November, 2018

Nobody knows why the S&P 500 index declined more than 11% in October; the largest decline since, well, earlier this year.   

But experienced investors know that these declines are not unusual.  Since March 2009, the U.S. stock market has seen 23 pullbacks greater than 5%; eight greater than 10%.  You can see all of them on the accompanying chart; on average, these pullbacks have lasted 42 days and dropped prices by 9.3%.  And this is during a very long bull market! 

Interestingly, the S&P 500 today isn’t the same as it was back when the current bull market began; in fact, there are only 337 stocks remaining in the index that were included on March 9, 2009.  A small number—just 38 of them—accounted for much of the runup in the index, each gaining more than 1,000%. Most of the big gainers were technology stocks.   

Is there a lesson here?  Alas, we can’t extrapolate the short-term future from these statistics.  When stocks go on sale, it is often difficult to determine whether they will become even better bargains in the days ahead. 

Sincerely, 

Edward J. Kohlhepp, Jr., CFP®, MBA
President  

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO

Sources: 

https://theirrelevantinvestor.com/2018/10/30/a-top-or-the-top/ 

https://pensionpartners.com/the-5-kinds-of-bounces/ 

This material was prepared by BobVeres.com., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

October, 2018

If you’re the kind of person who like to worry, then October has given you plenty of stimulus.  After yesterday’s 3.1 percent drop in the popular S&P 500 index, the index has lost 8.8% in this month alone, wiping out all the gains that we’ve enjoyed this year, putting the index in negative territory.  The once-soaring Nasdaq Composite Index of technology companies tumbled 4.4% on the same day.

In times when the markets are dropping, even if they haven’t hit correction territory yet (that would be a 10% drop), the media needs to find a narrative, and you hear all sorts of theories.  Corporate earnings have nowhere to go but down.  The tariffs are slowing down economic activity.  Interest rates are rising.

All of that is true, but none of it has anything to do with why the markets are falling.  The only true headline, and one you will never read, is that stocks are falling because some people are losing faith in their investments and selling out to bargain hunters.  Sometimes this activity feeds on itself; when people see the market falling, they, too, begin to panic.

The stock markets periodically deliver losses for reasons which are not always obvious even after the fact.  Bear markets are a normal part of investing, and this is actually a good thing, because it allows real investors to periodically buy stocks at discounted prices.  Research has shown that there is a gap between the return that most investors get from their stock investments and the actual returns delivered by those stock investments.  This is, of course, because they sell this or that fund before it goes up, or sell out and then wait to get back in until the market has gone up past where they sold.  Getting the full return of the markets is relatively easy: just hang on during those periodic downturns.

But those downturns are terribly painful, right?  Take a look at this chart, created by First Trust Corporation, which shows the bull and bear markets since the Great Depression.  Notice that the downturns have been sharp but relatively brief, while the up-markets have been protracted and generous.  This has been the pattern up to now, and there’s no reason to think it won’t continue, unless you believe that the millions of people who go to work each day for their corporate employers are somehow destroying value instead of creating it.

You don’t need an explanation for why markets go down in order to benefit from them.  You just need the ability not to startle when the herd of investors suddenly makes an unexpected dash for the exits—to, as Warren Buffett once said, be greedy when others are scared, and scared when others are greedy.

Worry about the downturn if you want, but know that worry is the precursor to being scared.  And if you see somebody predicting where the markets are going to go from here, if they’re not wearing a wizard’s hat and gazing into a crystal ball, it’s probably best to turn off your attention.

Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA
President 

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO

Sources: 

https://allstarcharts.com/stock-prices-falling-perfectly-normal/ 

https://www.bloomberg.com/news/articles/2018-10-23/asia-stocks-look-mixed-as-late-u-s-rally-falters-markets-wrap?utm_campaign=socialflow-organic&utm\

This material was prepared by BobVeres.com., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

September 20, 2018

If you’ve been paying attention to the financial news lately, you’re probably seeing a lot of ominous predictions—and they’re usually backed up by some ominous headline.  The most simplistic are saying that the bull market has now lasted ten years, so therefore it’s about to come to an end—as if bull markets come with a time limit.  Others, equally simplistic, are saying that the market has reached a new high, and, well, don’t markets fall from their all-time highs?  This ignores the fact that more than 70% of the time, a new high is followed by another new high—and ultimately, so far in history, every new high has eventually been surpassed by the next one.

The more credible predictions are based on the fact that the U.S. debt is exploding, or that the U.S. is experiencing an expanding credit bubble in the government, corporate sector, and also—perhaps for the first time—the youngest workers with their crushing student loans.  The Fed is committed to raising interest rates, which will make all that debt more meaningful somewhere down the road.  And then we have the meltdown in Turkey, the potential consequences of reckless trade wars on the global economy, and the flat yield curve that is in danger of inverting.

The most important thing to know about all this is that there is no economic consensus that the U.S. or the world economy are about to plunge into recession in the next six to 12 months.  None of these simplistic arguments or ominous headlines, separately or together, add up to an imminent market meltdown or fire sale of the stocks that you’re holding in your portfolio.  That, of course, doesn’t mean that a meltdown couldn’t happen tomorrow, but it could just as easily happen one, two or three years down the road.  And it’s helpful to remember that various pundits have been predicting a major pullback constantly over the past nine years of bull market returns.  Anybody who was spooked by these pundits would have missed out on significant gains. 

This is more of the same noise, albeit with somewhat scarier headlines in the background.

Interestingly, the indicator that is taken most seriously in economic circles is the inverted yield curve.  We aren’t there yet, but the bond markets are certainly moving toward one of those rare times when two-year Treasuries are yielding more than 10-year bonds.  Every recession since 1977 has been preceded by a yield curve inversion.

But is this cause, effect or coincidence?  A recent article by Laurence Siegel, Director of Research at the CPA Institute Research Foundation, acknowledges that inverted yield curves have been a pretty good predictor in the past.  But he says that in the present marketplace, there is, as yet, no pressure coming from the things that a recession corrects: high inflation, high levels of debt, rich stock market valuations (though we may be moving in that direction), and tightness in the labor market. 

A yield curve inversion affects the supply and demand for capital, which can have impacts on the economy which could cause a recession.  It discourages banks from doing what they were made to do: borrowing short and lending long to viable businesses that are expanding.  In the past, there may have been a more direct cause and effect than there is today.  Today, banks can turn to hedge funds and a variety of other lenders who will allow them to borrow short at reasonable rates.

