Q3 2019 Market Commentary

3rd Quarter 2019 Commentary

 ·         The US-China trade dispute has dominated the headlines and volatility for this quarter. The Federal Reserve’s stance on interest rates gets a distant second. The gist of the ambiguity for stocks is slower global growth and tariff wars. Brexit is also very much in the background.

 ·         The Federal Reserve cut rates twice, and the ECB announced new strategies to stimulate the economy. US stocks achieved fairly small gains and pressures were felt in the commodity and financial sectors.

 ·         The Trump impeachment doesn’t help the macro view of the solidarity of the United States. In particular, China seems to want to see if “waiting Trump out” is a possibility, although talks are resuming.

 ·         Bond yields have declined precipitously over the quarter due to heightened global risk aversion.

 Our message is that we will conservatively take gains going into the fourth quarter and be satisfied with holding moderate amounts of cash. While there is this sense that so many things are awry, the truth is more to the contrary. The US has low unemployment, and growth is still placing GDP near 2%. The world is saying that we are going to have a recession in 2020. As you know, we don’t make those types of prognostications and believe a broken clock is right twice a day. That having been said, yes, things are in a slower growth mode than in the past few years. We believe that after 10 years of a bull market, we are bound to have some pullbacks. No market in our lifetime has ever been monodirectional, but we wouldn’t want our clients wasting their time trying to guess the top. Instead, we will pave the year end path with some realized gains and cash so that we live to fight another day.

Regards,

Zandy Campbell

Q2 2019 Market Commentary

2019 Half-Time: Climbing the Wall of Worry

 The first half of 2019 is complete, and the S&P 500 was up 17.35% for the period. This performance is the best first half since 1997. The PE multiple of the S&P is near 20 with Price to Sales Ratio at a little over 2X. Generally speaking, the fuel for the market this year has primarily been due to central bank policy. While we are extremely happy with this low interest rate environment, we believe that stocks will ultimately need to return to an environment where earnings are the drivers of upward movement.

The negatives for future GDP growth and earnings are of course the tariffs. Ultimately, higher tariffs do impact the United States in terms of earnings nearly as much as the Chinese. President Trump and President Xi have been “talking” about a trade deal for some time, and we believe that something possibly luke warm will be achieved. Let’s face it: the Chinese have enjoyed this huge trade imbalance for 30 years. The benefits of that trade tilt are not lost on President Xi, and I am fairly confident that he is not anywhere near really considering evening up that advantage. It is likely that Europe’s slow-down will continue to bleed on the United States which will result in slower growth and low interest rates. Therefore, it’s our opinion that the second half of the year will be fairly bumpy and very open to the vicissitudes of trade talk and rumors. Nevertheless, we believe that the U.S. equity markets continue to be the best alternative for our clients, and Federal Reserve Chairman Powell proves to be a “market-friendly” government official, which bodes well for the longer-term.

We believe that a year-end target of 3050 is very probable for the S&P 500 Index. This is simply to suggest a period of digestion and sideways movement in the second half. It wouldn’t surprise us if we have as much as a 10% pullback in this upcoming half, but we would use that as a buying opportunity. The central bank and geopolitical concerns will most likely dominate the rest of the year, but we encourage investors to stay long and even use market sell offs to add into favored equities.

Warm Regards,

Zandy Campbell

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Q1 2019 Market Commentary

Christmas Eve 2018 was the deepest and darkest place that the market has been in quite some time. Officially, December 2018 was the worst December since 1931. The good news is that the market shook off all this gloom and doom prompted by an ambitious Federal Reserve. It’s a point of debate, but we think the Fed overdid the raising of interest rates in 2018. To be fair, Chairman Powell had a lot of ground to overcome in a short period. He was in a tough situation and still is.

 

January 2019 began with a roaring stock market recovery. The market was way oversold and came roaring back. The catalyst was that the Fed turned very dovish, and the China trade situation was showing signs of an agreement. Thus, the first quarter of 2019 was up 13.07% based on the S&P 500 index and recorded one of the best first quarters ever. We are all very lucky because first quarter earnings showed signs of falling off early in 2019. Subsequent to this bad data, the treasury yield curve inverted. When this phenomena occurs, it supposedly often heralds a recession within the next 12-18 months. We’ll see. Earnings for Q2 don’t look any better, but the U.S. / China optimism seems stronger than ever. Europe and Brexit are still in a state of chaos and in many ways make us feel pretty lucky. Politically, the hunt to still take down Trump continues, and yet, we are still slowly moving ahead.

