The Depth of the Recession

August 7, 2020

 

The current recession officially started in the first quarter, with a 5% decline before the country was slammed by the COVID-19 pandemic.  But the pandemic has definitely made itself felt in the economy.  Most of us, by now, saw that the U.S. economy’s second quarter lost (according to the headlines) 32.9% of economic activity—the worst single-quarter drop since World War II.  By way of perspective, the previous record was a 10% drop in 1958, and the worst of the Great Recession saw an 8.4% annualized GDP drop in the fourth quarter of 2008.

 

What was NOT widely reported is that this is an annualized figure, meaning that the economy would actually lose roughly 33% of its total only if all four quarters declined at that same rate.  The actual economic shrinkage was 9.5%; that is, the overall economy in the second quarter was 9.5% smaller than during the previous quarter.

 

And you probably didn’t see it reported that economic activity actually began to rebound in May and June, after a disastrous March and April.  Factory production and construction appear to be rebounding, although travel and leisure, including airline travel and visits to amusement parks, continue to struggle.  The unemployment rate has also fallen, from nearly 15% in April to 11.1% currently.  However, it should be noted that today’s unemployment rate is higher than it was at any time during the Great Recession.  The last week in July marked the 19th consecutive week in which initial jobless claims totaled at least 1 million.

 

This is not an attempt to sugar coat the current recessionary environment; the chart speaks for itself.  We have experienced slow economic growth in the years since the Great Recession, and now growth has turned decisively negative as the country deals with shutdowns, social distancing and increased hospitalizations.  States like Florida, Texas, California and Arizona may have to reimpose lockdown orders to stem the out-of-control spread of the virus, and some other states that have largely escaped the worst impact could suddenly become coronavirus victims. 

 

But we should not ignore the positive data in the midst of the downturn.  Congress is debating another bailout package for families at risk, and the Bureau of Economic Analysis reported that disposable personal income and the savings rate both jumped in the second quarter.  In fact, the personal savings rate has risen from 9.5% in the first quarter (already an unusually high number for Americans) to 25.7% in the second quarter.  This suggests that the CARES Act relief worked as intended. (See our previous newsletter about this very topic here).

 

Other figures have nowhere to go but up.  Consumer spending contracted at almost exactly the same rate as the economy (down 34.6% annualized) over the second quarter, and investment in new housing dropped 38.7%.  Both are now rising again, though whether that continues may depend on the next stimulus package.  The inflation rate dropped 1.9% in the second quarter as companies cut prices to boost sales.

 

It is impossible to predict whether the worst of the economic devastation caused by the pandemic is behind us.  There seems no question that other countries have done a better job of containing the virus than we have in the U.S., and we all know that economic recovery will depend on getting people safely back to work.  This downturn will leave a permanent scar on many businesses and workers, and nobody expects the economy to get back fully on its feet until we find a vaccine that provides herd immunity.  But it also seems unlikely that the rest of the year will be as downright depressing as what we experienced in March and April.  Reports of U.S. economic demise are almost certainly premature.

 

As always, we wish you all continued health and safety as we continue to navigate this pandemic.  Please note that our firm will continue to hold virtual client meetings only in order to prioritize and protect the health of our clients. 

 

Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA

President  

 

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

Founder & CEO

 

Sources:

https://www.npr.org/sections/coronavirus-live-updates/2020/07/30/896714437/3-months-of-hell-u-s-economys-worst-quarter-ever

https://www.forbes.com/sites/robertberger/2020/07/30/gdp-plunged-329-heres-why-it-matters/#73eaaf975943

https://www.marketwatch.com/story/economy-suffers-titanic-329-plunge-in-2nd-quarter-gdp-shows-and-points-to-drawn-out-recovery-2020-07-30

https://www.cnbc.com/2020/07/30/us-gdp-q2-2020-first-reading.html

https://www.bloomberg.com/news/articles/2020-07-30/u-s-economy-shrinks-at-record-32-9-pace-in-second-quarter

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.

Continue reading
93 Hits

Stimulus Spending

August 4, 2020

 

You’ve probably seen the debate over the second round of stimulus checks that are being delayed now due to a certain amount of squabbling in Congress.  Some economists say that this next payment will be an important lifeline to many families, and that the checks will stimulate the economy.  Others have said that the money is simply put in the bank and never gets to the economy at all.

Who’s right?

It turns out the U.S. Census Bureau’s Household Pulse Survey for June 11-16 includes actual data on how the CARES Act $1,200 ($2,400 to married couples; an extra $500 per child) checks were spent, collecting 73,472 total responses and extrapolating across the entire population of 160 million recipients.  The government agency estimates that 59.35% of households used the stimulus check to pay expenses, and another 13.32% used it to pay off debt.  Only 11.98% said they have or would use the money to add to their savings.  So the first thing that tells us is that the stimulus checks were, to at least some extent, a lifeline to 88% of households, and superfluous to about 10% of wealthier recipients.

Of those 127.8 million households (projected) who used the check mostly for expenses, 52.3 million spent at least a portion on rent, and another 40.6 million spent a portion on a mortgage payment.  91.3 million spent at least part of their check on utilities.  23.3 million spent some of their stimulus funds to pay down credit card or other debt, including student loans.  The conclusion: many Americans used the government money simply to keep a roof over their heads.

When asked about other expenditures that might have stimulated the economy, the survey found that 55.72% of households spent some of the payment on food, 14.16% on clothing, 39.5% on household supplies or personal care products, and just 5.52% on household items.

The survey found that, in aggregate, 70.81% of households that make less than $75,000 a year spent their check mostly on expenses.

Another survey, conducted by economic professors at the Columbia Business School and the University of Chicago’s Booth School of Business, looked at real-time spending data from a nonprofit that helps people create budgets via an app.  They found that those in the lowest income group, who earned less than $1,000 per month, spent about 40% of their checks in the first ten days.  Those who earned more than $5,000 a month, meanwhile, spent closer to 20% of the check in that brief period. 

The group’s report found that most of the money was spent on food, household items, bill payments and rent—but interestingly, compared with past stimulus payments, recipients spent about three times as much on food, including restaurant takeout delivery.  Meanwhile, people receiving stimulus checks were much less likely to spend on durable goods like electronics, furniture or cars.  The conclusion is the same: the “stimulus” appears to have been more of a lifeline than a boost to U.S. consumer expenditures.  The researchers concluded that the increase in unemployment insurance might have had a larger effect on consumer spending per dollar than the stimulus.

As always, we wish you all continued health and safety as we continue to navigate this pandemic.  Please note that our firm will continue to hold virtual client meetings only in order to prioritize and protect the health of our clients. 

Sincerely,

 

Edward J. Kohlhepp, Jr., CFP®, MBA

President  

 

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

Founder & CEO

 

 

Sources:

 

https://www.forbes.com/sites/jimwang/2020/06/25/how-are-americans-spending-stimulus-checks/#16703fe8e311https://insight.kellogg.northwestern.edu/article/stimulus-checks-spending-data-2020-coronavirus-covidhttps://www.marketwatch.com/story/the-no-1-thing-americans-are-spending-their-stimulus-checks-on-even-more-than-splurging-in-costco-walmart-and-target-2020-05-23

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.

Continue reading
324 Hits

Will the Market Maintain its Buoyancy?

June 25, 2020

 

The U.S. stock market has been rising steadily, apart from yesterday’s hiccup, for the last couple of weeks, floating at right about where it was before the COVID pandemic began to assert itself on American shores.  We have had stronger-than-expected retail sales, and not quite as many people were unemployed as economists predicted.  The economy is far from robust right now, and a recession formally began in February, yet many are predicting (without actual evidence) that there is “a V-shaped recovery” in our future.

 

This happy outlook ignores the fact that coronavirus cases are once again on the rise in most states, an estimated 20 million Americans are unemployed, 122,000 U.S. individuals have died from the pandemic, and there is civil unrest in cities and towns throughout the country.  There may be additional lockdown measures if the spike in new cases is not quickly arrested.