The bigger point is that recessions are inherently unpredictable.  If we had a reliable way to predict them, we would already be in them, because companies, knowing the time and date of the recession, would pull back in anticipation of it, and simply bring it on more quickly.  The same is true of major market pullbacks; if you, or I, or anyone else knew when it was going to happen, we would already be running for the exits, triggering the pullback prematurely.

Bottom line: we don’t know when or where the pain will come; we only know THAT it will come.  And we know with some certainty the direction of the next 100% movement in the markets.  That may be enough.

Sources:

https://www.ft.com/content/58d1ce9c-b5a2-11e8-bbc3-ccd7de085ffe

https://www.advisorperspectives.com/articles/2018/08/20/dont-be-fooled-by-the-yield-curve

This material was prepared by BobVeres.com., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

August, 2018

What the heck is going on in Turkey?  Whatever it is, it’s having a visible effect on the markets.  After the Turkish stock market index fell more than 24% since the start of August, Eurozone bank stocks fell 24% and emerging markets stocks overall (a category which includes Turkish stocks) dropped 9.9% for the year.  A number of non-major currencies, including the South African Rand, Argentine peso, Russian ruble, Hungarian forint, Polish zloty, Brazilian real and Mexican peso were also down sharply, as was one major currency: the euro.  (See chart).  

The crisis was triggered when Turkish officials detained, and ultimately imprisoned, an American evangelical pastor named Andrew Brunson, accusing him of being a spy who was attempting to overthrow the Turkish government.  Before being detained, Brunson had been working as a pastor at the Izmir Resurrection Church, as a 23-year resident of the country.  His trial is set for October. 

American diplomats have been pushing for Brunson’s release, saying that he is basically on trial for his faith, not for any nefarious spying activities.  When the negotiations failed, the Trump Administration surprised Turkey and the rest of the world by imposing economic sanctions against what most would consider to be an allied government—a fellow NATO member whose Incirlik air base was a crucial staging ground for the air war against the Islamic state. 

The sanctions were clearly the trigger event for the collapse of Turkish stocks and the Turkish lira, but some analysts say the country was long overdue for some kind of negative event in the Turkish economy for some time.  In recent years, Turkey has been compared to Greece for having amassed one of the largest foreign debts in the world, as its banks and large companies have borrowed heavily to maintain activity in the economy.  Foreign investment has dramatically slowed, in part because the country’s authoritarian government seems often inclined to meddle in monetary decisions.  Those concerns were not exactly allayed when, in response to the crisis, Turkish president Recep Tayyip Erdogan squeezed central bank liquidity and doubled the interest rate cost in his country, in a single day, and then, by fiat, changed the rules so that speculators were no longer allowed to sell their for dollars or euros in what are known as currency swaps.  Banks were forced to stop lending lira or renew any existing contracts. 

In addition, Erdogan lashed out by doubling Turkish import tariffs on passenger cars to 120% of their value, plus a 140% tariff on alcoholic drinks, and significant tariffs on tobacco, cosmetics, rice and even coal.  In a subsequent speech, the Turkish president called for a citizen boycott of U.S. electronic products, including the iPhone. 

Is there any way out of this mess?  It seems clear that the Turkish government is backed into a corner, not wanting to look foolish or weak by releasing its American pastor.  They surely know that if or when they do, President Trump will do a very public, and humiliating, victory dance on the world stage.  We may see some kind of quiet prisoner swap involving persons detained by the Israelis, but that could be months or years down the road.   

In the meantime, the Turkish lira stopped its precipitous slide only when the oil-rich nation of Qatar stepped in to offer financial assistance in the form of a $15 billion loan.  This mess is going to blow over, but not without a few more scary headlines to come. 

Sincerely, 

Edward J. Kohlhepp, Jr., CFP®, MBA
President  

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO

This material was prepared by BobVeres.com., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Sources:

https://www.reuters.com/article/us-turkey-markets-contagion/turkey-tantrum-investors-fret-over-contagion-from-lira-plunge-idUSKBN1L00YJ 

https://www.nytimes.com/2018/08/01/world/europe/us-sanctions-turkey-pastor.html 

https://www.cnn.com/2018/07/29/politics/andrew-brunson-pastor-turkey-detained/index.html 

https://www.reuters.com/article/us-turkey-usa-tariffs/turkey-doubles-tariffs-on-some-u-s-imports-lira-rallies-idUSKBN1L00BI 

https://www.theguardian.com/business/live/2018/aug/15/turkish-lira-crisis-turkey-raises-tariffs-on-us-goods-business-erdogan-markets-live 

https://www.ft.com/content/15c9909a-a089-11e8-85da-eeb7a9ce36e4

The Growth Spike

August, 2018

Recent reports about the U.S. economy were a case of good news and bad news.  The good news is that, in the second three months of the year, the U.S. economy grew at an estimated 4.1%—better than the 2.2% growth posted during 2018’s first quarter.  The 4.1% figure is subject to revision as economists refine the numbers, but a 4% growth rate, if sustained through a period of years, would greatly bolster the wealth of all Americans. 

The bad news is that the economy will almost certainly not sustain this growth rate.  And despite what you are hearing from political pundits, there is also nothing remarkable about a single quarter’s 4.1% GDP increase.  As you can see from the chart, what has been labeled “historic” is actually pretty ordinary over the long term.  The economy exceeded last quarter’s level four times during the Obama presidency, in 2009, 2011 and twice in 2014.  4.1% growth would have been considered alarmingly slow during the Reagan presidency. 

Why can’t we sustain even this ordinary level of GDP growth?  Economists have noted that this spike in economic activity was not entirely unexpected, and is the result of a number of one-off events.  You might remember that Congress passed a significant corporate tax cut last. year, which kicks in at an unusual time: toward the end of a very long economic expansion, with consistently falling unemployment and rising home values.  The U.S. economy just entered its tenth consecutive year of growth.  Typically Congress will pass a stimulus package to bail the country out of recession.  One economist described the second quarter as an economy on a “sugar high.”  If you have ever had small children, you know how those often end. 

In addition, the quarter was aided (predictably) by foreign companies stockpiling U.S. goods before the threatened tariffs disrupt the flow of products across borders—temporarily boosting U.S. exports. 

Long-term, the GDP of any country is determined by the growth in the number of workers and the rising productivity of those workers as they labor at their desks and on the factory floor.  Neither of those factors are growing at anywhere near a 4% rate currently, which suggests that next quarter will see a return to the average 2-2.5% rate that we’ve experienced since 2009.  That, in turn, may explain why the U.S. stock indices actually fell on the day of the “historic” GDP announcement.  Savvy investors know better than to project one quarter’s results forward indefinitely into the future. 

