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And the Survey Said…

In late 2016, Natixis Global surveyed 500 institutional decision makers representing corporate pension plans, public pension plans, sovereign wealth funds, insurance companies, foundations, and endowments. Survey participants said market volatility, geopolitics, and interest rates were their top risk concerns for 2017.

So far, U.S. stock markets haven’t proven to be very volatile, but geopolitics caused some disruption last week. Barron’s reported:

“Stocks fell 1 percent last week in quiet trading, with many market participants out for religious observances. Worries about the war in Syria, North Korean saber-rattling, and the coming French elections had investors reining in riskier positions and heading for safe havens.

Real estate, utilities, and consumer-staples stocks were the only sectors that rose last week. Financials – and banks in particular – fell, despite strong earnings reports from the industry’s big kahunas.”

It was a tough week for stocks, but investors’ flight to safety caused Treasury bonds to rally. Reuters reported the interest rate on 10-year Treasury notes fell 14 basis points. That’s the biggest weekly decline since January 2016. (There is an inverse relationship between bond interest rates and bond prices. When interest rates fall, bond prices rise, and vice-versa.)

 

Data as of 4/14/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -1.1% 4.0% 11.8% 8.1% 11.2% 4.8%
Dow Jones Global ex-U.S. -0.2 6.7 8.8 -1.2 2.9 -1.3
10-year Treasury Note (Yield Only) 2.2 NA 1.8 2.6 2.0 4.8
Gold (per ounce) 1.4 10.8 3.1 -1.1 -5.1 6.5
Bloomberg Commodity Index 0.5 -1.4 6.2 -14.4 -9.4 -6.8
DJ Equity All REIT Total Return Index 0.9 4.4 7.4 11.3 11.2 5.1
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

Why do shoelaces come untied? Engineers have solved many knotty problems, but it wasn’t until recently they unraveled the mystery of shoelaces and why they come undone, reported The Economist.

If you don’t wear shoes that lace or spend time with young child who wear lace-ups, you may not have realized how vexing shoelaces can be. Traditional shoelace bows are comprised of a reef knot and a slipknot – a combination that has come undone throughout history. People have explored alternative knots. In fact, there is an entire website devoted to shoelace knots. It details regular, secure, and special purpose options.

As it turns out, the problem with shoelaces is walking. A group of engineers at the University of California, Berkeley worked out the mechanics of shoelace-bow destruction using treadmills, cameras, and tiny accelerometers. The Economist reported:

“The first thing which happens during walking is that the reef itself is loosened by the inertial forces of the lace ends pulling on it. This occurs as a walker’s foot moves first forward and then backward as it hits the ground during a stride. Immediately after that, the shock of impact distorts the reef still further. The combination of pull and distortion loosens the reef’s grip on the lace, permitting it to slip…Probably, nothing can be done about this differential elongation. But it might be possible to use the insights [researchers] have provided to create laces that restrict the distortion of the reef at a bow’s center and, thus, slow the whole process down.”

Could this research win an Ig Nobel in 2017? It’s possible.

You may recall from previous commentaries, the ‘Igs’ celebrate improbable research and “…honor achievements that first make people laugh, and then make them think. The prizes are intended to celebrate the unusual, honor the imaginative – and spur people’s interest in science, medicine, and technology.”

The 27th First Annual Ig Nobel Prize ceremony will take place September 14, 2017.

 

Weekly Focus – Think About It

“I put a dollar in one of those change machines. Nothing changed.”

–George Carlin, Comedian.s84765.gridserver.com

Written by Your Family CFO Team

April 17th, 2017 at 4:01 pm

Click here for Disclosures and Data Sources.

U.S. Stock Markets Are Sending Mixed Signals

If you look at the performance of the CBOE Volatility Index (a.k.a. the VIX or fear gauge), which is a measure of market expectations for volatility in the near future, it appears all is well and investors expect no unexpected events. Barron’s explained:

“…which brings us back to a central fact: the absence of volatility. The first quarter was historic for the CBOE Volatility Index…It ranged from 10.6 to 13.1, and its average level was 11.69, the lowest in an initial quarter since the VIX was born in 1990 and the second-lowest quarterly average since the 11.3 of 2006’s final three months…”

The VIX remained stubbornly low last week, too, despite weaker than expected employment news, wage news, and generally flat economic data.

If you turn your eyes to the number of companies whose shares have reached new highs, you might form a different opinion about the steadiness of stock markets. Barron’s wrote:

“…the squadron of stocks pushing 52-week highs at the New York Stock Exchange has shrunk from 338 on March 1 to 72 late last week…But, if the planet really is enjoying a synchronized economic recovery, why are we lunging at these stocks as if they were the only game in town?”

It’s difficult to know how to factor in last week’s air strikes against Syria, which registered as a tiny blip on the U.S. stock market radar. Some analysts say that’s as it should be. The real drivers of market performance in 2017 will be tax reform and global monetary policy. Others are concerned involvement in Syria could lead to a reshuffling of political priorities and delay progress on domestic legislation.