 

Most of our accounts have between 13 and 20% cash, and we are happy about that fact. We have our eyes on several of our favorite investments and companies and will pounce on them when stock prices head lower. Currently, we are as invested as we want to be, and we are mainly helping clients with their tax work. With interest rates being so low, we still see the only overall place to be for the longer term is the stock market, and we are invested accordingly. For us to get a lot more bullish, the weakness in the global economy would have to recede. The ECB has held steady and promised not to raise rates until next year. Therefore, we are advocates of a more balanced portfolio buoyed by some short term bonds and cash. It’s always best to be cautious when markets have risen quickly and optimism seems the luxury of over-enthusiastic investors. Valuations are quite high and the market is facing some declining fundamentals.

10 Tips From The SEC's Office of Investor Education and Advocacy

Whether you are a first-time investor or have been investing for years, here are 10 tips from the SEC’s Office of Investor Education and Advocacy to help you in 2019.

  1. Check out your investment professional.

It is free and easy to check the background of an investment professional.  You can find details about an investment professional’s qualifications through the search tool on Investor.gov, the SEC’s website for individual investors.  Also, make sure to ask SALI whether your investment professional has been named in an SEC action.  If you need help, you can call our toll-free investor assistance line at (800) 732-0330 for help.

  1. Understand the power of saving and investing early by taking advantage of our tools.

If you are investing or saving toward a goal, or just want to learn about how your money can grow under various hypothetical scenarios, take advantage of our compound interest and savings goal calculators.  These calculators are great tools to help inform any decisions you make about your investing and saving.

  1. Know how to be a better investor.

Did you know that active trading and some other very common investing behaviors actually can undermine investment performance?  According to researchers, other common investing mistakes include focusing on past performance, favoring investments from your own country, region, state, or company, and holding on to losing investments too long and selling winning investments too soon.

  1. Diversify.

Diversification can help reduce the overall risk of an investment portfolio.  By picking the right mix of investments, you may be able to limit your losses and reduce the fluctuations of your investment returns without sacrificing too much in potential gains.  Some investors find that it is easier to achieve diversification through ownership of mutual funds or exchange-traded funds (ETFs) rather than through ownership of individual stocks or bonds.

  1. Consider fees.

It can be costly to ignore fees associated with buying, owning, and selling an investment product.  Expenses vary from product to product, and even small differences in costs can mean large differences in earnings over time.  An investment with high costs must perform better than a low-cost investment to generate the same return.  Read our bulletin on How Fees and Expenses Affect Your Investment Portfolio to learn more.

  1. Watch out for guaranteed high returns.

Promises of high returns with little or no risk are classic warning signs of fraud.  Every investment carries some degree of risk, and the potential for greater returns usually means greater risk.  Ignore so-called “can’t miss” and “guaranteed risk-free” investment opportunities –even if they involve HoweyCoins!  Better yet, report them to the SEC. 

  1. Be alert to affinity fraud and celebrity endorsements.

Affinity frauds target members of identifiable groups, such as the elderly, religious, or ethnic communities, or the military.  Even if you know the person making the investment offer, be sure to check out the investment and the person’s background—no matter how trustworthy the person seems.  You should also watch out for celebrity endorsements.  Just because you know the celebrity, doesn’t automatically make the investment opportunity being endorsed worthwhile. 

  1. Be careful when using social media as an investment tool.

Social media has become an important tool for investors, but also present opportunities for fraudsters to lure investors into a wide range of scams.  For additional information on ways to avoid fraud through social media, please read our bulletin on Social Media and Investing.

  1. Is the securities offering registered or exempt?

Any offer or sale of securities must be either registered with the SEC or exempt from registration.  Otherwise, it is illegal.  This has taken heightened importance with the advent of initial coin offerings as many of these offerings may involve securities.  Registration is important because it provides investors access to key information about the company’s management, products, services, and finances.  Always check whether an offering is registered with the SEC by using the SEC’s EDGAR database or contacting the SEC’s toll-free investor assistance line at (800) 732-0330.

  1.  Don’t forget about the world.

Events around the world may have a material impact on your investments.  For example, the United Kingdom is currently negotiating its exit from the European Union (often referred to as “Brexit”).  Brexit may have significant effects on the markets and companies in which you invest.  Please stay informed about Brexit and other world events as you consider your investment strategy.
 

If you have questions about your investments, your investment account or a financial professional, don’t hesitate to contact the SEC’s Office of Investor Education and Advocacy online or on our toll-free investor assistance line at (800) 732-0330.
 