 

So which case should we listen to?  Right now, some economists believe that the only thing keeping business and the economy afloat has been massive amounts of borrowed taxpayer money sent out to the business community, plus equally-massive intervention by the Federal Reserve, which has recently taken the previously-unthinkable step of using its reserves to buy individual corporate bonds.  People who are bullish on the stock market are betting that Congress and the Fed simply will not let stock prices collapse.  People who are bearish believe that companies have become some degree less valuable due to the lost quarter of productivity, earnings and future diminished sales as people have less to spend.  And as those lower earnings reports come out for the next quarter, price/earnings multiples will spike, and you will see headlines about how the stock market is more expensive than it has ever been.

 

The discouraging truth is that nobody knows which argument is right.  The quiet chatter among financial professionals is the best strategy is to stay the course. We realize the upside does look increasingly fragile.  Without a working crystal ball, there may not be a better long-term strategy than that.

 

Sincerely,

 

Edward J. Kohlhepp, Jr., CFP®, MBA

President  

 

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

Founder & CEO

 

 

Sources:

https://finance.yahoo.com/news/stock-market-news-live-june-16-2020-222206832.html

https://www.washingtonpost.com/business/2020/06/09/what-record-stock-market-gains-tell-us-about-us-economic-recovery-not-much-it-turns-out/

https://www.washingtonpost.com/business/2020/06/09/what-record-stock-market-gains-tell-us-about-us-economic-recovery-not-much-it-turns-out/

https://www.nytimes.com/2020/06/08/business/recession-stock-market-coronavirus.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.

 

 

Continue reading
249 Hits

Why China’s Takeover of Hong Kong Matters to Us

June 15, 2020

 

While most of us are distracted by the street protests around the U.S., something similar has been going on in Hong Kong for years, and there are signs that the protesters in the semi-autonomous city are losing in their efforts to stop the communist Chinese regime from taking over.  Most recently, Beijing’s highest representative body in Hong Kong, called the Liaison Office, insisted that it was not subject to Article 22 of the city’s constitution, which guarantees an independent government for the city and the region.  Instead, the Liaison Office asserted that, contrary to the plain text of the city’s constitution, it had “supervisory powers” to administer Hong Kong and its political affairs.

 

This move could have significant implications for the U.S. economy, because it endangers Hong Kong’s ‘special status’ under U.S. law.  If Hong Kong is no longer an autonomous political and economic entity, then the U.S. could well decide to treat it as simply a part of the Chinese economy—and that would mean an end to Hong Kong’s low preferential tariff rate, reverting it to the trade war tariffs that the U.S. has imposed on China as a whole. 

 

Today, more than 1,300 American companies have business operations in Hong King, including nearly every major U.S. financial firm.  According to the State Department, roughly 85,000 U.S. citizens live and work in Hong Kong, representing American companies.  If the Trump Administration revokes special status, it could lead to an exodus of those firms, and an expensive relocation to cities like Singapore.  It would also anger the Chinese leadership, and lead to another round of trade wars between the world’s two largest economies.

 

As always, we wish you all continued health and safety as we progress into the next phases of reopening the country during this pandemic.  Please note that our firm will continue to hold virtual client meetings only in order to prioritize and protect the health of our clients. 

 

Sincerely,

 

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

 

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

Founder & CEO

 

Please contact us if there is any change in your financial situation, personal situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of your account(s) or modify existing restrictions. 

 

Sources:

https://www.ft.com/content/bf08a177-9631-48e5-b542-18bf5b15faf4

https://www.reuters.com/article/us-usa-china-hongkong-trade-explainer-idUSKBN22Y22Z?taid=5ec86f64bbdff20001f19406&utm_campaign

 

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.

 

Continue reading
121 Hits

Lower Rates, Little Impact

 

June 9, 2020

 

During times of economic crisis we read that the Federal Reserve Board has “cut interest rates,” or “lowered the Fed funds rate.”  But what does that actually mean to you and me?

 

The chart tells an interesting story; it shows the Fed funds rate—the rate that the Fed charges banks when they take out virtually unlimited short-term loans from the Fed or each other—rising steadily from around 2004 to late 2008.  After the brokerage industry suddenly took the global economy to the edge of bankruptcy, you see the Fed dramatically lowering its discount rates to the banking industry, down to essentially zero for the next eight years.  Then there was a very cautious period when the Fed governors started raising rates, until the COVID-19 virus started tanking the markets.  Now we’re back to zero again.

 

So the first thing to know is that the banking industry—particularly the banks affiliated with the largest wirehouse firms—can borrow as much money as it wants without paying any interest.  Try to get the same deal from your local bank.

 

This low discount rate has a number of real-world consequences.  One is that the brokerage and banking firms can lend money at a profit (basically anything above zero percent) to companies that need to borrow.  Theoretically, that will boost the economy.  However, both in 2008-9 and now, banks were leery about lending to businesses in an uncertain economy.  They can still lose money, after all, if the borrower goes bankrupt and defaults on the loan.

 

For consumers, there are small impacts.  One is that credit card rates are down from a high of 17.85% last July, when the Fed started cutting rates, to a three year low of 16.46% today.  If you think that’s a very incremental decrease compared with the magnitude of the Fed moves, well, you’re right.  And the economic impact is diminished further, since banks are making credit cards much harder to obtain in this uncertain environment.

 

Finally, mortgage rates are slightly lower today than they were a year ago; Bankrate says that the average 30-year fixed rate is down to 3.55%.  Yet again, however, banks have stopped offering many of their refinancing options due to the shaky economy, making it hard for homeowners to obtain this rate.

 

We wish you all continued health and safety as we progress into the next phases of reopening the country during this pandemic.  Please note that our firm will continue to hold virtual client meetings only in order to prioritize and protect the health of our clients. 

 

Sincerely,

 

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

 

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

Founder & CEO

 

Source:

https://snip.ly/yq9gdl#https://www.cnbc.com/2020/04/29/fed-holds-rates-near-zero-heres-what-that-means-for-you.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.

 

Continue reading
85 Hits

Key Provisions of the CARES Act

Distributions can be waived in 2020 for Inherited Accounts, 401(k)s, and IRAs.

April 3, 2020

 

Recently, the $2 trillion “Coronavirus Aid, Relief, and Economic Security” (“CARES”) Act was signed into law. The CARES Act is designed to help those most impacted by the COVID-19 pandemic, while also providing key provisions that may benefit retirees.1

 

To put this monumental legislation in perspective, Congress earmarked $800 billion for the Economic Stimulus Act of 2008 during the financial crisis.1

 

The CARES Act has far-reaching implications for many. Here are the most important provisions to keep in mind:

 

Stimulus Check Details. Americans can expect a one-time direct payment of up to $1,200 for individuals (or $2,400 for married couples) with an additional $500 per child under age 17. These payments are based on the 2019 tax returns for those who have filed them and 2018 information if they have not. The amount is reduced if an individual makes more than $75,000 or a couple makes more than $150,000. Those who make more than $99,000 as an individual (or $198,000 as a couple) will not receive a payment.1

 

Business Owner Relief.The act also allocates $500 billion for loans, loan guarantees, or investments to businesses, states, and municipalities.1

 

Your Inherited 401(k)s.People who have inherited 401(k)s or Individual Retirement Accounts can suspend distributions in 2020. Required distributions don’t apply to people with Roth IRAs; although, they do apply to investors who inherit Roth accounts.2

 

RMDs Suspended. The CARES Act suspends the minimum required distributions most people must take from 401(k)s and IRAs in 2020. In 2009, Congress passed a similar rule, which gave retirees some flexibility when considering distributions.2,3

 

Withdrawal Penalties.Account owners can take a distribution of up to $100,000 from their retirement plan or IRA in 2020, without the 10-percent early withdrawal penalty that normally applies to money taken out before age 59½. But remember, you still owe the tax.4

 

Many businesses and individuals are struggling with the realities that COVID-19 has brought to our communities. The CARES Act, however, may provide some much-needed relief. Contact your financial professional today to see if these special 2020 distribution rules are appropriate for your situation.

