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Author: William Rothrock

Financial professional with almost thirty years of experience helping clients achieve their financial goals

One Suggestion on Mediatian Agreements…

Use a Broker Addendum

Once you answer the financial consideration question, I suggest adding non-financial considerations to the final mediation agreement through a broker addendum. This addition could be most beneficial before your negotiation power diminishes.

What is a “Broker Addendum,” you ask?

A broker addendum addresses who will handle the structured settlement (SS), which type of carriers, such as an A+ Rated. will be used for this specific case. Moreover, the consideration also addresses the time the defense is allowed to fund each section of the settlement (Cash/ SS) after the paperwork and/or court approval occurs. Finally, I also suggest you place an exact timetable on the paperwork needed to complete the settlement. Why do I consider this so important?

Unwarranted delays by the defense force the client, who in most cases lived a nightmare for years, to continue living it while the defense delays the process. Delays caused by busy schedules and archaic time limits set by insurance companies make this an arduous task at best for all involved. Reducing these delays stand first on my list of issues to tackle. Another factor contributing to the timeframe and client outcomes is honest brokers entering late in the process. Finally, clients should know that a defense broker need not participate in setting up an SS for the client or you. Their interests lie in protecting their clients, the insurance company, which conflicts with our interests.

After working with clients on cases ranging from complex birth injuries due to medical malpractice to straightforward personal injury, I see a recurring theme in the process. Despite my best efforts to move a settlement forward, the defense lacks a sense of urgency to facilitate the closing of the case. You and I have almost no leverage to move the defense swiftly after signing the mediation agreement. Because it benefits the defense to move as slowly as possible, they are supported by the system to do just that.

The defense’s lack of urgency often appears as they generate documents and fund the settlement. Before I explain how these barriers can be reduced, let’s examine the root of each issue, starting with funding.

Funding is the insurance carrier’s domain and often stipulates a 30- or 60-day funding period. How and why can they do this? Does it take that long to pull the money together? No. The insurance carrier sets aside a reserve to cover the potential loss after the liability recognition event occurs. Their motivation is financial; they maximize the accrual of interest on their money by slowing the release of funds.

Given the uniformity of documentation, the processes of releasing funds, qualified assignments, and other pertinent routine paperwork, the insurance company and defense should take only a few minutes to produce these for each case. However, days, weeks, and months can elapse before a draft appears in an email. All the time, the clock spins, and interest accrues in the defense’s account while no payment is forthcoming for the money you earned and the client deserves.

Identifying the defense settlement broker’s crucial role could be seen as self-serving. However, forcing the defense to identify their broker early, if they have one, eliminates confusion later in the case while allowing me to establish a conduit to the appropriate client settlement defense broker. In addition, these steps, on my and the client’s behalf, open a window for me to learn about the insurance company’s funding protocols, carrier preferences, and correct party names, which are germane when multiple layers of coverage exist. Most importantly, in most cases, defense settlement brokers for the insurer can accelerate the settlement process.

Their absence leads to working without a colleague for months coordinating the defense and the plaintiff legal teams to complete the process, causing unwarranted delays. As the final stage approaches, miraculously, a defense broker materializes. asking for half the commission just to facilitate the mailing of a check. Naturally, I acquiesce, as causing harm to my client would be unacceptable to me.

Additionally, outcomes of these events can leave the client in limbo, unable to move forward with their lives. This situation is avoidable for everyone by utilizing a broker addendum in your next mediation agreement early in the process. It costs nothing but can mean the world to you and the client.

For a complete copy of the broker addendum reach out to me at

Breaking Our Reptilian Habits

Evolution drove caution into human nature. Our reptilian brain’s braking mechanisms–fear and pain–created resistance to behavioral change that worked well in early human history. However, these breaks could limit our potential in the modern world. The longer we resist changing our behavior, the greater our fear mounts, preventing us from taking action. So how can we break the cycle?

