Tudor August 2021 Commentary
Research-Based Investing and Guidance Since 1992
High Level Financial Care for Clients in Over 30 States

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Fast and Furious Economic Cycles
Market Commentary

It feels like ancient history, but the early 2020 economic meltdown that came and went is now in the 2021 economic recovery room healing from a difficult year. Little surprise that getting back to normal has required a lot of government intervention and cost. The fed has pumped trillions into the system to keep the gears moving. Since the shutdowns were government-mandated, the healing solutions have been government-resourced - all necessary to forego financial Armageddon.

Also not surprising: last year's shutdown caused a recession - a very short one. The U.S has had eighteen recessions in the last 100 years and the shutdown in 2020 was the catalyst for the shortest one in history: the pros that track such things suggest that the 2020 recession lasted only two months.(3) In contrast, the average recession over the last century has lasted 13.6 months(4) which makes last year's experience a true anomaly.

We also would argue that last year's 35% market decline, technically meeting the definition of a bear market (20% or greater decline), was not a true bear - perhaps a pseudo-bear. It came, it went, and then off to the races toward recovery. This remarkable (for many investors and investment professionals unexpected) rebound brought markets back to "normal," but, from our perspective, has overshot to the upside this year with too much enthusiasm...

Keep an Eye on the Horizon

Kudos to you if you have sold or are selling your home this year, but no net advantage if you have to turn around and buy...condolences to you if you are forced to buy in this market. If not, and you have not consumed cash too aggressively in this year's COVID cabin fever breakout, we would suggest keeping some gun powder dry for equity buying opportunities. We have noted several times this year that markets are cruising at expensive levels. Looking at some signs...our individual stock filters cannot find even a short list of undervalued securities, margin debt (borrowing to buy stocks) has yet again risen to record levels - $882 billion(5) - suggesting excessive speculation, and markets have not corrected since March 2020.

Markets will offer buying opportunities at some point. Get mentally prepared and have some cash available.
Median Cost of a Home in the U.S.

Home affordability has declined as home prices increase 13.2% over the last year.

The Factors:
Low Supply: Baby Boomers Staying Put
Millennials Starting Families
Low Interest Rates
Pandemic-Inspired Desire to Work From Home
(source: National Association of Realtors, May 2021 prices)
One Third
The Number of Homeless Living in One State:
(Source: Department of Housing and Urban Development)
High Cost of Care

12% of U.S. Retirees Will Spend at
Least Four Years in a Nursing Home

(Source: Center for Retirement Research at Boston College)
U.S. Savings Rate

Savings ebb and flow over time and seldom has there been a better example of this than the past year.

Americans were great savers coming out of World War II and often paid cash for homes and cars and most large purchases. The Great Depression and a severe world war taught some harsh lessons about the need for financial stability.

Beginning in the 1960's and 1970's, however, consumerism crept in and Americans felt comfortable enough to stretch their finances with increasing levels of borrowing. Savings rates plummeted in the 2000's through recent years after a decade of healthy economy and big market gains in the 1990's.

Something broke that cycle this past year. In June 2020, we wrote an article about the huge spike in savings that occurred after Americans reacted to the COVID economic shutdowns - savings rates shot up a massive 33.8% in April 2020 according to the Department of Commerce. And recently, according to the same agency, U.S. savings rates in June 2021 were at 9.4% - still a healthy high rate relative to the last decade's experience.

Studies show that fear is the biggest motivator for savings and we address this in our June 2020 article linked here:
"An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen.
– Earl Wilson
Dow Industrial Index

March 23, 2020 - 18,214 (2020 low)

August 10, 2021 - 35,271 (1)

94% Gain
Enjoy the week...
Grant S. Donaldson, MS, CPA
(1) yahoofinance.com, S&P500 historical data, Barrons, Morningstar.com, Vanguard benchmark returns
(2) Information available upon request
(3) National Bureau of Economic Research
(4) First Trust, History of Bar and Markets Since 1942
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