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.

 

Under the CARES act, an accountholder who already took a 2020 distribution has up to 60 days to return the distribution without owing taxes on it. This material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Under the SECURE Act, your required minimum distribution (RMD) must be distributed by the end of the 10th calendar year following the year of the Individual Retirement Account (IRA) owner's death. Penalties may occur for missed RMDs. Any RMDs due for the original owner must be taken by their deadlines to avoid penalties. A surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and children of the IRA owner who have not reached the age of majority may have other minimum distribution requirements.

 

Under the CARES act, an accountholder who already took a 2020 distribution has up to 60 days to return the distribution without owing taxes on it. This material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). Withdrawals from Traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. You may continue to contribute to a Traditional IRA past age 70½ under the SECURE Act, as long as you meet the earned-income requirement.

 

Accountholders can always withdraw more. But if they take less than the minimum required, they could be subject to a 50% penalty on the amount they should have withdrawn – except for 2020

Citations.

1 - CNBC.com, March 25, 2020.

2 - The Wall Street Journal, March 25, 2020.

3 - The Wall Street Journal, March 25, 2020.

4 - The Wall Street Journal, March 25, 2020.

 

Continue reading
620 Hits

IT’S TIME TO TALK ABOUT MY FEELINGS

March 18, 2020

 

I am writing this newsletter from my home office because my wife and I are in self-imposed isolation.   We are not sick, but we recognize we are in the vulnerable demographic group.  We are trying to protect ourselves and mitigate the virus circumstances by “social distancing.” 

Typically, a major part of our job is to “remove the emotion” from the conversations about your finances and investing.  Money is emotionally charged.  Likely by now, you’ve heard it from us and many other sources, reacting emotionally to the markets is usually a recipe for disaster.

Well, I’m going to do something a bit different today.  I’m putting emotion into this conversation.  I’m going to tell you how I’m feeling about all of this. Because the truth is, we all have the emotions.  So let’s talk about them, and then I’ll tell you what I’m doing to work through them:

I still have PTSD from the recession and markets from October 2007 through March 2009.  This was the worst time of my professional career and threw me into a temporary depression.  That was the only time that I can remember it being difficult to wake up and go to the office every morning. (In case you didn’t know, I LOVE what I do.) It wore me down. After recovering from the recession and the stock market’s deep declines, I never thought we would have to face anything like that again.

Now, here we are in a “bear” market (a decline of at least 20%), as well as a global pandemic.  I am now planning for the work-optional part of my life, with a little more time off, and a little more golf.  Thus, I have the same fears as any retiree or prospective retiree.  None of us want to see serious or even mild declines in our portfolios.  However, I know from personal experience (50+ years) that we must invest for the long term and not just one, or a few years.

As an advisor it is my nature to shoulder the weight of this market volatility not just for myself, but for all of my (our) clients.  That’s a lot!  This (the stock market & COVID-19) isn’t just a threat to our portfolios but to our personal health as well.  That’s scary! 

I feel all of that – the fear, the anger, the stress, the worry – and I let it sink in…

 

So what do I do? 

 

This is how I get past it – I let the logical/rational/left part of my brain work through it this way:

This is not the same as 2007 to 2009.  We will get through this!  How do I know that?  We’ve survived ALL of the downturns that have come before!  100% of them.  In fact, we thrived after they ended!  I’ve prepared for this with my own portfolio, and we’ve structured our clients’ portfolios to survive and thrive!

This reminds me of the time my wife and I were on vacation in Maui, Hawaii.  We drove the “Road to Hana”; little did we know that it is one of the more dangerous roads in the world.  It is a 62-mile winding road with 620 turns, many of them hair pin.  Even though it was scenic, we were nervous and anxious the whole time.  An experience like this feels like it will never end when you are living through it, just like the recession and market declines of 2007 to 2009, and just like today’s Coronavirus and bear market.  Well, the drive did end. We were happy we did it because of the beautiful sights and the memorable experience, but we were relieved to get back to a smooth highway.  Today people will be much happier when the markets return to a “smooth highway”.  And we will return to that, even though we don’t know when!

One of the keys is “not to sell low” because you lock in those losses forever.  Schools are closing, sports are suspended, cities are declaring states of emergency, businesses are starting to work remotely.  The news will get worse and corporate earnings will come under pressure.  None of these gut-wrenching declines ever feels good.  In my 50+ year career I have experienced quite a few.  The best way to achieve long term financial success is to stick to the game plan!  Two years from now when we look back, I truly believe we will be saying that “2020 was the year of the virus, and 2021 was the year of the recovery.” 

I can’t take the emotion away, but please know that I understand because I am feeling it too.   What I can do is listen and guide you.  I hope my story resonates with you.  Please lean on us and call if you have questions.

A client of ours responded to one of our newsletters last week with a very poignant statement: 

Don’t touch your face and don’t touch your IRA!

She says she can’t take credit for it, but it’s certainly worth passing along!

Sincerely,

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

Founder & CEO

 

A reminder on the current operation of our firm:

We at Kohlhepp Investment Advisors, Ltd. are taking the proper precautions to protect ourselves and our clients, and we continue to focus on the wellbeing of our clients, associates and business partners. This includes the decision to suspend in person meetings and only hold virtual meetings – phone or video conference – for the foreseeable future. If you feel you have a need to physically stop in the office, please call first.

Our office is fully operational and our staff is working remotely. Based on what we know at this time, we do not have concerns about our ability to conduct business as usual. 

Continue reading
163 Hits

Taking the Plunge

March 12, 2020

 

Despite a nice recovery day on Tuesday, it now appears that the investment markets are in full panic mode, the result of the World Health Organization declaring the Covid-19 virus to be a global pandemic.  Traders on Wall Street are selling at virtually any price, which is causing the markets to drop into bear market territory.

 

The long bull run that started in March 2009, and set many records along the way, is now officially over.  May it rest in peace; we will all remember it fondly.

 

It is almost impossible to keep a rational perspective in the middle of a herd that is stampeding toward the exits, and this particular stampede can fairly be described as one of the worst in market history.  Michael Batnick, director of research at NYC investment manager Ritholtz Wealth Management noted, this is the fastest bear market ever; that is, the fastest that the U.S. stock market has experienced a decline of 20% or more going back to 1915.  The average number of days from peak to a 20% decline is 255, and the median is 156.  The recent market selloff reached this dubious achievement in just 17 trading sessions.  By contrast, the fabled 1929 market downturn took 36 sessions.

 

The Covid-19 pandemic (as it is now known) should first be considered a health issue, and everybody should do what they can to protect themselves and their families from the spread of the disease.  It should go without saying that your health is more important than your portfolio.

 

Is your health at risk?  The World Health Organization has published information which suggests that the Covid-19 virus in China was more deadly, on a percentage basis, than the Spanish flu epidemic that raged across the world in 1918-1920.  So far, it has been more deadly than cholera, much more than swine flu or hepatitis A.  On the other hand, reports indicate that the elderly and people with pre-existing health issues are far more likely to die of the corona virus than younger and healthier people, and the death rate outside of China has been roughly half of the Chinese experience.  More testing will be needed before we know the full extent of the infected population and the morbid statistics for those who ARE infected.

 

But once health precautions are taken, it is appropriate to address the potential for losses, and how best to navigate the market conditions.  There are news reports that the U.S. government will propose a payroll tax cut, and possibly also bailouts of key publicly-traded companies in the travel and entertainment industry.  The Federal Reserve Board has cut a key interest rate by half a percent—a dramatic move that seems not to have had more than a one-day impact on market sentiment.