You have taken the first step if you acknowledge that the reaction is natural. However, the question becomes how to reduce the reptilian fight-or-flight response and use rational thought before deciding to act. The bottom line is to recognize when you need to change the behavior, right?

The following process has always worked well for me:

Define – Process – Change Behavior

In this paradigm, a goal can be realized by shifting behavior. A goal is optimized by defining a clear outcome with measurable values, realistic results and a time parameter. Time is not the enemy; it can give us reference points to evaluate progress towards behavioral change. In addition, time allows us to judge the effectiveness of our path to completion.

Defining a Goal

Using Pareto Analysis, hazard analysis or any analytical framework worked for me when defining my goal parameters. Analysis through a constructive framework eliminates cognitive gaps or assumptions of causation due to familiarity. Identifying the root factors that warrant a behavior change diminishes the likelihood of creating an inefficient process.

Following the Define/Process/Change Behavior methodology, you create a work product, such as defining what kind of business you want. Then, an 80/20 Pareto Analysis can help evaluate your current client base to determine revenue to time spent on each client. A continuing theme has emerged during frequent conversations with my CPA colleagues: focusing on more complex clients increases revenue while attending to less affluent clients does not.

An example of a defined goal could be: Defer twenty percent of the clients that provide less revenue value to shift my business towards complex clients that provide a better balance between time spent and revenue earned.

Implementing a Goal

Now that a goal is defined, what process do you need to implement the goal? In our example above, the process could include the following steps:

  • Identify the clients to be transitioned
  • Determine a course of action for the account, such as finding them another CPA
  • Create a script for what you want to say to your clients

Then, incorporate a time frame: Each month for the next ten months, I will transition ten percent of selected clients to other CPAs. Therefore, the goal will be completed in ten months.

Changing Your Behavior

Sweat beads up on your forehead. Palms get cold and clammy. You suddenly remember a hundred other things to do, like get a tooth filled. Goal denied. How do you stop procrastination?

Break down the process required to achieve your goal into its constituent parts. Then identify the first action required in the process. In my example, contacting the client on the phone started the process. The key to change is becoming the force that acts upon your inertia. You are the change agent. You create the force that alters the speed or direction of your progress.

After I defined my goal and saw the value of that goal, why did the phone seem to weigh a thousand pounds? The same creative ability that allows you to solve complex problems for your clients also creates images that lead to fear related to picking up the phone. Fear that the client may get angry or the conversation might not go well. All of these possibilities could happen. However, the pain your mind creates often far exceeds the reality of the pain that might occur. Once you make that first phone call, you break the cycle. Fear no longer chains you to failure.

Your change in behavior starts with the first phone call. I know from experience that each successive call becomes easier as you build momentum.

I entered the professional financial profession in 1999, which required hours of dialing for clients. I had monthly, yearly and personal goals I had to achieve to become a financial professional. So did my colleagues. Less than two percent of my colleagues made the grade. Why? It wasn’t because they weren’t capable. Once they defined a problem and a goal, they failed to pick up the phone. What appears as an easy step prevented their goal from becoming a reality. Do not let that be you. Make the future you want by being an agent of change.

2022 Economic Review

Original PDF version

Former NY Federal Reserve President William Dudley spoke on 11/15/21 concerning the Federal Reserve and the current market. His comments solidified my belief about the market’s overvaluation based on fundamental, historical, and technical models. By examining each model in sequence, the depth of the market overvaluation, the impact of the nations economic progression, and the animal nature of the economy all become more evident.To understand the link between the models and the current Federal Reserve policies, we should first consider the contemporary world economy. The world economy is analogous to living organisms, such as humans, composed of many individual cells with different requirements and functions. Similarly, the global economy functions as a whole, with many interdependent economies sustaining it. Much as an organism develops and grows, globalization has matured over the past eighty years, creating pervasive interlinking of economies. By examining historical, technical, and fundamental paradigms. a supporting argument materializes for the United States economy’s valuation and direction.

