to solve. This makes the financial security you build – through your hard work, saving money, paying down debt, and investing – ever crucial at this hour. It is upon you individually as well as our work collectively to make this year the very best it can be.
Lastly, I will just remind you that while meetings can and are scheduled for you to meet with us, our door is always open if you have questions or want to discuss a topic or idea. We are very skilled, with both Shawn and myself holding Masters degrees in financial planning, but we did not gain mind-reading abilities in our studies. We would love to help you in any way we can, so please do reach out if there is anything we can do to better serve you.
Blessings and friendship,
Steven Briggs
Chairperson and CEO
Briggs Financial Inc.