 

Historically, bear markets have been less impactful than their bull market counterparts, as you can see from the accompanying chart click here.  Of course, you could argue that a global pandemic is different from a housing market crash.  Research analysts at Goldman Sachs took a look back at “event-driven” bear markets; that is, market declines that were not driven by an economic recession, but instead were triggered by things like war, oil price shocks or an emerging-market crisis.  They found that the average event-driven bear market resulted in a 29% decline—on average.  The report notes that we have never before entered a bear market due to a viral outbreak, but in the past, bear markets triggered by “exogenous shocks” have recovered their previous levels within 15 months.

 

There is some good news for many investment portfolios: during the downturn, 20-year Treasury bonds have gained 24% in value, as bond yields have fallen to record lows.  The 10-year Treasury yield experienced its biggest weekly drop since December 2008.  This performance, so directly counter to stock movements, explains why it is so necessary to hold diverse investments in a portfolio.

 

The harder conversation is about market timing.  Most people understand that it is impossible to time the market without a working crystal ball.  But this is easily forgotten when the daily headlines announce that your net worth is falling by 4-7% in a single day, when the stock portion of your portfolio has fallen by 20% in record time.  The natural question is: should I get out now and avoid more of the same?

 

There is only one rational answer to this question: it has never been a good idea to sell when everybody else is selling, just as it has never been a winning strategy to buy stocks when everybody else is wildly bullish.  The best strategy has, in the past, been to ride out the downturn and experience the subsequent upturn—which may come tomorrow, next week, next month or next year. 

 

Make no mistake: bear markets like the one we have just entered pose a real danger to your future financial health.  There is a real danger in selling at the bottom and then missing out on the recovery.

 

We at Kohlhepp Investment Advisors, Ltd. are taking the proper precautions to protect ourselves and our clients, and we continue to focus on the wellbeing of our clients, associates and business partners.  This includes the decision to suspend in person meetings and only hold virtual meetings – phone or video conference – for the foreseeable future.  If you have a need to physically stop in the office, please call first.

 

We are here, the office is open – fully operational and fully staffed.  If the situation escalates, we have the capability to be fully remote and are prepared to do so with no interruption to our operations.   Based on what we know at this time, we do not have concerns about our ability to conduct business as usual. 

 

Be smart. Be safe.  We will be in touch.

 

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://theirrelevantinvestor.com/2020/03/09/the-fastest-bear-market-ever/

https://finance.yahoo.com/news/coronavirus-and-trump-are-causing-stock-market-panic-and-investors-are-powerless-195953674.html

https://www.bloomberg.com/news/articles/2020-03-11/coronavirus-a-pandemic-who-says-in-urging-governments-to-act?

https://www.marketwatch.com/story/goldman-sachs-analyzed-bear-markets-back-to-1835-and-heres-the-bad-news-and-the-good-about-the-current-slump-2020-03-11?siteid=yhoof2&yptr=yahoo

https://www.marketwatch.com/story/boring-bonds-turning-into-best-investment-of-the-year-as-treasurys-see-returns-north-of-20-2020-03-06?siteid=bigcharts&dist=bigcharts

https://www.bloomberg.com/news/articles/2020-03-11/virus-is-at-bear-stearns-moment-and-may-get-worse-summers-says

Source: First Trust Advisors L.P., Bloomberg. Returns from 1926 - 2019

Continue reading
225 Hits

5 Things to Remember During These Times

March 10, 2020

One of our strategic partners, Blue Bell Private Wealth Management, with whom many of our clients are invested, sent out this newsletter yesterday. The perspective and sentiment of Kohlhepp Investment Advisors, Ltd. is aligned with what is stated here, so we are partnering with them to deliver this message to you:

 

Stocks dropped roughly 7% not long after the market opened yesterday. That triggered the first of three circuit breakers designed to give market participants a chance to regroup during moments of extreme volatility.

 

It is no secret that news of the coronavirus has created mass uncertainty through the stock market, most of which is surrounding the economic slowdown as a result of the virus. If you watch the news regularly, it may seem like this is the end of times. We are here to remind you of a few things about long-term investing.

 

1. Your financial, investment and retirement plan is probably not going to change

Disturbing or disrupting your long-term plan or radically changing your portfolio makes no sense. Selling today would mean locking in permanent losses. If you did, you would be transferring the proceeds to an asset class (i.e. a money market) that yields close to zero.

 

2. Nobody called this

Plenty of people had been calling for a recession this year but they are the same people who have been calling for a recession every year. A perfectly correct economic or market call, that cannot be repeated in the future, is worth just as much as no call at all.

 

3. All in or all out are terrible strategies

Investors cannot afford to miss the 25 best days in the market, or your returns are wiped out. The catch is that the 25 best days are frequently mixed in among the 25 worst days. Unfortunately, you can’t have the ups without the downs and anyone who promises you otherwise is not telling the truth. It is impossible to "time" the markets.

 

4. Why don't we just sell everything and wait this out?

Eleven years ago today, in March of 2009, the stock market reached its nadir during the financial crisis and stopped going down. If you had polled people that day, most would not have agreed that we had seen the bottom. The economic headlines were not improving. Within 3 months, the stock market had climbed 41% from that March low. Even with the market increase, many investors still were not sure that we had seen the last of the decline. There were still people years later that had gone to cash and still hadn’t gotten back into equities. They missed out on a tremendous rise in the stock market and the commensurate increase in their portfolio.

 

5. Reducing risk should be part of your plan

Having an effective hedging strategy can help reduce the effects of volatility over the long-term. We believe it is important to protect against the downside without giving up too much upside. This has been and will continue to be a part of our investment strategy.

 

Conclusion

The worst thing that you can do now is panic. Financial decisions based on emotions have proven time and again to be detrimental to investors. Investing for the long-term will benefit those who are patient, disciplined, and have a plan. The best way to achieve the goals we've talked about together is to stay the course.

We remain vigilant in reviewing your portfolios and we are committed to your goals.

 

Sincerely,

 

Edward J. Kohlhepp, Jr., CFP®, MBA

President  

 

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

Founder & CEO

 

 

Source: Blue Bell Private Wealth Management

 

Please contact us whenever there are any changes to your financial situation, personal situation or investment objectives. 

 

Continue reading
311 Hits

The Pandemic: What We Know So Far

March 2, 2020

 

The COVID-19 virus has been reported in the national press as either a political or an economic story, but it is neither.  It has been compared to the 1917-18 Spanish Flu that infected an estimated one-third of the human population and killed an estimated 50 million people, even though we are now in a very different medical world, even though the Spanish Flu occurred during a major, brutal world war. 

 

As citizens, investors and (so far) healthy individuals, what do we need to know about this new pandemic?

 

COVID-19 (formally SARS-CoV-2) is a respiratory virus, caused by a new type of coronavirus (in the same family as the virus that causes the common cold) that was first detected in Wuhan City, Hubei Province, China, and has now been detected in 57 locations nationally, including fewer than 100 in the United States.  One of its primary features is how contagious it is; the virus can live for hours in a dormant state on surfaces (like a doorknob) after an infected person touches them.  It is spread through the air in microscopic droplets when people breath, cough or sneeze.  The Center for Disease Control recommends that people who have the virus wear a mask to protect others, but have said that wearing a normal facial mask doesn’t prevent people from getting the disease.

 

In most cases, the symptoms of the disease appear within five days, but there have been reported cases of a 14 day incubation period.  Because people can be contagious for up to two weeks before they show symptoms, the virus is very hard to quarantine.  This became more evident when it was discovered that a dog had been infected, meaning that it’s possible for animals to transmit the disease back and forth with humans.  The International Journal of Infectious Diseases, studying the COVID-19 cases from the Diamond Princess cruise ship that reported 355 passengers who contracted the virus, calculated that each person who is infected with the disease, on average, will infect 2.28 others.