Historical analysis, or the view that history repeats itself, provides a birdseye view of the role of mechanical and behavioral factors on the economic process. Human nature is consistent. But what else tends to remain unchanged? The forces of supply and demand on markets. What impacts do these forces have historically on the market?

Since 1946 the market has experienced 12 bear market corrections, a move down of 30%. They occurred on average every 5.54 years with about 24 months for recovery. Over these corrections, the average bear market loss was 32.5%. We have not experienced a bear market since October 2007. Each cycle represents an intersection where market participant behavior drives market mechanics. Participant fear drives the downside by increasing the supply of assets while reducing the demand represented by buyers. The reciprocal of this process happens on the upside but at a much slower pace.

Why do downside market corrections happen much more rapidly than the upside climbs? The speed of these corrections aligns with participant awareness and behavior. As market participants realize the bull market is over, they en masse head for the exits. The outcomes for some investors can be enormous nothing prepares you for being shortsold 1000 S&P 500 put options contracts when the sellers disappearthe despair is contagious and almost unbearable. At that pivot point, the technical forces you ignored begin to roll over by breaking support level after support level on the way to a new market low.

If heeded, two technical indicators, the Relative Strength Index (RSI) and New High/ New Low (NH/NL) could temper the emotional component of trading. These indicators illuminate two vital and distinct dynamic forces inside the world of finance. RSI tracks the market’s momentum while NH/NL uncovers the breadth of the market. Moreover, both indicators have the significant advantage of not being stochastic, and have stood the test of time for indicating the market’s future direction.

RSI indicates weakness by signaling overbought conditions when the value moves towards 80 and oversold conditions below 30. Currently, RSI for the S&P 500 stands at 50.201 and has been steadily rising. However, RSI hasn’t yet reached the threshold of an overbought condition, signaling froth in the market, as confirmed by NH/NL.

NH/NL is the decreasing number of new lows with small moves in new highs demonstrates strain on the market, producing significant enough data to generate upward gaps in sentiment. Twelve years of market growth can affect expectations. All major indices, S&P, Dow, and NASDAQ saw new lows of 34, 4, 5, respectively. History and technical markers point to a resistance that should be coupled with a healthy level of skepticism when it comes to the continuation of the Bull Market.

Historical precedent and technical warnings do concern me, but the fundamentals of the economy truly take my breath away. The current fundamentals are:

  • Inflation of 7%.
  • Federal deficit $29 trillion.
  • Unfunded Federal liabilities $161 trillion.
  • Jan 2009 EPS 6.86 Nov 2021 162.41 Twelve Month real inflationadjusted.
  • Tenyear bond 1.439%, Average 5.96%
    • Low 8/2020 .52%
    • High 9/1981 15.84%

Debt, inflation, and lower than average longterm rates combined with aggressive earnings per share (EPS) valuations make a volatile cocktail. Unfortunately, the best economist or market prognosticators seem unwilling or unable to reach a consensus about what the next six to twelve months hold for the economy. Luckily being wrong about my position when the warning must be written has never been an issue for me. However, a warning doesn’t begin to describe the potential economic, financial, and societal dislocation I see in our future. Whether you calculate the forward value of a stock or the time value of payback, the one unifying factor, discount (interest) rates, determines the result. Interest rates like oil hit every financial and economic decision. The monetary intervention has artificially held rates low by eliminating typical price discovery. In 2009, the Federal Reserve led central banks worldwide began capital infusing by purchasing government debt, which pushed other prospective buyers out of the market. A twelveyear cap on price discovery means we must surmise the interest rate for selling future bonds.

The real interest rate calculation underlies my point of view. Nominal interest rate plus expected inflation equals real interest rate. Price discovery or the interest rate that would incentivize me to purchase a government bond would be closer to 5% versus the current 1.48%. I am not the only one confused by the disconnect between Federal Reserve policy and inflation. Mohamed A. ElErian, while speaking to Bloomberg News, stated, “Would you think the Fed would be adding monetary policy stimulus with inflation running at 6%?” He seems to intimate that the Fed may be disregarding obvious market economic indicators they often reference in their communications with investors in favor of some other yet undetermined metric. Regardless of your view on policy, market expectations as observed through the market prices place peak Federal Funds rates around 1.75%, which is a historically low number.