Enjoy the rest of summer!

Sources: 

https://www.yahoo.com/finance/news/ap-fact-check-trump-falsely-044729698.html 

https://www.cbsnews.com/news/us-gdp-growth-touted-as-historic-by-trump-is-totally-standard/ 

https://www.cnbc.com/2018/07/27/us-gdp-q2-2018.html

This material was prepared by BobVeres.com., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

April, 2018

Last year, it was hard to turn on your computer without reading about the dramatic rise in cryptocurrency values, or see advertisements for ways that you, too, could participate in this get-rich-quick opportunity to buy virtual money that is backed by no government on Earth. 

It’s almost always the case that when an investment becomes wildly popular and experiences a dramatic runup in price, that is exactly the wrong time to invest.  And it turns out that cryptocurrencies were no exception.

While the stock markets were dropping moderately in value, cryptocurrencies lost their owners an estimated $60 billion in the last week of March, including a $20 billion drop over one dramatic six-hour period.  Bitcoins are trading below $7,000, and the trend is taking them toward their February 6 low—and, perhaps, further.  In case you’re not up on other cryptocurrencies, there’s something called Ether (now $381 per coin); Bitcoin cash ($691.48); Litecoin ($116.27) and Ripple (49 cents). 

The problem, as always, is figuring out whether these alternative currencies are actual investments.  For now, there are very few stores which accept them as actual money.   Bitcoin’s primary purpose in the marketplace has famously been to enable drug and weapons traffickers to buy and sell without leaving a paper trail for international police agencies to follow. 

Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA President 

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO 

This material was prepared by BobVeres.com., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Source: 

https://www.marketwatch.com/story/cryptocurrency-market-sheds-a-further-20-billion-in-total-value-overnight-2018-03-30

March 28, 2018

Last weeks, stocks went on sale again, but there didn’t seem to be a lot of bargain hunters stepping in to take advantage.  The S&P 500 dropped 5.9% over five days, its worst week since January 2016.

This follows a by-now-familiar pattern: the Trump Administration announces tariffs—this time on Chinese imports with an estimated value of $60 billion a year—but is not specific on the details.  Traders fear that there will be retaliation against American products sold abroad, and put a lower value on the large multinational companies that account for most exports and make up most of the major indexes.

The last time this happened, the tariffs involved steel and aluminum, and the panicked sellers  later discovered that the impact on global trade was actually quite small, due to negotiated exemptions for major steel producing nations like Canada and South Korea—plus the Eurozone and Mexico.  This time around, the U.S. trade representative has 15 days to develop a list of specific Chinese products to slap the additional taxes onto, and there will be a public comment period before the threatened tariffs go into effect.  China has announced that it is developing its own list, and as companies (and farmers) become aware of what is included in its reported $3 billion tariff package, they will lobby for exemptions which may turn this announcement into another tempest in a teapot.

Meanwhile, in the wake of the Cambridge Analytica (no relation to Cambridge Investment Research) scandal, admissions that private information on 50 million people had been pilfered, and up to 126 million Americans had seen posts by a Russian troll farm on its site, Facebook shares fell almost 10%, from 176.83 down to 159.39.  This took the social media giant down from the 5th largest-capitalization company in the S&P 500 index to the 6th (behind Berkshire Hathaway)—dragging the index down even further.

What’s remarkable about the selloff over things that might or might not happen is that it came amid some very good news about the U.S. economy.  Durable-goods orders jumped 3.1% in February, sales of newly-constructed homes were solid, and Atlanta Fed president Raphael Bostic announced that there were “upside risks” in GDP and employment.  Translated, that means that the economy is looking too good to keep interest rates as low as they have been, which means this is a curious time to be selling out and heading for the investment sidelines.

Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA
President 

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO

This material was prepared by BobVeres.com., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Sources:

http://theirrelevantinvestor.com/2018/03/23/8750/

https://www.marketwatch.com/story/heres-why-the-stock-market-took-the-china-tariffs-so-hard-2018-03-22

https://www.usatoday.com/story/money/2018/03/22/stock-market-falls/448665002/

http://www.symbolsurfing.com/largest-companies-by-market-capitalization

March 13, 2018

You may have heard about the “Trump Tariffs;” that is, the proposed 25% surtax on all steel imports coming into the U.S. from foreign manufacturers, and a similar 10% surtax on aluminum.  The markets certainly noticed; they fell dramatically after the announcement, as investors feared that the move would spark a global trade war.

The proposed tariffs would be enacted under a loophole in the World Trade Organization rules, which generally prohibit countries from straying from their agreed-upon trade arrangements, but permit “safeguard” responses to a sudden, unforeseen and damaging import surge that could seriously damage a particular industry.  Internally, the Trump Administration plans to circumvent Congress by imposing the tariffs under Section 232 of a 1962 U.S. law that allows the President to take unilateral action based on national security concerns.  The last time Section 232 was invoked was back in 1975, when President Ford imposed taxes on foreign oil.

The initial panicked market reaction cooled after it became clear that the tariffs may actually never be imposed—for several reasons.  One is that there has actually been no unforeseen or damaging import surge in aluminum or steel, or really any surge at all.  The U.S. already imposes 169 trade taxes on various types imported steel, including 29 on Chinese products that were imposed during the Obama Administration.

Another is that the national security concern is not easy to justify, particularly after the President signaled that he would remove these tariff measures on Mexico and Canada—two of the largest exporters of steel to the U.S.—if those countries come back to the table to renegotiate the North American Free Trade Agreement.  Wouldn’t that put the country back at risk all over again?

A third is that the tariff is a bit like shooting at the enemy and hitting one of your fellow hunters instead.  President Trump specifically called out China for destroying the U.S. steel industry and dumping artificially-priced steel on U.S. markets.  But China is only the 11th largest source country to the U.S., accounting for just two percent of total U.S. steel imports last year.  The Chinese steel industry doesn’t depend on the U.S. market; America is China’s 26th biggest import customer, well behind South Korea, Vietnam, the Philippines, Thailand and Indonesia. 

Who would be hurt most by the tariff?  Canada is by far the biggest source of manufactured steel, accounting for 17% of U.S. imports.  Other U.S. allies like South Korea, Mexico and Brazil are all significant sources for U.S. manufacturers.