 

As of Friday, there were 83,774 reported cases worldwide, and 2,867 fatalities.  The World Health Organization officials have recently increased the risk assessment to the highest (“very high”) level of risk assessment in terms of spread and impact. 

 

Reported illnesses have ranged from mild to severe.  Researchers from China’s Center for Disease Control have recently released the clinical findings of more than 72,000 cases reported in mainland China.  The overall death rate is 2.3%, but different populations are far more likely to suffer fatalities than others.  An alarming 14.8% of patients 80 and older died from the disease, and 8.0% of patients aged 70-79.  At the other end, 81% of the cases in the study were classified as mild, meaning they did not result in pneumonia or resulted in only mild pneumonia. 

 

Fatality rates for children 0-9 years old so far is zero, and the rates are not high for people in younger age ranges: 10-39 years old (0.2%), 40-49 (0.4%), 50-59 (1.3%) and 60-69 (3.6%).

 

There may be a vaccine on the way, though it is uncertain how soon.  China’s Clover Biopharmaceuticals is partnering with GlaxoSmithKline on a protein-based coronavirus vaccine candidate called COVID-19 S-Trimer.  The University of Queensland in Australia announced a vaccine candidate, and globally, at least 10 other vaccine initiatives are under way.  Treatments for people who have already contracted the disease are as yet unproven.  An antiviral drug called remdesivir, manufactured by Gilead Sciences, is being tested on 700 sick patients in Wuhan.  A drug called Kaletra, produced by AbbVie to treat HIV, is also being tested.

 

From an economic standpoint, any industry where people gather together in large numbers is being impacted.  That means airlines and the travel/tourism industry generally, plus conferences.

 

The other impact is related to supply chains.  China’s quarantine efforts have reduced manufacturing in the country where many global companies have outsourced their manufacturing and assembly activities.  Hong Kong is already in a recession, and The Boeing Center at Washington University in St. Louis has estimated a $300 billion impact on the world’s supply chain that could last up to two years.  Lower demand from Chinese buyers has caused a decline in oil prices.

 

Prevention efforts and quarantine efforts are certain contribute to the economic slow down.  Japan’s Prime Minister Shinzo Abe has ordered all schools closed in Japan for the next month, and officials there are concerned about the possibility that the 2020 Summer Olympics could be curtailed or cancelled.  South Korea has shut down numerous educational institutes including elementary schools in Seoul.  In Italy, the Lombardy and Veneto regions (total population: 50,000) have been locked down in quarantine procedure following an outbreak in the town of Codogno.  U.S. technology companies have expressed worries about disruption to their production in facilities in China, and a February 27 Goldman Sachs forecast suggested that American companies will experience zero earnings growth (Note: this does NOT mean zero earnings) in 2020.

 

The most important thing to know about the new pandemic is that we actually don’t know what the impact will be—on our health, on our nation’s economic health, on our portfolios.  We do know that the U.S. securities markets are down 11-12% from their recent highs, based on what can only be described as panic selling by the traders who make up most of the volume on the exchanges.  That means stocks are cheaper to buy now than they have been, and dividends are higher, as a percentage of share price, but whether that panic will continue, or not, we simply cannot say.

 

Please understand that we are monitoring the situation, with an understanding that, historically, trying to time the market or make bets based on guesses about the future has been a losing strategy.  Our most important wish is that you and your family stay healthy.

 

Sincerely,

 

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

 

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

Founder & CEO

 

Sources:

 

http://www.cidrap.umn.edu/news-perspective/2020/02/study-72000-covid-19-patients-finds-23-death-rate

https://www.cdc.gov/coronavirus/2019-ncov/about/share-facts.html

https://www.cdc.gov/coronavirus/2019-nCoV/summary.html

https://www.forbes.com/sites/leahrosenbaum/2020/02/20/when-will-there-be-a-vaccine-for-the-new-coronavirus-everything-you-need-to-know/#4cf628fc5025

https://hub.jhu.edu/2020/02/27/trump-johns-hopkins-study-pandemic-coronaviruscovid-19-649-em0-art1-dtd-health/

https://www.health.harvard.edu/blog/as-coronavirus-spreads-many-questions-and-some-answers-2020022719004#q2

https://www.worldometers.info/coronavirus/coronavirus-age-sex-demographics/

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.

 

 

 

Continue reading
178 Hits

The Coronavirus & Your Portfolio

February 28, 2020

 

Wuhan, a city in China with a population of more than 11 million people, was not known to most Americans before several weeks ago.  Now we know that it is the epi center of the outbreak of the Coronavirus.  Initially, it was thought that the virus could be confined to China.  But since then the outbreak has spread globally to many countries including Japan, Italy, South Korea, Iran, and the U.S.  Some cities and countries are restricting travel and preparing for the shutdown of schools and businesses for long periods.  It has becomes apparent that this virus will impact mostly China’s production and GDP, but also other countries as well.

Some experts predict that the number of infections will peak in the next several months and dissipate by summer as the weather warms up.  However, no one really knows.  And the CDC indicates that it could take 12 to 18 months to test and produce an efficacious vaccine.

We urge you to monitor reliable information sources such as the CDC and the World Health Organization for the latest updates.

Economic activity is being affected and fear has crept into the markets.  This has turned to panic in the last 5 to 6 days with the major averages dropping about 11%.  This, in and of itself, is not unusual.  In most years, even when the market is positive, there is an average intra year pullback of 12 to 14%.

SO WHAT SHOULD YOU DO?

  • Do not watch the news shows all day long.  They concentrate on the headline stories which cause the most consternation.

 

  • Be aware that your portfolios are structured to withstand declines such as these – remember our “Bucket Strategy”.

 

  • Do not bail on the markets.  Remember, our plans and portfolios are built for the long term, not just 3 months, or even one year.

 

  • Allow us to do the worrying for you!

WHAT ELSE?

  • We are now in “correction” territory – a decline of more than 10%.  Corrections are normal every several years.

 

  • Focus on the market fundamentals, which we believe remain positive.

 

  • Volatility is likely to continue for a while.

 

  • The Coronavirus will have a short-term effect on the economy and corporate earnings, some industries more than others, e.g., airlines.

 

  • Financial success is achieved by focusing on long term goals and not letting short term disruptions derail us from our objectives.

 

  • We have great medical care in the U.S.

 

We are here for you.  If you are in a fearful state, call us.  We don’t believe you need to change anything in your portfolio.

We are confident in the future of the equity markets and our country!

Spring will be here soon!  I am sure we will all welcome it.

Sincerely,

 

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

Founder & CEO

 

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

 

Quote: “In investing, what is comfortable is rarely profitable.”  Robert Arnott

Continue reading
132 Hits

Prosperity for Some

July 23, 2019

 

You’ve probably heard, either through tweets from a certain President or in the press, that the U.S. economy is humming along at a healthy pace.  Stock indices are breaching record highs, unemployment statistics are near record lows and the economy is growing at nearly a 3% annualized pace. 

So American workers should be happy with their newfound prosperity, right?

The problem is not the economy, per se, but the unequal distribution of its recent largesse.  A recent Gallup poll found that a remarkable 40% of Americans say that amid one of the greatest—and now one of the longest—economic booms in U.S. history, they are either running into debt or barely making ends meet.  Only 25% of employed households report that they are saving enough for retirement; 18% admit that they have saved nothing at all.

Gallup’s survey is conducted each April, and the news this year is not all bad.  The percentage of Americans rating the economy “only fair” or “poor” has dropped significantly since the 2016 version of the survey.  Digging deeper into the data, the Gallup researchers found that 49% of respondents have at least one immediate worry—such as, for example, paying their rent or mortgage, or being able to make minimum payments on their credit cards.  Another 14% have no immediate financial concerns, but worry about whether they will be able to pay for normal healthcare or afford the medical costs due to a major illness or accident.