This market cycle from 2007 to the present eerily reminds me of the raging dot com era when incredibly, an intelligent analyst stated, “earnings we do not need earnings it’s a new form of business.” In the wake of that grand miscalculation, we found the field littered with broken companies, broken dreams, and a return to the old market mechanics. Market mechanics have been stifled for the past twelve years. Reinvigorated market mechanics via price discovery stand in solid opposition to market participants, the Federal Reserve, and investors valuation of the stock and bond markets. Moreover, tight labor markets on the back of supply issues cloud the landscape and impact the Federal Reserve’s monetary inflation created in 2008. Why?

The accommodative monetary policy started after the 2008 housing crisis papered over the cracks in the system while shifting the monetary ramification to other less engaged parties. Namely, the average American taxpayer. What are the ramifications of this action concerning the current Federal Reserve policy?

The Federal Reserve’s objective of avoiding a “Taper Tantrum” increases the likelihood of experiencing precisely that outcome. Somewhere between the late first quarter and early third quarter of next year, the Federal Reserve will aggressively taper so they can begin rate increases. A collision course of reduced liquidity with the streets myopic view of the end of the cycle will rapidly expose the lack of fundamentals in the economy, culminating in a seismic loss of wealth. A seismic loss indeed. Remember, the initial damage that caused the real estate bubble didn’t magically disappear due to free money. Such damage merely remains dormant until economic factors rebalance the paper job applied by the Fed over the past 12 years. Ghosts of the Christmas past will come back to haunt financial experts by reminding them of their original hubris.

Irving Fisher (Fisher Effect) proffers that labor demographics, political division, and the death of the middle class can all rise from the grave to smack the Fed’s policy in the face. The economy is an animal not easily tamed and often cruel to those who play with the fundamental underpinnings. PostWWI Germany shows us what printing money does to an economy once people realize their declining wages and savings. Many pages on this outcome await to be written; let my comments be some of the first. My exclamation, “Seismic loss!” sums up my view of where we are going If you do not believe a Seismic Loss is a possibility, consider the rapidity with which the Federal Reserve can act. During the period 2004 to 2006, the Fed raised rates 17 times.

The 20042006 period had none of the monetary easing experienced over the past 12 plus years or the rate of inflation seen in our current economy. An increase of 4% would devalue bonds by 30% and stocks by 86%, leaving very few places to hide from the carnage. To my point, the past decade of easy money, lowinterest rates, and tame employment numbers left many with the sense that negative rates of return had disappeared as an economic reality. As an individual whose been in the market for nearly three decades, I assure you that negative rates of return have not evaporated. Negative returns only lay dormant, waiting to catch those who didn’t learn from past markets.

Construction of real interest rates, (1+i) = (1+r)(1+πe), contains the nominal rate (i), and expected inflation(π) both determine the real ® or actual rate of return. The Federal Reserve truly controls neither of these factors. Notice the multiplicative form of the equation for real interest rates. For example, I believe a conservative view of interest rates for this time next year is 7.64%:

  • r = 4%
  • i = 3.5%
  • Nominal Rate = (1+.04)(1+.035) = 7.64%

Impact on Stock Value (SV):

  • SV = Do(1+g)/(rg)
  • Do = EPS ($3.00)
  • g = Growth rate (1%)
  • r = Rate of return (1.61%, 7.64%)
  • SV1.61% = 496.72
  • SV7.64% = $45.63
  • 90.81% loss in value.

Impact on Bond Values (10year semi with no option):

  • Current 10 year 1.61%
    • Value $1,000.00
  • Q4 2022 10 year 7.64%
    • $583.64
    • 41.64% loss in value

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