Finally, if the effort is to boost the number of manufacturing jobs in the U.S., the proposal looks like it could seriously backfire.  There are approximately 170,000 steel- and aluminum-related jobs in the U.S. currently.  But if the measure makes steel and aluminum more costly, it would lower profits for companies that employ more than 6.5 million workers—who are paid to make everything from pickup trucks to canned soup.  Worse, the measure opens the doors for the European Union and China to create targeted retaliatory measures like slapping significant tariffs on Harley Davidson motorcycles, bourbon and a variety of agricultural products that depend on exports—further endangering American jobs.

So while the sweeping tariff proposals make headlines, the reality is likely to be a quiet walking back from the proposal altogether or, to save face, a tariff that makes a lot of exceptions and grandfathers existing long-term contracts.

This material was prepared by BobVeres.com., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Sources:

https://www.reuters.com/article/us-usa-trade-explainer/trumps-extraordinary-tariffs-idUSKBN1GH2IR

https://www.dallasnews.com/news/donald-trump-1/2018/03/01/trump-says-will-steel-aluminum-tariffs-despite-objections-industry-congressional-leaders

http://money.cnn.com/2018/03/02/news/economy/steel-industry-statistics-us-china-canada/index.html

https://www.cnbc.com/2018/03/02/if-trump-thinks-hes-taking-steel-tariff-war-to-china-hes-wrong.html

https://www.nytimes.com/2018/03/05/opinion/trump-tariff-americans-jobs.html

February 9, 2018

It looks like the U.S. stock market will finally get something that happens, on average, about once a year: a 10+ percent drop—the definition of a market correction.  However, the last time a verydeep drop happened, it was a whopper—the Great Recession drop that caused U.S. stocks to drop more than 50%--so most people today probably think corrections are catastrophic.  They aren’t.  More typically, they last anywhere from 20 trading days (the 1997 correction, down 10.8%) to 104 days (the 2002-2003 correction, down 14.7%).  Corrections are unnerving, but they’re a healthy part of the economy—for a couple of reasons.

Reason #1: Because corrections happen so frequently and are so unnerving to the average investor, they “force” the stock market to be more generous than alternative investments.  People buy stocks at earnings multiples which are designed to generate average future returns considerably higher than, say, cash or municipal bonds—and investors require that “risk premium” (which is what economists call it) to get on that ride.  If you’re going to take more risk, you should expect at least the opportunity to get considerably more reward.

Reason #2: The stock market roller coaster is too unsettling for some investors, who sell when they experience a market lurch.  This gives long-term investors a valuable—and frequent—opportunity to buy stocks on sale.  That, in turn, lowers the average cost of the stocks in your portfolio, which can be a boost to your long-term returns.

The current market downturn relates directly to the first reason, where you can see that bonds and stocks are always competing with each other.  This week’s 4.1% decline in the S&P 500 coincided with an equally-remarkable rise in the yields on U.S. Treasury bonds.  Treasuries with a 10-year maturity are now providing yields of 2.85%--hardly generous, but well above the record lows that investors were getting just 18 months ago.  People who believe they can get a decent, relatively risk-free return from bond investments are tempted to abandon the bumpy ride provided by stocks for a smoother course that involves clipping coupons.  Bond rates go up and the very delicate supply/demand balance shifts, at least temporarily, in their direction, and you have the recipe for a stock market correction.

This provides us all with the opportunity to do an interesting exercise.  It’s possible that the markets will drop further—perhaps even, as we saw during the Great Recession, much further.  Or, as is more often the case, they may rebound after giving us a correction that stops short of a 20% downturn.  The rebound could happen as early as Monday, or some weeks or months from now as the correction plays out.

Once it’s over, no matter how long or hard the fall, you will hear people say that they predicted the extent of the drop.  So now is a good time to ask yourself: do I know what’s going to happen tomorrow?  Or next week?  Or next month?  Is this a good time to buy or sell?  Does anybody seem to have a handle on what’s going to happen in the future?

Record your prediction, and any predictions you happen to run across, and pull them out a month or two from now.

Chances are, you’re like the rest of us.  Whatever happens will come as a surprise, and then look blindingly obvious in hindsight.  All we know is what has happened in the past.  This week’s market drop is nothing more than a data point on a chart that doesn’t, alas, extend into the future.

Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA President 

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO

This material was prepared by BobVeres.com., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Sources:

https://www.fool.com/knowledge-center/6-things-you-should-know-about-a-stock-market-corr.aspx

https://www.yardeni.com/pub/sp500corrbear.pdf

https://finance.yahoo.com/news/stocks-getting-smashed-143950261.html

February 5, 2018

Suppose somebody came up to you and shouted: “I have terrible news about the economy.  I think you should sell your stocks!”

Alarmed, you say: “Oh, my God.  Tell me more!”

And this mysterious stranger shouts: “Run for the hills!  The American economy just added 200,000 more jobs—more than expectations—and the U.S. jobless rate now stands at 4.1%, the lowest since 2000!”

You blink your eyes.  So?

“There’s more,” you’re told.  “The average hourly earnings of American workers have risen a more-than-expected 2.9% over a year earlier, the most since June of 2009!  You should sell your stocks while you can!”

Chances are, you don’t find this alarmist stranger’s argument very persuasive, but then again, you don’t work on Wall Street.  After hearing these benign government statistics, traders rushed for the exits from the opening bell to the closing, and today the S&P 500 stocks are, in aggregate, worth 2.13% less than they were yesterday.  The Nasdaq Composite index fell 1.96% and the Dow Jones Industrial Average, a somewhat meaningless but well-known index, was down 2.54%.

To understand why, you need to follow some tortuous logic.  According to the alarmist view, those extra 200,000 jobs might have pushed America one step closer to “maximum employment”—the very hard-to-define point where companies have trouble filling job openings, and therefore have to start offering higher wages.  No, that’s not a terrible thing for most of us, but the idea is that if companies have to start paying more, then they’ll be able to put less in their pockets—and the rise in the hourly earnings of American workers totally confirmed the theory.

If you’re an alarmist, it gets worse.  If American workers are getting paid more, then

companies will start charging more for whatever they produce or do, which might raise the inflation rate.  “Might” is the operative word here.  There hasn’t been any sign of higher inflation, which is still not as high as the Federal Reserve Board wants it to be.  But if you’re a Wall Street trader who thinks the market is in a bubble phase, you aren’t necessarily looking at facts to confirm your beliefs.

Suppose you’re not an alarmist.  Then you might notice that 18 states began the new year with higher minimum wages, which might have nudged up that hourly earnings figure that looked so alarming a second ago.  And some companies have recently announced bonuses following the huge reduction in U.S. corporate tax rates, whose amortized amounts are also finding their way into wage statistics.

Meanwhile, those same government statistics are showing a resurgence in factory activity and a rebound in housing, which account together for more than 50,000 of those new jobs.

