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2nd Quarter 2022

July 06, 2022

Inside Financial Connections  Newsletter

 

GOOD LUCK KAI; CONGRATULATIONS JOHN-PAUL

TRAVELLING IN A POST PANDEMIC WORLD

STOCK MARKET DECLINES ARE NORMAL

CREATIVE DISRUPTION

If you have never logged onto the TD Ameritrade website, it is imperative you do so before the end of July otherwise statements and trade confirmations will revert to paper delivery. This is part of the Schwab conversion. Please call us for assistance.

GOOD LUCK KAI; CONGRATULATIONS JOHN-PAUL

While with Financial Connections, Kai earned a masters in Computer Science. Her heart has always been in technology and she has accepted a new position working for a financial technology company. We were fortunate to have Kai with us for almost 8 years. She will be available to consult with the staff.

Kai has been training John-Paul to be the Operations Supervisor. Many of you already know him. Please join me in congratulating JP in his new position.

TRAVELLING IN A POST PANDEMIC WORLD

According to Bloomberg Businessweek, 73% of Americans plan to travel this summer. Practically every publication states travelling today requires patience and flexibility.

Air Travel

According to Cirium (aviation analytics), there will be 12% fewer flights this summer because of shortages in pilots and other crew. With inflation and increased jet fuel costs, ticket prices for domestic travel are up 50% from last year, according to travel search engine Hopper Inc. Other Hopper statistics:

  • Flight from Los Angeles to New York – up 69% from 2019
  • Seattle to Houston – up 541%

Delays and cancellations at airports are notorious. One of the culprits besides lack of airline personnel, is lack of airport personnel such as bag handlers. And air traffic control contributes to delays because they are short staffed. (Where did all the previous controllers go?)

Hotels

According to Hotels.com, average prices increased 15% from 2019. Some more blatant than others. A five-star resort in Palm Beach had an out of season cost in June of $350 pre-pandemic. This June 2022 the price was $1,450!

Hotels are also having troubles getting supplies such as linens and toilet paper. Some have had to purchase the supplies from retail outlets contributing to increased pricing. Also, services offered (e.g., pools and restaurants) may be reduced because of lack of staffing.

Rental Cars

Bloomberg Businessweek reports that Hertz and Avis rates rose 25% in the first quarter 2022. The rental car agencies are having difficulties getting enough cars to rent. Fewer cars plus high demand equals higher prices.

It is understandable why we are told to bring patience and flexibility to our travel experience. Jill still likes cruising because you avoid some of the difficulties but cruise companies are also having a hard time with staffing. On Jill’s cruise to Alaska, there are usually two specialty restaurants open. This trip, they alternated nights and the staff moved from one restaurant on Day 1 to the other one for Day 2.

STOCK MARKET DECLINES ARE NORMAL

Warren Buffet once said: “The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.”

It is certainly no fun when the market declines, yet it is a normal part of investing. Below is a graph of market declines from 1951–2021 published by Capital Group.

Past performance is not indicative of future results

It is difficult to keep the long-term perspective when we are bombarded with negative headlines. But statistics show that after every bear market, there is a period of positive returns. Another graph from Capital Group tells the story showing the five biggest market declines from 1929-2021 and the subsequent five-year market performance.

Past performance is not indicative of future results

Keeping your emotions in check while everything around you is negative is very difficult to do. Staying focused on the longer terms can reduce the anxiety. You can also call the office and speak with us.

CREATIVE DISRUPTION

An obvious disrupter in the 19th century was the invention of the automobile. It eliminated the horse and the entire transportation industry of the time. However, it created a lot of new jobs building cars, roads, bridges, etc.

More recent examples include (Source: Investopedia):

  • Travel websites such as Expedia reduced or eliminated the need for travel agents
  • TurboTax reduced the need for tax preparers
  • Newspapers are on the decline as more news, blogs, etc. appear online
  • Taxi service decline with Lyft and Uber
  • Hotel usage decline with Airbnb and Vrbo
  • Driverless cars in development might replace some types of transportation (buses, trucks)
  • Drone technology might replace some activities such as crop dusting, delivery
  • 3D Manufacturing as it becomes more routine will disrupt manufacturing
  • Self-checkout at grocery and drug stores is reducing the need for cashiers

An example of creative disruption and subsequent innovation

Ron Baron, CEO of Baron Funds, wrote an interesting quarterly letter (March 31, 2022) highlighting Tesla. He was an early supporter of the company. He and three other analysts visited the new Austin, TX plant in November 2021. Below are some of the interesting comments that might explain Tesla’s success.

  • “You can’t innovate a candle to create a lightbulb.” Director of Manufacturing, Austin plant (formerly a senior executive for the Ford F-150).

The manager (name not identified) said Tesla has a culture of innovation. Example: the fewer parts the better. The front end of the Model Y went from 171 parts to two! The Model Y requires 1600 fewer welds which translates into 30% fewer robots.

Herbert Dies, Volkswagen’s CEO recently stated, “it takes Volkswagen 30 hours to manufacture a car. It takes Elon (Musk of Tesla) less than 10 hours.”

Disruption is occurring in almost every sector of the economy. While it does eliminate some jobs, it also creates new job opportunities. The issue, as always, is re-training a worker. Who will step-up and take responsibility?

IN THE MEDIA

Financial Connections makes its staff available to journalists to share knowledge.

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