The Office of Investor Education and Advocacy has provided this information as a service to investors.  It is neither a legal interpretation nor a statement of SEC policy.  If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.

The Super Rich Stress Test Their Financial Plans-and So Should You!

The Super Rich (those with a net worth of $500 million or more) who have family offices typically engage a sizable lineup of professional advisors to help them create and implement financial plans. To help ensure those plans are both state-of-the-art as well as in line with their needs and wants, many of them regularly “stress test” these plans.

 

Here’s why you should join them in that effort—even if you’re not nearly as wealthy.

Asking “What if?”

Stress testing financial plans can be a very smart way to help make certain that the plan will deliver as promised. The fact is, financial plans that might look great on paper all too often prove to be much less impactful once they are implemented. It is not uncommon for there to be unintended consequences that can even derail one’s agenda.

 

At heart, stress testing is when you ask, “What if …?” about a variety of areas of a financial plan you have or are considering. When it comes to estate planning, for instance, a wealthy individual might ask questions like:

 

·         What will actually happen to my assets when I pass on?

·         How will my family be affected, precisely?

·         Who will be tracking the hard assets such as artwork and jewelry to make sure they go to the designated heirs—as opposed to vanishing?

·         Who is going to make sure my estate plan is being executed as it’s supposed to be?

 

To be effective and informative, stress testing should be done in a systematic manner. While there are some variations, the basic process starts by determining your goals. Your goals, any problems to be addressed and opportunities to benefit should be the driving forces behind the financial and legal solutions you employ.

 

 

STRESS TESTING FOR EVERYONE

 

Once you clearly understand your goals, you can evaluate the specific existing or proposed financial services or products. There are numerous ways to dissect and critically assess financial services and products:

 

·         Work the assumptions. A plethora of assumptions underlie all services and products. In stress testing, these assumptions are modified to determine how the solutions will work when a given scenario changes.

·         Evaluate alignment with goals and objectives. A solution might prove to work extremely well, but still not achieve the desired results. It’s essential to help ensure that the services and products will accomplish your goals.

·         Calculate cost structure. The intent here is to identify the best and most cost-effective solution possible. When calculating cost structures, all the expenses should be specified—including long-term costs.

 

Based on the stress test’s evaluation of the existing or proposed solutions, you might consider alternative products or services. It can be very useful to do side-by-side comparisons between the solutions being considered or currently used and such alternatives, asking questions like:

 

·         How do the assumptions compare?

·         How do the alternatives rate when it comes to potentially achieving my goals?

·         Which solutions are more cost-effective?

 

The end result of the process: recommendations. Based on those recommendations, there are five courses of action to consider taking:

 

  1. Stay the course. If the stress testing found the solutions being used or proposed to be on target and of high quality, the recommended action is to stay the course.

 

  1. Choose different solutions. If the stress testing finds what may be described as a system failure—the financial products being used are not going to achieve the desired results and might even blow up, for instance—the right move is to take a different course of action.

 

  1. Choose a different professional. If the solutions are appropriate but the professionals involved are really not up to the task of implementing them (or they charge too much money), it will usually make sense to switch to more capable and/or cost-effective experts.

 

  1. Modify the approach with the original professional. If the solutions can be made more powerful with only slight modifications, the best route is often to stick with the original professionals and have them make the minor changes needed.

 

  1. Continue stress testing. There are occasions when the individual or family chooses a professional to conduct a stress test and that professional is not up to the task. This comes out often clearly in the process or results of the stress testing. The only viable course of action is to select a different professional to conduct the stress testing.

 

Although stress tests are commonly used among the Super Rich, they should be a part of most people’s due diligence process when vetting financial plans, financial products and financial services. Frequently, stress tests uncover flaws in financial plans as well as better ways to achieve desired outcomes. For those reasons, stress tests will likely benefit a great number of people—especially business owners and their families, who generally have so much of their future financial security riding on one asset: their business.

 

Certainly there is a cost to stress testing estate, asset protection and income tax plans. That cost will depend greatly on the complexity of the testing involved and your situation. However, a stress test fee can be a whole lot cheaper than the costs—financially but also emotionally and psychologically—of a plan or solution that is fundamentally flawed or in conflict with your goals.

 

ACKNOWLEDGMENT: This article was published by the BSW Inner Circle, a global financial concierge group working with affluent individuals and families and is distributed with its permission. Copyright 2018 by AES Nation, LLC.

 

 

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