So the question we all have to ask ourselves is: are we alarmists?  Selling in anticipation of a bear market has never been a great strategy, even though stocks are admittedly still priced higher than they have been historically.

If you are not an alarmist, then you have something to celebrate.  The S&P 500 has now officially ended its longest streak without a 3% drop in its history.  It’s an historic run not likely to be seen by any of us again.  The truth about the markets is that short, sharp pullbacks are inevitable and routine—unless you were living in the past year and a half, when we seemed to be immune from normal market behavior.

Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA
President 

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO

This material was prepared by BobVeres.com., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Sources:

https://www.bloomberg.com/news/articles/2018-02-02/u-s-added-200-000-jobs-in-january-wages-rise-most-since-2009

https://www.bloomberg.com/news/articles/2018-02-01/asia-stocks-to-slide-as-tech-stumbles-bonds-drop-markets-wrap?https://www.theatlantic.com/business/archive/2018/02/market-dow-drop/552254/?utm_source=atltw

January 5, 2018

Investors are excited about bitcoin – perhaps too excited. Their fervor is easy to understand.On December 18, bitcoin closed at $17,566. Back on September 22, bitcoin was valued at only $3,603.¹    

Yes, you read that correctly – the price of bitcoin jumped nearly 500% in three months. Thanks to this phenomenon, investors everywhere are asking if they should buy bitcoin or invest portions of their retirement funds in the cybercurrency. The air is filled with hype: bitcoin is “unstoppable,” it is “the answer,” it is “the future.”  

It may also be heading for a crash.   

Bitcoin has crashed before.It is highly volatile. On Thanksgiving 2013, a single bitcoin was worth $979; by April 2014, the price was at $422. In late August 2017, it settled at $4,673; by mid-September, it was back at $3,783 immediately before its amazing fourth-quarter climb.¹   

With the recent launch of bitcoin futures markets on the Chicago Board Options Exchange (CBOE) and CME Group, bitcoin has gained more respect. Still, there are many investors who will not touch it because of its considerable downside risk and its association with the seedy side of global finance.²   

The free market determines the value of bitcoin. Therefore, it can suffer sudden, dramatic devaluations due to the day’s headlines. When China ordered bitcoin exchanges to shutter, the price of bitcoin slid. When JPMorgan Chase CEO Jamie Dimon called bitcoin “a fraud” in September 2017, the price quickly fell 10%. When the Silk Road website disappeared, bitcoin’s value took a hit (and its disappearance brings us to the cryptocurrency’s other worrisome aspect).^3,4 

Bitcoin has long been linked to the “dark web.” Even its origins are mysterious: the digital currency was created by someone named “Satoshi Nakamoto,” whose identity is still a question mark. Bitcoins are made in cyberspace by computers, beyond the control of any government.To its advocates, the fact that bitcoin has emerged from the Internet rather than a central bank is attractive. Who bitcoin and other cybercurrencies have attracted is another matter.^4,5    

Bitcoin transactions are conducted on multiple exchanges and verified through the blockchain, a digital ledger that leaves transaction records open to the broad community of bitcoin users rather than a financial regulatory authority.^3,4  

Is this transparency a plus or a minus? You will hear both arguments. Even with this openness, users on bitcoin exchanges are not always required to reveal their identities, which is a plus for criminals. Bitcoin has been linked to money laundering, and earlier in this decade, some economists saw it as little more than a currency for drug lords. Silk Road, a black-market website, saw plenty of bitcoin transactions. How about funding for terrorist cells? Recently, a New York woman was charged with trying to send more than $80,000 to ISIS – cash mostly laundered through bitcoin, federal prosecutors assert.^5,6   

The hype says that bitcoin is the “new gold,” but gold has intrinsic value. Governments, banks, and institutional investors share a foundational belief that gold is a valuable commodity. Does bitcoin have such a foundational belief beneath it?  

If speculators stopped believing bitcoin was valuable, then how valuable would it be? Nearly worthless, in the eyes of some observers. As NerdWallet investment writer Andrea Coombes remarks, “The value is in the demand itself.”⁷ 

In the financial markets, higher prices are not always succeeded by higher prices.This is essentially the belief holding up bitcoin. Its biggest fans believe its direction will be up and up for years to come, and that it will never really crater again. This is called irrational exuberance, and it has harmed many investors through the years. 

Whether you think bitcoin is the “new gold” or amounts to a bubble ready to burst, its extreme, dangerous volatility means one thing – if you do choose to invest in it, you would be wise to only invest money that you can afford to lose.

Sincerely, 

Edward J. Kohlhepp, Jr., CFP®, MBA
President  

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - coindesk.com/price/ [12/20/17]

2 - cnbc.com/2017/12/17/worlds-largest-futures-exchange-set-to-launch-bitcoin-futures-sunday-night.html [12/17/17]

3 - thebalance.com/who-sets-bitcoin-s-price-391278 [2/14/17]

4 - theguardian.com/technology/2017/sep/13/from-silk-road-to-atms-the-history-of-bitcoin [9/14/17]

5 - theguardian.com/business/2013/mar/04/bitcoin-currency-of-vice [3/4/13]

6 - arstechnica.com/tech-policy/2017/12/feds-charge-new-york-woman-with-sending-bitcoins-to-support-isis/ [12/15/17]

7 - nerdwallet.com/blog/investing/is-bitcoin-safe/ [12/7/17]

December 18, 2017

The new tax law hasn’t been formally ratified by the U.S. House and Senate, but all indications are that the Tax Cuts and Jobs Act of 2017 will be sent to the President’s desk in the next few days.  As you probably know, the House and Senate versions were somewhat different.  What does the new bill look like? 

Despite the promise of tax “reform” or “simplification,” the bill actually adds hundreds of pages to our tax laws.  And the initial idea of reducing the number of tax brackets was apparently tossed aside in the final version; the new bill maintains seven different tax rates: 10%, 12%, 22%, 24%, 32%, 35% and 37%.  Most people will see their bracket go down by one to four percentage points, with the higher reductions going to people with higher income.  And the tax brackets, going forward, will be indexed to inflation, meaning that the “real” income brackets will remain approximately the same from year to year. 

