Our Post-COVID Society

June 30, 2020

 

Fast Company magazine asked six experts to predict how our economic landscape will be changed—perhaps forever—by the COVID-19 pandemic that we are all experiencing now.  Sarah Miller, executive director of the American Economic Liberties Project, says that the pandemic has exposed the extreme (some would say dangerous) market power of Amazon in retail sales, and how Facebook and Google have monopolized advertising.  (The plight of Amazon warehouse workers has particularly caught her attention.) 

 

Her prediction: growing awareness of this and other market concentrations will lead voters to ask their elected representatives to pause mergers and look more closely at how trade agreements benefit the largest corporations and entrench their power.

 

Demond Drummer, executive director of New Consensus, believes we might see changes in how the government and public institutions make investments in the economy.  Last February, it was hard to make the case that we needed a jobs program in this country, even though many Americans were stuck in low-wage positions.  Post-COVID, he expects to see a focus on the quality of jobs rather than the raw unemployment number.  In addition, the fact that so many Americans lost health insurance when they were laid off by their employers suggests that we will see increasing voter demand for universal health care. 

 

Beyond that, Drummer envisions more infrastructure projects around clean energy and more companies manufacturing at home rather than outsourcing to Asia and Latin America.

 

David Autor, professor of economics at MIT, foresees major changes in the hospitality industry, driven by what he sees as a permanent reduction in business travel.  With more comfort with Zoom meetings, he adds, workers will be spending less time in offices, which means fewer people eating lunch at metropolitan restaurants.  As a way to jump-start the economy, Autor proposes that the government spend 10% of GDP on a Marshall plan to rebuild American infrastructure, invest in schools, and make the unemployment insurance system more comprehensive, by adding new skills training.

 

Rebecca Henderson, an economics professor at Harvard Business School, sees government spending as the hero of the economic meltdown we are experiencing, and thinks that there will be a newfound realization that government should be a solution, rather than a demonized impediment to economic growth.  In addition, a newfound interest in addressing environmental damage and economic inequality will lead to new labor market policies and what Henderson calls “appropriate regulation.”

 

Former Presidential candidate Tom Steyer, founder of NexGen America, says that the pandemic has exposed what was hidden before: the under resourced black and brown communities that bore the brunt of the disease.  He envisions new government policies that will provide equal access to high-speed internet, retraining and rescaling low-wage workers.

 

Economist Stephanie Kelton at Stony Brook University says that healthcare will finally be disconnected from employment as a result of 40 million lost jobs.  She proposes that the budget deficit grow as big as it needs to get to heal and repair and rebuild a new and better economy.  She says: “The last thing I want is to watch everything come apart and then pick up the pieces and try to reassemble them exactly the way they were assembled before.  You want to put it together differently: You want to build better, build smarter, build safer, build stronger, build more resilient.”

 

None of these people claimed to know the future, but the common thread is that they want the medical, social and economic crisis that we are experiencing now to lead to something better.  It will be up to all of us to define “better” as we rebuild our lives and economy.

 

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

 

Source:

https://www.fastcompany.com/90506269/6-experts-on-how-capitalism-will-emerge-after-covid-19

 

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.

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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.

 

 

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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. 

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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

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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. 

 

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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.

 

 

 

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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

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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.

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The Perfect Pundit Interview

January 2019

 

Chances are, you’ve already heard or read endless predictions about… everything.  The direction of interest rates.  Market returns and whether the markets will go down or up.  When the next recession will hit.  The movements of the cryptocurrency markets.

 

If the market gurus were being honest, they wouldn’t give us definitive answers to any of the questions that are posed to them.  Does anybody really have a working crystal ball?  If they did, would they share what they’ve seen in it?

 

A recent article in the financial services press offered up some realistic answers to the questions that financial journalists and cable tv hosts typically ask.  Here are some examples:

 

Are stocks overvalued?

 

We don’t know.  All we know is markets go up over time.

 

What are the signs I should look for that predict a market correction?

 

There are none.

 

What’s your view of [this headline] on Bloomberg or CNBC?

 

It justified my view that not watching Bloomberg or CNBC should have been one of my resolutions this year.

 

What do you think of what the technical analysts are saying about the near future?

 

The only thing I know for certain about technical analysis is that it’s possible to make a living publishing a newsletter on the topic.

 

What do you think of Jim Cramer’s opinions about the market?

About the same (actually slightly worse) than the flip of a coin, without the attitude.

 

Wells Fargo is now positive on gold.  Should I buy gold?

 

Gold might take off or tank.  The opinion of Wells Fargo about some event in the future is no better than yours.  Personally, I would like to see Wells Fargo “turn positive” on ethical behavior toward its employees and clients.

 

Are stocks vulnerable to another pullback?

Yes.  They always are.  The problem is that no one has the expertise to tell you when market corrections will occur, although many love to imply that they do.

 

Do you have an investing goal for 2019?

 

Make your investing about as exciting as watching paint dry.  Leave the excitement to others.

 

 

Source:

https://danielsolin.com/investing-answers-you-wont-see-in-the-financial-media/

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.

 

 

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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

 

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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.

 

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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.

 

 


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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.


 


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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.


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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

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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

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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.

 

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Kohlhepp Investment Advisors, Ltd.
3655 Route 202, Suite 100
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