MRM Commentary

Commentary

Monthly Investment Commentary

December 2021

      Economic Update

              • A predominant buzzword for 2021, “transitory” may need to be retired as a description of inflation risks according to Fed.
              • A demand shock from trillions in fiscal and monetary stimulus continues to overwhelm supply, causing more dovish leaders at the Fed to reconsider prior plans to leave the fed funds rate unchanged in 2022.
              • Detection of the Omicron variant was another reminder that Covid remains a stubborn risk to global growth and inflation expectations nearly 2 years after the start of the pandemic.



      MRM NET COMPOSITE PORTFOLIO RESULTS (As of 11/30/2021)
      MRM Group claims compliance with the Global Investment Performance Standards (GIPS®).
      Please contact MRM Group to obtain a Compliant Presentation and/or MRM's list of Composite descriptions.

      MRM Portfolio

      Transitory
      If there was a ranking of economic buzzwords for 2021, the term ‘transitory’ would have to be near the top of the list. This word has been used over and over by Fed Chair Jerome Powell and his colleagues to describe inflation pressures emerging from the reopening of the global economy. However, inflation rates, even after excluding food and energy prices, have remained stubbornly elevated near multi-decade highs, making inflation a hot topic in mainstream media and politics. The latter has shined an even brighter light on Powell, who was at the same time vying for a second term as Fed chair. Competing with Powell for the top job was Fed Governor Lael Brainard, who was generally perceived to be more dovish of the two (a very relative comparison). Given the heightened public focus on rising consumer prices, the dovishness was likely a notable factor in the White House’s decision to announce on November 22 that Powell would indeed get the nod for a second term. The bond market responded to the news by pricing for more hawkish policy in the near/intermediate term.

      Fed
      On November 30, in his first major appearance since the nomination announcement, Powell caught markets off guard with a definitive shift in tone regarding inflation risks. Testifying before the Senate Banking Committee, Powell effectively extinguished the transitory inflation assessment. When pressed on the topic, Powell said, “I think it’s probably a good time to retire that word and try to explain more clearly what we mean.” In other words, the price increases of the last several months may indeed be more permanent than the Fed had been anticipating, and as such, a more hawkish policy response may be necessary. To that end, Powell also noted potential policy changes to combat non-transitory price pressures, specifically the pace of asset purchase tapering. “At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases…perhaps a few months sooner,” he said. At the November 3 FOMC meeting, the Fed announced, as expected, a tapering pace of $15 billion per month, which would imply no new purchases (other than principal reinvestment) by the end of Q2. Shortening the pace by three months would increase monthly tapering by approximately $10 billion (~$25 billion total).

      MRM'S VIEW

      The impact of massive stimulus should eventually fade, and demand for goods and services should eventually realign with supply. Timing is everything, though, and there’s only so long that central bankers can idly stand by while inflation runs more than double the target rate. 2022 will certainly test Fed leaders on that front.

      Source: ALM

      MRM model holdings as of September 30, 2021

      Allocations

      IMPORTANT DISCLOSURES

      MRM Group, Inc. (“MRM”) is a state-registered investment advisor and an independent management firm that is not affiliated with any parent organization. Using quantitative selection methods, each MRM strategy searches within a well-defined universe of securities, using consistent investment criteria to identify attractive investments and create diversified portfolios. MRM seeks to provide long-term capital growth.

      Allocations

      The portfolios do NOT use inverse or leveraged ETFs. Universe vehicles may change, from time to time, when approved by the principal of MRM Asset Allocation Group at its sole discretion.

      BENCHMARK NOTES

      Effective Nov. 1, 2016 the Dynamic Overlay benchmark was changed to Morningstar’s Tactical Allocation. The benchmark was applied retroactively to the beginning of the performance period, January 1, 2008. This change had the net effect of placing the Dynamic Overlay Model Portfolio in a more favorable light than would otherwise have been the case if we used the blended benchmark described below. Although this change had a favorable impact on the comparative effect on the model’s performance but we believe the change in benchmark more appropriately aligns with our Dynamic Overlay Strategy in that it is designed a tactical allocation rather than a static blended benchmark of 75% S&P 500 Index Total Return and 25% MSCI EAFE. Morningstar’s Tactical Allocation Category averages returns for the peer group based on the return of each fund within the group, for the period shown. The S&P 500 Index with dividends is an unmanaged composite of 500 large-capitalization companies whose data is obtained from the Standard & Poor’s website. S&P 500 is a registered trademark of McGraw-Hill, Inc. The MSCI EAFE Gross Index is a free float–adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada, with data from the MSCI website using price with reinvestment of dividends. The performance of blended benchmarks is shown for comparison because MRM uses securities which track indices related to these products. The Dow Jones US Select Dividend Index comprises 100 stocks and aims to represent the U.S.’s leading stocks by dividend yield. An investment cannot be made directly into an index.

      DISCLOSURES

      MRM Group claims compliance with the Global Investment Performance Standards (GIPS®). MRM has been independently verified for the periods January 1, 2008 through September 30, 2021. The verification report is available upon request. Verification assesses whether (1) MRM has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) MRM’s policies and procedures are designed to calculate the present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

      Valuations are computed and performance is reported in U.S. dollars. Client performance may differ based upon the structure of a particular investment program. For example, some programs are structured as wrap fee programs in which trading costs and brokerage commissions are included in one all-inclusive wrapped fee. As such, these costs may be higher than if the client were to pay trading costs and brokerage commissions separately. The standard management fee is 2.0%. Deviation from the model’s diversified structure may result in different risk, return, and diversification characteristics and would therefore not be representative of the models.

      All information contained herein is for informational purposes only. This is not a solicitation to offer investment advice in any state where it would be unlawful. There is no assurance that this platform will produce profitable returns or that any account will have results similar to those of the platform. Past performance is not a guarantee of future results. You may lose money. Factors impacting client returns include individual client risk tolerance, restrictions client may place on the account, investment objectives, choice of broker/dealer or custodians, as well as other factors. Any particular client’s account performance may vary substantially from the program results due to, among other things, commission, timing of order entry, or the manner in which the trades are executed. The investment return and principal value of an investment will fluctuate dramatically, and an investor’s equity, when liquidated, may be worth more or less than the original cost. Investors should consider the investment objective, risks, charges, and expenses carefully prior to investing.

      Investors should not rely on charts and graphs alone when making investing decisions. Investments in securities of non-US issuers involve investment risks different from those of U.S. issuers, including currency risks, political, social, and economic risks. Net-of-fees returns are presented after advisor, management, custodial and trading expenses. The net of fee returns are calculated using actual management fees. The actual fees charged vary and range from .5% to 2.2%, depending on the size of the account and the custodian.

      If you wish to modify or impose reasonable restrictions concerning the management of your account, or if your financial situation, investment objectives, or risk tolerance have changed, please contact your MRM Group investment advisor representative or contact the Manager at (800) 233-1944. We will contact you at least annually to determine if your investment goals, objectives, and risk tolerance have changed.

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