The new brackets break down like this: 

Individual Taxpayers 

Income $0-$9,525 - 10% of taxable income

$9,526-$38,700 - $952.50 + 12% of the amount over $9,526

$38,701-$82,500 - $4,453 + 22% of the amount over $38,700

$82,501-$157,500 - $14,089.50 + 24% of the amount over $82,500

$157, 501-$200,000 - $32,089.50 + 32% of the amount over $157,500

$200,001-$500,000 - 45,689.50 + 35% of the amount over $200,000

$500,001+ - $150,689.50 + 37% of the amount over $500,000

Joint Return Taxpayers 

Income $0-$19,050 - 10% of taxable income

$19,051-$77,400 - $1,905 + 12% of the amount over $19,050

$77,401-$165,000 - $8,907 + 22% of the amount over $77,400

$165,001-$315,000 - $28,179 + 24% of the amount over $165,000

$315,001-$400,000 - $64,179 + 32% of the amount over $315,000

$400,001-$600,000 - $91,379 + 35% of the amount over $400,000

$600,000+ - $161,379 + 37% of the amount over $600,000

Taxes for trusts and estates were also changed to: 

$0-$2,550 - 10% of taxable income

$2,551-$9,150 - $255 + 24% of the amount over $2,550

$9,151-$12,500 - $1,839 + 35% of the amount over $9,150

$12,501+ - $3,011.50 + 37% of the amount over $12,500

Notice that in the lower brackets, the joint return (mostly for married couples) were double the individual bracket thresholds, eliminating the so-called “marriage penalty.”  However in the higher brackets, the 35% rate extends to individuals up to $500,000, but married couples with $600,000 in income fall into that bracket.  In the top bracket, the marriage penalty is more significant; individuals fall into it at $500,000, while couples are paying at a 37% rate at $600,000 of adjusted gross income. 

Other provisions: the standard deduction is basically doubled, to $12,000 (single) or $24,000 (joint), $18,000 (head of household), and in an interesting provision, persons who are over 65, blind or disabled can add $1,300 to their standard deduction. 

The bill calls for no personal exemptions for 2018.  And the Pease limitation, a gradual phaseout of itemized deductions as taxpayers reached higher income brackets, has been eliminated. 

Despite the hopes of many taxpayers, the dreaded alternative minimum tax (AMT), remains in the bill.  The individual exemption amount is $70,300; for joint filers it’s $109,400.  But for the first time, the AMT exemption amounts will be indexed to inflation. 

Interestingly, the new tax bill retains the old capital gains tax brackets—based on the prior brackets.  The 0% capital gains rate will be in place for individuals with $38,600 or less in income ($77,200 for joint filers), and the 15% rate will apply to individuals earning between $38,600 and $452,400 (between $77,400 and $479,000 for joint filers).  Above those amounts, capital gains and qualified dividends will be taxed at a 20% rate. 

In addition, the rules governing Roth conversion recharacterizations will be repealed.  Under the old law, if a person converted from a traditional IRA to a Roth IRA, and the account lost value over the next year and a half, they could simply undo (recharacterize) the transaction, no harm no foul.  Under the new rules, recharacterization would no longer be allowed. 

For many taxpayers who itemize deductions, the adjusted gross income number will be higher under the new tax plan, because many itemized deductions have been reduced or eliminated.  Among them: there will be a $10,000 limit on how much any individual can deduct for state and local income tax and property tax payments.  Before you rush to write a check to the state or your local government, know that a provision in the bill states that any 2018 state income taxes paid by the end of 2017 are not deductible in 2017, and instead will be treated as having been paid at the end of calendar year 2018. 

The mortgage deduction will be limited to $750,000 of principal (down from a current $1 million limit); any mortgage payments on amounts above that limit will not be deductible.  However, the charitable contribution deduction limit will rise from 50% of a person’s adjusted gross income to 60% under the new bill. 

What about estate taxes?  The bill doubles the estate tax exemption from, currently, $5.6 million (projected 2018) to $11.2 million; $22.4 million for couples.  Meanwhile, Congress maintained the step-up in basis, which means that people who inherit low-basis stock will see the embedded capital gains go away upon receipt. 

Public “C” Corporations saw their highest marginal tax rate drop from 35% to 21%, the largest one-time rate cut in U.S. history for the nation’s largest companies. 

And pass-through entities like partnerships, S corporations, limited liability companies and sole proprietorships will receive a 20% deduction on taxes for “qualified business income,” which explicitly does NOT include wages or investment income. 

As things stand today, all of these provisions are due to “sunset” after the year 2025, at which point the entire tax regime will revert to what we have now. 

Sources: 

https://www.washingtonpost.com/news/wonk/wp/2017/12/15/the-final-gop-tax-bill-is-complete-heres-what-is-in-it/?utm_term=.4b0efca718e8 

https://www.forbes.com/sites/kellyphillipserb/2017/12/17/what-the-2018-tax-brackets-standard-deduction-amounts-and-more-look-like-under-tax-reform/#42b575bf1401 

https://www.kitces.com/blog/final-gop-tax-plan-summary-tcja-2017-individual-tax-brackets-pass-through-strategies/

https://www.bna.com/2017-Individual-Tax/

https://www.nytimes.com/interactive/2017/12/15/us/politics/final-republican-tax-bill-cuts.html

This material was prepared by BobVeres.com., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Senate Tax Bill

December 5, 2017

The U.S. House of Representatives passed its proposed tax “reform” bill last month, and now the Senate has followed suit.  Interestingly, the two bills are different enough that the two sides are going to have to meet and hammer out a compromise.

Here’s a quick glance at the provisions in the Senate bill and some of the differences.

First, the Congressional Budget Office created a quick report that assesses a variety of income levels, and whether they’ll come out ahead, tax-wise (blue and white cells) or will lose ground financially (pink cells) under the proposed bill.  (See graphic). 

Under the Senate bill, there would be seven tax brackets (compared with four in the House version): 10%, 12%, 22%, 24%, 32%, 35% and 38.5%.  The threshold to reach the top rate would be raised from $418,000 (single) or $480,000 (joint) to $500,000/$1 million.

The Senate bill raises the standard deduction to $12,000 for singles and $24,000 for joint filers, compared with $12,200 and $24,400 in the House version.  The Senators decided to keep the mortgage interest deduction as it is today, rather than (House version) limit the amount of mortgage debt upon which interest can be deducted to $500,000.

Meanwhile, the House repealed the alternative minimum tax, but the Senate decided to keep it, although it did propose to raise the income exemption levels from $50,600 (single) or $78,750 (joint) to $70,600 and $109,400 respectively.  Both versions would raise the estate tax exemption to $11 million for individuals and $22 million for joint filers, but the House version would repeal the estate tax altogether in 2024, while the Senate version would not.

Like the House, the Senate bill would eliminate many popular deductions, including state and local income taxes, casualty losses and unreimbursed employee expenses. 