In times like these, diversification is critical.

 

Data as of 4/7/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -0.3% 5.2% 15.4% 8.5% 11.3% 5.0%
Dow Jones Global ex-U.S. -0.4 7.0 13.2 -1.4 2.8 -1.2
10-year Treasury Note (Yield Only) 2.4 NA 1.7 2.7 2.0 4.7
Gold (per ounce) 1.7 9.3 2.0 -0.8 -5.1 6.5
Bloomberg Commodity Index 0.6 -1.9 10.8 -13.9 -9.5 -6.7
DJ Equity All REIT Total Return Index 0.9 3.5 7.3 10.7 11.0 4.9
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

Pulling Ink Out of the Air. Air pollution is one of the biggest environmental and human health threats in the world, according to a 2016 World Health Organization report:

“To date, air pollution – both ambient (outdoor) and household (indoor) – is the biggest environmental risk to health, carrying responsibility for about one in every nine deaths annually. Ambient (outdoor) air pollution alone kills around 3 million people each year…Air pollution continues to rise at an alarming rate and affects economies and people’s quality of life; it is a public health emergency.”

Engineer Anirudh Sharma was familiar with the problem. The MIT Media Lab student was walking down a street in Mumbai, reported MSN.com, when he noticed that diesel exhaust from passing buses and cars was staining his clothes black.

The experience sparked an idea: Was it possible to recycle air pollution and use it to make something useful? Like ink?

During the past few years, Sharma has developed technology to create the world’s first line of art supplies derived from air pollution. He and his team have built an exhaust filter that captures carbon soot as it is emitted from cars, generators, and ferries. Once pollution has been gathered, impurities are removed. The remaining soot is ground into pigment and mixed with vegetable oil to create inks, markers, and paints.

One artist commented, “I don’t know if it’s the pollution, but the quality of the ink is really special…It’s pitch black, really thick and dries incredibly quickly.”

Last month, the first Clean Air Gallery opened in London. It features work by artists from London, Glasgow, Leeds, Southampton, and Nottingham – some of the most polluted cities in the United Kingdom – using Sharma’s ink. Other exhibitions are expected to open in Berlin, Singapore, and New York.

 

Weekly Focus – Think About It

“A mind which really lays hold of a subject is not easily detached from it.”

–Ida Tarbell, Investigative journalism pioneer

 

.s84765.gridserver.com

Written by Your Family CFO Team

April 10th, 2017 at 3:52 pm

Click here for Disclosures and Data Sources.

Happy 8th Birthday!

Toward the end of the first quarter, the bull market celebrated its eighth birthday. David Kelly, Chief Global Strategist at J.P. Morgan Asset Management wrote:

“Eight years ago, on March 9, 2009, the S&P 500 closed at 677, down 57 percent from where it had been just 18 months earlier. 10-year Treasury yields had fallen from 3.6 percent to 2.9 percent over the previous year…Investors were depressed and scared. However, good long-term returns from stocks were almost inevitable at that point since economic and market fundamentals were at unsustainably low levels…Eight years later, the financial landscape has changed completely…it still makes sense to be in long-term investments including both domestic stocks and bonds. However, it is time to adopt a more diversified and thoughtful approach that recognizes the importance of valuations…”

Valuations were heady during first quarter

Stock valuations reflect how much a share of a company’s stock, or shares of companies in an index, may be worth. Valuations can help investors understand whether shares are expensive, reasonable, or inexpensive. One way to measure valuation is to look at trailing 12-month price-to-earnings (P/E). This gauge reflects how much an investor must pay to receive one dollar of the company’s earnings.

For instance, on March 31, FactSet reported the trailing 12-month P/E of the Standard & Poor’s 500 Index was 21.8. That’s well above the 10-year average of 16.6 and the five-year average of 17.1. This suggests shares of the overall index are expensive. Keep in mind, even when the index appears to be expensive, the valuations of specific companies or sectors within the index may still be attractive.

Animal spirits abounded

The CEO of JPMorgan attributed investors’ enthusiasm for stocks during the first quarter to ‘animal spirits,’ reported CNN Money. Animal spirits is a term coined by John Maynard Keynes. It describes “…a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.” Investors were inspired by the new administration’s growth agenda, including promises of lower taxes and less regulation.

The U.S. economy grew (but we’re not sure how much)

People and businesses may have been more enthusiastic than data suggests they should be. Financial Times cited research from Morgan Stanley that shows a growing gap between ‘hard’ economic data (like slowing corporate spending and lower retail sales) and ‘soft’ economic data (like consumer and business optimism). The disparity has created uncertainty about the pace of economic growth during the first quarter of 2017. “The Atlanta Federal Reserve’s model, which…focuses on hard data, projects an annualized rate of just 1 percent. However, the New York Fed’s model, which ‘incorporates soft data into its tracking,’ forecasts 3 percent growth.”