How would this play out in the next electoral cycle?  The researchers note that most of the financially anxious people report voting primarily Democratic, while those who have few worries are largely Republican voters.  But people who are worried about healthcare costs are split evenly down the middle, which means healthcare issues will be front and center in next year’s elections.

Sincerely,

Edward J. Kohlhepp, Jr., CFP®, MBA

President 

 

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

Founder & CEO

 

 

Source:

 

https://news.gallup.com/opinion/polling-matters/260570/despite-economic-success-financial-anxiety-remains.aspx

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.

Continue reading
766 Hits

Who Pays in the Tariff Wars?

 

May 14, 2019

 

Global stock markets have been spooked by the escalating trade disputes between the world’s two largest economies: China and the United States.  And there is no evidence that the dispute is about to be resolved.  On Friday, U.S. President Donald Trump raised tariffs on $200 billion worth of Chinese goods, and began taking steps to tax nearly all of China’s imports.  The new tariff levels are an unprecedented 25% of the value of the Chinese goods coming into the U.S., raising the costs of seafood, luggage and electronics.  China, meanwhile, has placed tariffs on nearly all of America’s exports into the Middle Kingdom, including agricultural products.

 

This is not the first trade dispute the U.S. has engaged in since the Trump Presidency; steel and aluminum products coming from abroad were hit with tariffs and import duties early in the presidency, followed by various other measures.  The stated idea was to reduce the U.S.’s trade deficit with the rest of the world; however, the overall United States trade deficit with the world increased 1.5% in March to $50 billion.

 

But many taxpayers seem to be confused about how tariffs work.  The President has said that American tariffs on Chinese products are bringing in unspecified “billions” to the U.S. government.  That may be true, but the source of those “billions” is not China or Chinese companies.  Importers pay the import taxes when the items they’ve purchased overseas cross the U.S. border.  With import taxes as high as 25%, it is all-but-guaranteed that the price of these items will be higher when sold to American consumers. 

 

If the importer—which might be a manufacturer who has components manufactured abroad or a retail company like Wal Mart—decides to absorb some of the tariff cost, then that shows up in lower profits for the American company.  So when an American consumer buys an iPhone, the cost might go up $160—which is the additional amount that would be paid to the U.S. government.  Or Apple Computer could eat the cost and reduce its overall earnings by 24%.  The same is true with goods like vacuum cleaners, electronics, computer monitors and power adapters.

 

There are arrangements where the importer and exporter negotiate for the exporter to pay the tariff—the term for such an agreement is DDP, or “Delivery Duty Paid.”  But once again, the tariff raises the cost of the item, and the ultimate bill comes due to the consumer who buys the product. 

 

So ultimately, U.S. tariffs on imported items, shipped from China or any other country, represent an additional tax directly on the wallets and purses of American consumers—or on the earnings of American companies that decide to absorb some of these costs. 

 

There may be additional economic impacts, such as what American farmers—particularly those who grow soybeans—are now experiencing.  When the cost of American products go up due to retaliatory tariffs imposed by China, Chinese consumers and importers can go to different markets, where they can buy items that are not burdened by the costs of import duties.  Chinese importers have shifted their purchases of American crops to South America, which has long sought a foothold in the world’s largest consumer market.

 

Wouldn’t that work the other way around?  One issue is that many Chinese companies are government-owned or government-supported, so during an escalation of trade war conflict, the government of the most populous nation on earth will do what the American government will not: stabilize sales by subsidizing prices or making up for losses while the negotiations continue.

 

Most economists believe that tariffs impede global trade and the health of the global economy.  And tariffs create uncertainty about whether companies can rely on existing supply chains or sources of manufactured items that go into their final products, like mobile phone devices and automobiles.  This is why the imposition of additional tariffs, and the threat that they will continue into the future, is spooking the investment markets.  The U.S. Treasury is definitely getting fatter as a result of American tariffs on Chinese goods.  The question that stock market analysts and traders are asking is whether this is good for the American consumer and the U.S. economy as a whole.

 

Sincerely,

 

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

 

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

Founder & CEO

 

Sources:

 

https://www.msn.com/en-in/money/news/trump-increases-china-tariffs-as-trade-deal-hangs-in-the-balance/ar-AABaJJF

 

https://www.usatoday.com/story/news/politics/2019/05/09/donald-trump-white-house-continues-trade-talks-china-past-deadline/1150788001/

 

https://uktradeforum.net/2017/09/28/who-pays-tariffs-anyway/

 

https://www.yahoo.com/finance/news/3-reasons-why-china-apos-111113176.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.

 

Continue reading
156 Hits

Is a New Social Security Fix at Hand?

Is a New Social Security Fix at Hand?

 

March 21, 2019

 

We’ve been hearing for years that the Social Security trust fund will run out of money in 2034, and a close reading of the Social Security Administration’s Trustee Report projections (https://www.ssa.gov/oact/TRSUM/) show what this would mean.  By that time, based on estimates of the number of people earning an income in the workforce, the numbers of Social Security benefits recipients still alive, and the amount of income, overall, that the workers will be earning, payroll taxes will account for about 77% of the existing benefits—indexed for projected inflation.  In other words, if we don’t fix the system between now and then, by 2034 the government will be taking payroll taxes and turning around and paying this money back to the Social Security beneficiaries, and that money is projected to equal about 77% of today’s benefits.  As more people retire and live longer, the ratio of workers to beneficiaries is expected to gradually decrease, meaning that 77% will become 76%, then 75% and gradually shift downward barring an influx of new workers or unexpected mortality among the elderly.

 

Chances are, there will be a fix of some sort between now and 2034.  But what will it look like?  200 Democratic co-sponsors in the U.S. House of Representatives have recently signed on to an expansion of Social Security that would keep the trust fund solvent—and the payments coming—for at least the next 75 years.  

 

What are they proposing?  The new bill, which is unlikely to pass Congress until/unless the Democrats take control of the Senate, would address one of the anomalies of the payroll tax, that it stops at $132,900 of annual income (currently).  That means a person earning $132,900 pays 6.2% of her income, while a person earning $266,000 pays 3.1%, and a person earning over $1 million pays just .77% of total income in payroll taxes.  The legislation would, just like today, stop collecting payroll taxes temporarily at $132,900 (adjusted each year for inflation), but resume those taxes on all income over $400,000.  It would also gradually raise the 6.2% tax rate to 7.4% by 2042.

 

In return, all Social Security beneficiaries would receive a 2% increase in benefits, and the benefits would go up a bit faster each year, using the CPI-E index for inflation, rather than chained CPI.  (Much of the difference is that the CPI-E calculation is more sensitive to medical inflation and other costs that disproportionately affect seniors.)  Higher-income seniors would also get a bit of a tax cut; that is, less of their Social Security benefits would be taxed, using a complex change in an already-complex formula.

 

Not in this proposal, but worth considering, is allowing the Social Security trust fund to invest at least some of its assets in equities, which normally appreciate much faster in value than the current “assets:” promissory notes backed by Treasury bills.  Look for a healthy debate on the solvency of Social Security in the next election cycle.

 

Sincerely,

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

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

Founder & CEO

 

Source:

https://www.morningstar.com/articles/918591/will-the-big-social-security-fix-include-expansion.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.

 

Continue reading
406 Hits

Shutdown Economics

January 24, 2019

 

A full month into a historic government shutdown, after 800,000 government workers have missed their second paycheck, two things are clear: 1) Economists and political pundits had no expectation that the impasse would past this long; and 2) the impact on the U.S. economy cannot be calculated with precision.

 

Many of the reports you may have read probably failed to note that the shutdown only impacts 7 out of 12 yearly appropriations.  Still receiving funding, under an earlier resolution, are Energy & Water, the Legislative Branch, Military Construction and VA, the Department of Defense, and Labor, Health & Human Services.  Together, they represent 75% of discretionary government spending, and are fully funded through September 30, 2019.