It is possible that the final version will greatly reward taxpayers who own and receive income through so-called “pass-through entities;” that is, corporate arrangements where the taxes are calculated and paid by the owners rather than at the corporate level.  This includes partnerships, Subchapter S corporations and limited liability companies, which would, under the Senate bill, be taxed at a rate of about 29.6% rather than the top rate, whatever that turns out to be.

Interestingly, this lower rate is also extended to publicly-traded pass-through vehicles—which suggests that you might see a lot of new tax-advantaged investment products come on the market if the bill is passed.

Speaking of publicly-traded entities, companies with significant earnings outside the U.S. will also receive a generous tax break; they would, under the Senate bill, be able to bring their earnings home at tax rates ranging from 7.5% to 14.5%—lower than the proposed new 20% corporate tax rate. 

The consolidated bill is expected to be signed before the end of the year—and of course the professional community is watching closely to calculate the impact on all of us.

Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA
President 

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO

This material was prepared by BobVeres.com., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Sources:

http://money.cnn.com/2017/12/03/pf/taxes/senate-house-tax-bills-individuals/index.html

https://www.nytimes.com/2017/12/02/business/tax-bill-offers-last-minute-breaks-for-developers-banks-and-oil-industry.html

https://www.forbes.com/sites/anthonynitti/2017/12/02/winners-and-losers-of-the-senate-tax-bill/#79382054254d

November 10, 2017

Major changes may be ahead for federal tax law. At the start of November, House Republicans rolled out their plan for sweeping tax reforms. Negotiations may greatly alter the content of the bill, but here are the proposed adjustments, and who may and may not benefit from them if they become law.

The corporate tax rate would fall from 35% to 20%.Wall Street would cheer this development, perhaps with a significant rally. Sole proprietorships, partnerships, and S corporations would also see their top tax rate drop to 25% (although W-2 wages for business owners who invest in these pass-through entities would still be taxed at the owner’s marginal tax rate).^1,2

The estate tax and Alternative Minimum Tax would be eliminated.The AMT would die immediately, saving more than 5 million high-earning taxpayers from an annual bother. Death taxes would sunset within six years, and in the interim, the estate tax exemption would be doubled, leaving the individual exemption at about $11 million. This would be a boon for many highly successful people and their heirs.²

Personal exemptions would go away, but the standard deduction would nearly double.The loss of the personal income tax exemption (currently $4,050 per individual claimed) would be countered by standard deductions of $12,000 for individuals and $24,000 for married couples. This could lessen the tax burden for many middle-class households. On the downside, the larger standard deduction might reduce the incentive to donate to charity.^1,2

Only four income tax brackets would exist.While the top marginal tax rate would remain at 39.6%, the other brackets would be set at 12%, 25%, and 35%. Individuals earning $45,000 or less and spouses with combined earnings of $90,000 or less would fall into the 12% bracket. Households earning less than $260,000 would be in the 25% bracket. The individual threshold for the 39.6% bracket would be moved up to $501,000 from the current $418,401; it would apply to couples who earn more than $1 million.³

Some state and local tax deductions might vanish.Taxpayers who face higher state income tax rates – such as those living in New York, California, and New Jersey – could lose a big tax break here. The reform bill’s author, House Ways & Means Committee Chair Kevin Brady (R-TX), says that a new revision to the bill would at least let homeowners deduct state and local property taxes up to a $10,000 cap.³

Speaking of caps, the mortgage interest deduction would be halved to $500,000. Real estate investors, developers, and agents are unhappy with this idea, as the current $1 million mortgage interest deduction has helped to spur home buying.¹

Some key itemized credits and deductions would disappear.Among those the bill would do away with: the medical expense deduction, the moving deduction, the student loan interest deduction, the deduction on alimony payments, the electric vehicle deduction, and the tax credit drug manufacturers rely on as they undertake clinical trials. Retirees, divorcees, college grads, and pharmaceutical companies could see some financial negatives.^1,2

Private college endowments would be taxed.With the aim of generating $3 billion in revenue over the next ten years, the bill would impose a 1.4% federal excise tax on private colleges and universities with 500 or more students and assets equivalent to or greater than $100,000 per full-time student.¹

The Child Tax Credit would grow.Families eligible to claim the credit would see it rise to $1,600 from the current $1,000.³

Hardship withdrawals from workplace retirement plans could become larger.Currently, plan participants who take hardship withdrawals are only allowed to withdraw their contributions, not both their contributions and earnings. The new reform bill would lift that restriction. In addition, a worker with an outstanding loan from a workplace retirement plan who loses his or her job would have until April 15 of the following year to repay the loan balance, as opposed to the current 60 days.⁴

 Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA
President 

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.   

Citations.

1 - nytimes.com/2017/11/02/us/politics/republican-tax-plan-winners-losers.html [11/2/17]

2 - kiplinger.com/article/taxes/T055-C032-S014-3-game-changers-for-investors-in-house-tax-plan.html [11/3/17]

3 - businessinsider.com/trump-gop-tax-reform-plan-bill-text-details-rate-2017-10 [11/2/17]

4 - chicagotribune.com/business/ct-biz-gop-tax-bill-401k-changes-20171103-story.html [11/3/17]

November, 2017

On November 2, Jerome “Jay” Powell was nominated to lead the Federal Reserve. The announcement in the White House’s Rose Garden was not a surprise; in recent days, he had emerged as the front-runner for the chairmanship.¹

Three things stand out about Jay Powell’s nomination, and the change of leadership presumably ahead at the Fed in 2018.¹

The choice of Powell does much to affirm the status quo. In fact, Powell has sided with the majority in every Fed policy vote since he became a Fed governor in 2012. Former White House budget director David Stockman calls him “Janet Yellen with a tie.”^1,2

Analysts widely expect Powell to try to maintain the accommodative stance of his predecessor, along with the Fed’s current strategy for normalizing monetary policy. He has shown an interest in scaling back some of the banking regulation put in place by the Dodd-Frank Act, such as the prohibition on proprietary trading by commercial banks.^1,3

Interestingly, Powell does not have a Ph.D. in economics. He is not an economist by profession, but rather a lawyer who became an investment banker and Fed governor. This may turn out to be more of a curiosity than a detriment; after all, the last Fed chair without a doctorate in economics was a fellow named Paul Volcker.^3,4

For the first time in almost 40 years, a sitting Fed chair will not be reappointed.Presidents have commonly retained Federal Reserve chairs appointed by the previous commander-in-chief; if Powell takes the helm of the Fed, that pattern will end. Janet Yellen does have the option to stay on as a Fed governor and voting member of the Federal Reserve Board through 2024, though exercising that option would be atypical. Assuming his nomination is approved, Powell will succeed Yellen as Fed chair in February.^3,4

Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA
President 

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.   