 

That famously leaves 800,000 federal workers on furlough, although roughly half of them are still at work because they were deemed to be “essential.”  Ironically, the budget impasse instantly terminated a pay freeze for certain government workers, so, for example, Vice President Pence has received a $10,000 annual pay increase, as did a number of the Trump Administration’s political appointees.  The cost of the raises is estimated to be more than $300 million over ten years.

 

At the other end of the spectrum, workers with the Transportation Security Administration are still on post at airports, as are air traffic controllers—working without pay.  But others were deemed inessential.  Many food inspections performed by the Food and Drug Administration have ceased, and the SNAP program—aka food stamps—is about to expire because February’s benefits have not been funded and 2,500 retailers cannot renew their EBT debit card licenses.  School lunch and breakfast programs will stop operating in February as well.

 

Zillow, the real estate database firm, has estimated that federal workers not receiving paychecks owe $249 million in mortgage payments and $189 million in rent payments—all due this month.  But even people who are simply trying to buy a home are shut out because new applicants for FHA loans are not able to communicate with the agency.  In addition, the U.S. Department of Agriculture, which provides loans for people buying homes in rural areas, is not processing those requests that land on unoccupied desks. 

 

Some 1,150 landlords who provide subsidized (affordable) housing for low-income Americans are not receiving their subsidy payments, and another 500 contracts will expire at the end of January.  As a result, as many as 100,000 low-income tenants could face eviction.

 

Economists have been trying to model the impact of so many workers not spending money as they normally would, plus a shutdown-caused slowdown in the housing market, and an interruption in the flow of actual government statistics due to furloughed economists.  Most Wall Street analysts initially thought that 0.05 percentage points would be shaved off the American Gross Domestic Product (GDP) for every week the shutdown goes on.  But by adding in the loss of revenue to federal contractors and third party companies that are paid by one of the shut-down agencies, government economists now believe the GDP reduction is closer to 0.13 percentage points every week.  That means the 30-day (and counting) shutdown has already knocked 0.25 points from first quarter GDP, with no clear end in sight.

 

If you can ignore the human costs of not receiving a paycheck, not receiving food stamp assistance, a subsidized school lunch or not being able to get a home loan, then this is not a great catastrophe for the U.S. economy.  But there is a nontrivial chance that economic growth will turn out to be negative in the first quarter, in small part due to the shutdown, and that could spook the markets into believing that the economy is heading into recession. 

 

 

Sources:

http://fortune.com/2019/01/03/the-government-shutdown-us-gdp/

https://www.businessinsider.com/government-shutdown-senior-trump-administration-officials-get-raises-2019-1

https://www.businessinsider.com/government-shutdown-how-the-partial-closure-affects-average-americans-2019-1#the-approximately-40-million-people-who-receive-snap-benefits-also-known-as-food-stamps-will-only-be-able-to-get-the-benefit-through-february-if-the-shutdown-continues-7

https://www.businessinsider.com/government-shutdown-2018-social-security-checks-still-paid-2018-1

https://www.businessinsider.com/government-shutdown-federal-workers-mortgage-rent-payments-housing-2019-1

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.

 

Continue reading
293 Hits

TURBULENCE AND VOLATILITY AND WHAT’S NEXT!

December 21, 2018

 

Volatility will always be around on Wall Street, and as you invest for the long term, you hopefully learn to tolerate it.  Rocky moments, fortunately, are NOT the norm.

Since the end of World War II, there have been dozens of Wall Street shocks.  Wall Street has seen more than 50 pullbacks (retreats of 5 – 9.99%) in the past 73 years.  On average, the benchmark fully rebounded from these pullbacks within two months.  The S&P has also seen 22 corrections (declines of 10 – 19.99%) and 12 bear markets (drops of 20% or more) in the post WWII era.

Even will all those setbacks the S&P has grown exponentially larger.  During the month WWII ended (September 1945), its closing price hovered around 16, YES 16.  At this writing it is above 2500.  Those two numbers communicate the value of staying invested for the long term.  This current bull market has witnessed five corrections.  It has risen more than 300% since its beginning even with those stumbles.  Investors who stayed in equities through those downturns watched the major indices soar to all-time highs.

Bad market days shock us because they are uncommon.  If pullbacks or corrections occurred regularly, they would discourage many of us from investing.  A decade ago in the middle of the terrible 2007-09 bear market, some investors convinced themselves that bad days were becoming the new normal.  History proved them wrong.

As you ride out this current outbreak of volatility, keep two things in mind. One, your time horizon: you are investing for goals that may be 5,10,20 or more years into the future.   One bad market week, month, or year is but a blip on that timeline and in unlikely to have a severe impact on your long run asset accumulation strategy. Remember that there have been more good days on Wall Street than bad ones.

LET’S ASSESS LATE CYCLE RISKS AND OPPORTUNITIES.   AND WHAT DO WE SEE AHEAD IN 2019:

  • The U.S. economy will slow, but not stall.   We expect GDP growth to slow to 2 to 2.5% next year.
  • Central banks (The Federal Reserve, the Bank of Japan, and the European Central Bank) will continue to tighten monetary policy and raise interest rates.  Just this past week the Fed raised rates 0.25% and indicated they will likely raise rates twice, but NOT three times in 2019
  • U.S. Equities:  earnings growth will slow although it will remain positive.  Earnings will still be the main driver of returns.
  • The unemployment rate will likely continue to decline from 3.7%, its lowest level since the early 50s.
  • Inflation should remain at a level close to 2%.
  • Consumer sentiment is negative.
  • Trade tariffs still present a hurdle and need resolution.
  • The international markets have promise, but look murkier than the U.S.  We are continuing to watch BREXIT.
  • It is important to stay invested even though it appears we are in the late innings of the bull market.
  • A possible government shutdown (see our previous newsletter on this topic). 

Even with all of this volatility, the major indices (Dow and S&P) are down only 6 to 8% at this writing.  This is NOT another 2007-8-9, although more volatility could still be ahead.

THE MOST IMPORTANT ISSUES TO REMEMBER ARE THE FOLLOWING:

  1. You are invested in a diversified portfolio, not all equities.
  2. Your portfolio is not the market.
  3. We have planned your portfolio carefully to weather markets like this.
  4. Sudden volatility should not lead you or us to exit the market. If you react anxiously and move out of equities in response to short term downturns, you may impede your progress toward your long term goals.

If you have any questions about the markets, or your portfolio, please call. 

We wish you and your family a very Merry Christmas and a Happy New Year!

 Sincerely,

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

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

Founder & CEO

 

These are the opinions of Edward Kohlhepp and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Diversification and asset allocation strategies do not assure profit or protect against loss. Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal

 

Continue reading
372 Hits

Shutdown Metrics

December, 2018

 

We are told that one reason stocks have been going down lately is the threat of a government shutdown, which seems almost probable if the President’s recent statements are to be taken at face value.  The U.S. President is on record as embracing a government shutdown on Friday, December 21 unless he receives full funding for his border wall with Mexico.  This seems unlikely, so it might be time to ask: If the government shuts down, what is actually likely to happen?

 

An article on the ZeroHedge website offers some news that might surprise most of us.  First: government shutdowns have been more common than we might realize.  In all, there have been 20 government shutdowns since October 1, 1976:

 

October 1-10, 1976

October 1-12, 1977

November 1-8, 1977

December 1-8, 1977

October 1-17, 1978

October 1-11, 1979

November 21-22, 1981

October 1, 1982

December 18-20, 1982

November 11-13, 1983

October 1-2, 1984

October 4, 1984

October 17, 1986

December 19, 1987

October 6-8, 1990

November 14-18, 1995

December 6, 1995 - January 5, 1996

October 1-16, 2013

January 20-22, 2018

February 9, 2018

 

The article notes a few things to remember.  First, Congress can avoid a partial shutdown by passing another continuing resolution—following the continuing resolution in September that temporarily funded 7 out of 12 total appropriations into December.  If the President were to veto that resolution, then a two-thirds majority in both the House and Senate could override the veto.