Citations.

1 - nytimes.com/2017/11/02/opinion/jerome-powell-trump-federal-reserve.html [11/2/17]

2 - foxbusiness.com/politics/2017/11/01/fed-pick-jerome-powell-is-janet-yellen-with-tie-fmr-reagan-budget-director.html [11/1/17]

3 - thestreet.com/story/14364543/1/powell-seen-as-safe-uncontroversial-choice-to-replace-yellen.html [11/1/17]

4 - tinyurl.com/y8kammc9 [11/2/17]

October 20, 2017

A new, serious Wi-Fi vulnerability that affects nearly all wireless networks was announced by security researchers this week. The attack, being called KRACK, allows hackers to perform wireless network identity theft via a flaw in WPA2 Wi-Fi settings.

The KRACK vulnerability allows wireless networks to be duplicated giving hackers an unencrypted view of anything flowing between your device and the network. For example, if you log in to your email while your network is affected the hacker will be able to see your username and password as well as anything you send while connected.

WPA2, or Wi-Fi Protected Access II, is considered the most secure setting for wireless routers—meaning the majority of networks currently have this setting in place and are at risk.

The good news is that in order to hack your network, attackers would need to be in physical range of your Wi-Fi network. In addition, sites that are protected with Secure Sockets Layer (SSL) encryption can’t be intercepted by hackers. You can determine if a site is protected if the URL in your browser begins with HTTPS://. (Keep in mind, however, that often these security certificates are not configured correctly and many may not actually be secure.)

So far there have been no reported exploits of this flaw, although experts say that businesses are more likely to be targeted than consumers. Here are some things you can do to protect your network from this attack:

1. Update your devices

Microsoft Windows released a patch for KRACK and you should update any Windows devices immediately. While this patch will not fix your router (those vendors will release separate patches when they are ready), it will protect your wireless Windows device from being exploited itself. You can download the appropriate patch for your Windows device here.

Apple has released a patch for iOS in the latest beta version of iOS 11.1. You can download the beta version online but it is not finalized yet and you may experience some issues. The finalized patch will likely be released to the general public and auto-pushed to your devices within the next few weeks.

Google will release a patch for the KRACK vulnerability on November 6th. It could, however, take months for each Android manufacturer to release the patch for its devices.

2. Turn off your Wi-Fi (if you can)

If you currently use a wireless connection in your office, we recommend turning it off and sticking to a wired Internet connection until router patches are released. With your Wi-Fi enabled, a hacker could possibly sit in your parking lot and dupe your network to intercept and download data shared on your network—including client information.

If you have the option to use a wired connection at home instead of wireless, we make the same recommendation. Keep track of any patches that become available for your home devices in the next 30 days as well. TVs, home routers, even some refrigerators are connected to Wi-Fi and will require a patch to secure themselves again.  

In addition, avoid free Wi-Fi hotspots such as coffee houses and airports for at least the next 30 days. This is a best practice anyway, as free wifi hotspots are always more vulnerable than a secure, private connection.

3. Check your router manufacturer for updates

Most router manufacturers are currently working on KRACK patches for its models. Charged blog is currently keeping a list of firmware patch status for most routers and devices. You should also check your manufacturer’s website for updates.

Once a patch is released for your router, you will have to update the firmware. This can be a complex process so you may want to ask your IT specialist (or internet provider) for help. You can also refer to these instructions for help.

Newer routers come with apps that make updating your router firmware less difficult. You may consider upgrading to one of these new routers in the near future.

Once your router is updated, you can turn your Wi-Fi network back on.

4. Stay tuned 

The KRACK vulnerability is a developing story and more news is likely to come out in the following days. We will continue to update you as more information is known.

Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA

President  
 

Edward J. Kohlhepp, CFP®, ChFC, CLU, CPC, MSPA

Founder & CEO 
 

Source: Horsesmouth Savvy Cybersecurity
 

• Equifax: (866) 349-5191
  Freeze your credit

• Experian: (888) 397-3742
  Freeze your credit

• Transunion: (888) 909-8872
  Freeze your credit

August 30, 2017

All of our hearts go out to the people in Texas dealing with the hurricane and the unprecedented tropical storm that has followed. Seeing the images on TV of the flooding, the rescues, and the people in shelters has had us thinking about what we all can learn from this.

Gratitude for what’s most important.  In everyday life it’s easy to focus on getting ahead, material accumulation, and the minutia and worries of daily life. Sadly, sometimes it takes a huge event to wake us up and bring our attention back to what is most important in life. It can be an illness, death of a loved one, or like Hurricane Harvey, a natural disaster. In the TV interviews we notice over and over that people will mention the loss, fear, and grief they are feeling, but also their gratitude for getting out safely and for the responders and volunteers who have helped.

Take a moment right now and think of three things you are most grateful for in your life. A focus on gratitude can move you from fear, sadness, and worry to allow you to be better able to actually help and support.

Prepare for the unexpected.  Don’t miss the message that those of us left physically unscathed by this disaster can learn from the people affected. Do you have the proper homeowners and auto insurance in place? Do you have a box with important documents you can grab if you needed to leave your home quickly or do you have this information securely stored on line where you could easily access? Have you built up your solutions fund (aka emergency fund) in case your income stops for a while?

Help where you can. It is so inspiring seeing ordinary citizens in their boats, kayaks, and Jet Ski’s recuing people. The stories of neighbors helping neighbors are so heartwarming. Actually watching other’s kind acts can inspire and motivate more good deeds. It can be difficult to watch a lot of news as it feels so bad – but this type of news is different. This is when humanity is at its best. If you aren’t helping directly with the flood victims in Texas, where can you lend a hand or do a kind deed?

Open your heart and your wallet.Don’t just feel badly about this disaster; listen to the pull you are feeling to help. Donate what you can. The need is expected to go on for a long time with so many people displaced from their homes. There are so many good organizations that are contributing to the relief effort in Texas. Find one that speaks to you.

The American Red Cross Hurricane Harvey disaster relief is a popular and impactful choice for donations. One of our partners, TD Ameritrade Institutional, is offering to match each donation made on its site, doubling the impact of every dollar given.  Click here to donate with a match.

Sending love and light to all those affected by Harvey and the aftermath….

All of us Kohlhepp Investment Advisors, Ltd.

Source: Ellen Rogin, CPA, CFP®