 

What about the other 5 of the 12 appropriations?  Those—Energy & Water; the Legislative Branch; Military Construction and VA; the Department of Defense; and Labor, Health & Human Services—represent 75% of discretionary government spending—basically 75% of the money spent that is not related to Social Security, Medicare or other entitlement programs.  Those programs are fully funded through September 30, 2019. 

 

So what appropriations would the shutdown actually impact?  The seven that still have to be authorized are Agriculture; Commerce, Justice and Science; Financial Services and General Government; Homeland Security; Interior and Environment; State and Foreign Operations; and Transportation and HUD. 

 

What would be the economic impact of this potential partial shutdown?  The report estimates that for every day of a full shutdown, American GDP is reduced by 2.4 basis points, or 0.024%.  But since only 25% of the government would be inoperable, the impact in this case would be about 0.008% per day. 

 

Put another way, each month would reduce American economic growth by about half a percent.  That, of course, is unlikely to happen.

 

What have the markets done during past government shutdowns?  The data show that the average market move for the S&P 500 index, in the week of a government shutdown, is down 0.06%—which I think most of us would regard as virtually unchanged.  The two weeks during and after a shutdown, the markets averaged down 0.13%.  More interesting is the fact that the one-week data shows that only 47% of the time did the market go down.  More interesting still, in the month after the shutdown, the average price move was UP 0.25%.

 

Nobody is saying that a government shutdown is good for stocks, or that shutting the government down is a great way to shake the market out of its current tailspin.  But it probably isn’t a good idea to panic about the market impact of a shutdown either.

Sincerely,

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

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

Founder & CEO

 

Source:

 

https://www.zerohedge.com/sites/default/files/inline-images/19%20govt%20shutdowns.png?itok=UIGSm3fB

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.

 

Continue reading
274 Hits

Prosperity - Not for All

 

November, 2018

 

America is at sailing along at peak prosperity, with the stock market having boomed for 10 years and the last recession coming in the previous decade.  Unemployment is at a 20-year low.  There are arguments about which President is responsible for this great news, but most Americans are prosperous.  Right?

 

Apparently not.  The nonprofit Center for Financial Services Innovation polled more than 5,000 Americans, and concluded that, in the midst of this unprecedented economic prosperity, only 28% of Americans could be considered “financially healthy.”  That is calculated by examining spending, saving, credit and other indicators.  It is defined as not having an unhealthy amount of debt, an irregular income and sporadic savings habits.

 

The survey found that an astonishing 17% of Americans are “financially vulnerable,” meaning they struggle with nearly all financial aspects of their lives.  Some 44% of respondents said their expenses had exceeded their income in the past year, and they had to use credit to make ends meet.  Another 42% reported having no retirement savings at all.

 

Other research supports these conclusions.  The website bankrate.comincludes a report saying that only 29% of Americans have six months or more of emergency savings, and roughly the same amount say they have none.  The Federal Reserve and the Federal Deposit Insurance Corp data suggests that the median American household holds just $11,700 in savings.

 

Sincerely, 

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

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

Founder & CEO

 

Source: 

https://www.marketwatch.com/story/only-3-in-10-americans-are-considered-financially-healthy-2018-11-01

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.

 


Continue reading
290 Hits

Pullbacks Galore

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.

 


Continue reading
281 Hits

Stocks Go On Sale Again

 

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.

 

 


Continue reading
238 Hits

Beware the Bears

 

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.


 


Continue reading
531 Hits

Behind the Turkish Meltdown

 

 


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


Continue reading
599 Hits

The Growth Spike

 

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.


Continue reading
398 Hits

Crytpo-Crash

 

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

Continue reading
693 Hits

Much Ado About.....

 

 

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

Continue reading
612 Hits

Perspective on This Week’s Market Events

 

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

Continue reading
444 Hits

Should we be alarmed?

 

 

 

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


Continue reading
363 Hits

Everyone Is Talking About Bitcoin

 

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]

 


Continue reading
705 Hits

Senate Tax Bill

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

Continue reading
653 Hits

The Republican Tax Reform Plan

 

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]

 

Continue reading
527 Hits

A Look at Jerome Powell

 

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]

Continue reading
572 Hits

Don't Sell on Headlines

August 16, 2017

 

So far, the world markets seem to be shrugging off the sabre-rattling coming from North Korea (normal behavior) and the U.S. White House (complete departure from policy). The smart money is betting that the distant but suddenly headline-grabbing possibility of the first conflict between two countries armed with nuclear weapons will amount to a tempest in a teapot.   
 

Meanwhile, the U.S. stock market has been testing new highs for months, and experts cannot quite explain why valuations have been rising amid such low volatility.  
 

So the question is quite logical: isn’t this a good time to pare back or get out of the market until valuations return to their historical norms, or at least until the North Korean “crisis” blows over?   
 

The quick answer is that there’s never a good time to try to time the market.  The longer answer is that this may actually be a particularly bad time to try it.   
 

What’s happening between the U.S. and Korea is admittedly unprecedented.  In the past, the U.S. largely ignored the bluster and empty threats coming out of the tiny, dirt-poor Communist regime, and believe it or not, that also seems to be what the military doing now.  Yes, our President did blurt out the term “fire and fury” in impromptu remarks to the press, and later doubled down on the term by suggesting that his warning wasn’t worded strongly enough.  But the U.S. military seems to be responding with a yawn.  There are no Naval carrier groups anywhere near Korea at the moment; the U.S.S. Carl Vinson and the U.S.S. Theodore Roosevelt are both still engaged in training exercises off the U.S. West Coast, and the U.S.S. Nimitz is currently patrolling the Persian Gulf.  Nor has the State Department called for the evacuation of non-essential personnel from South Korea, as it would if it believed that tensions were leading toward a military confrontation.   
 

Meanwhile, on the home front, the U.S. economy continues to grow slowly but steadily, and in the second quarter 72.2% of companies in the S&P 500 index have reported earnings above forecast.   
 

What does that mean?  It means that you will probably see a certain amount of selling due to panic over the North Korean standoff, which will make stocks less expensive—a classic buying opportunity.  History has given all of us many opportunities to panic, going back to World War I and World War II, and more recently 9/11—but those who stayed the course reaped enormous benefits from those who abandoned their stock positions.
   

If you’re feeling panic over the North Korean situation, by all means, go in the nearest bedroom and scream—and then share some sympathy for the Americans living in the island territory of Guam, which is in the direct path of the North Korean bluster.  Just don’t sabotage your financial well-being in the process.   
 

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.

 

Continue reading
632 Hits

Archived Newsletters


Investment Updates

Newsletters Sign Up

Account Login

Contact Info

Kohlhepp Investment Advisors, Ltd.
3655 Route 202, Suite 100
Doylestown, PA 18902
Phone: 215-340-5777
Fax: 215-340-5788
Email: Info@KohlheppAdvisors.com

Securities offered through Cambridge Investment Research, Inc. a Registered Broker/Dealer, Member FINRA/SIPC. Investment Advisory Services offered through Kohlhepp Investment Advisors, Ltd., a Registered Investment Advisor. Kohlhepp Investment Advisors, Ltd. and Cambridge Investment Research Advisors, Inc. are not affiliated.

Due to various state regulations and registration requirements concerning the dissemination of information regarding investment products and services, we are currently required to limit access of the following pages to individuals residing in states where we are currently registered. We are licensed in the following states: AZ, CA, CO, DE, FL, GA, IN, KY, LA, MA, MD, NC, NJ, NY, OR, PA, RI, SC, TX, VA, VT, WA


Check the background of this firm on FINRA's BrokerCheck