The Federal Reserve acted

With employment and inflation data approaching Fed targets, the Federal Open Market Committee raised rates in March, pushing the Fed funds target rate into the 0.75 percent to 1 percent range, reported Financial Times. More rate hikes are expected during 2017.

Brexit was launched

The end of the first quarter of 2017 marked a new beginning for Britain. On March 29, Prime Minister Theresa May officially launched Britain’s exit from the European Union. The United Kingdom now has two years to negotiate terms with the European Union (unless all members of the EU unanimously approve an extension).

When you consider how long trade agreement negotiations normally take, it appears the task ahead for Britain and the EU is akin to running a marathon in 30 minutes. For example, Canada and the EU began discussing a trade agreement in 2007. It has yet to be finalized.

United States and European national stock market indices finished the quarter higher.

 

Data as of 3/31/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.8% 5.5% 14.7% 7.8% 10.7% 5.2%
Dow Jones Global ex-U.S. -0.4 7.4 10.6 -1.2 2.1 -1.0
10-year Treasury Note (Yield Only) 2.4 NA 1.8 2.7 2.2 4.6
Gold (per ounce) -0.2 7.4 0.6 -1.2 -5.8 6.6
Bloomberg Commodity Index 1.0 -2.5 8.3 -14.1 -9.9 -6.7
DJ Equity All REIT Total Return Index 1.0 2.5 5.2 10.6 10.2 4.9
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.  Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.  Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

The tooth fairy is awfully generous these days. Since 1998, an insurance firm has conducted a poll to determine how much swag the tooth fairy or, depending on your country, the magical mouse, elf, brownie, or tooth rat has been leaving behind for children who’ve lost their teeth.

When the poll began, the going rate for a tooth was about $1.50. The most recent survey found that, in the United States, a tooth was pulling in about $4.66! The going rate in other nations was similar:

 

  • C$6.11 in Canada ($4.59 U.S.)
  • ¥525.82 in Japan ($4.72 U.S.)
  • €4.38 in Ireland and Spain ($4.67 U.S.)
  • £3.75 in England ($4.70 U.S.)
  • R$14.47 in Brazil ($4.63 U.S.)
  • ₡42 in Costa Rica ($4.66 U.S.)

 

NPR’s Planet Money examined whether the value of lost teeth has kept pace with inflation. They posited a tooth was worth about $0.50 in the 1970s. If the value of a tooth had risen with inflation, it would be worth less than $3.00 today. So, the value of a lost tooth has increased faster than the rate of inflation – similar to college tuition!

 

Weekly Focus – Think About It

“But the real magic and the secret source behind collaborative consumption marketplaces…isn’t the inventory or the money. It’s using the power of technology to build trust between strangers…Because, at its core, it’s about empowerment. It’s about empowering people to make meaningful connections, connections that are enabling us to rediscover a humanness that we’ve lost somewhere along the way…”

–Rachel Botsman, Business consultant.s84765.gridserver.com

Written by Your Family CFO Team

April 3rd, 2017 at 4:40 pm

Click here for Disclosures and Data Sources.

Markets Hate Uncertainty

Failure to pass the American Healthcare Act, which was supported by Republican leaders in Congress and President Trump, may have spooked U.S. stock markets last week.

In an article titled, “How To Make Investing Decisions Based On Politics: Don’t,” Nasdaq.com reported controversy over the bill was “raising questions about [Republicans’] ability to focus on and pass policies that the market has been eagerly anticipating, such as tax reform and infrastructure spending.”  Financial Times concurred:

“The post-election stock market rally has been largely powered by hopes Donald Trump’s administration would swiftly launch a bevy of aggressive economic stimulus measures, including tax cuts, deregulation, and infrastructure spending. However, Mr. Trump’s difficulty in Congress over the government’s healthcare plan has prompted some reappraisal by investors of the prospect of significant stimulus arriving later this year.”

Financial Times pointed out it’s likely other factors played a role in investors’ decision-making, as well. Some professionals have become concerned about market valuations. About 34 percent of fund managers believe global equity markets are overvalued and 81 percent say U.S. equities are the most expensive in the world, reported Fortune Magazine citing Bank of America Merrill Lynch’s survey of fund managers.

In addition, estimates for corporate earnings have been revised lower for the first quarter of 2017. Take that with a grain of salt, though. FactSet wrote, “In terms of estimate revisions for companies in the S&P 500, analysts have made smaller cuts than average to earnings estimates for Q1 2017 to date…”

Politics is one factor affecting markets, and partisanship may be affecting consumer sentiment. Richard Curtin, chief economist of University of Michigan Surveys of Consumers, said consumers’ expectations about future economic growth were split along party lines in March. “…among Democrats, the Expectations Index at 55.3 signaled that a deep recession was imminent, while among Republicans the Index at 122.4 indicated a new era of robust economic growth was ahead.”

We live in interesting times!

 

Data as of 3/24/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -1.4% 4.7% 15.1% 8.1% 10.6% 5.0%
Dow Jones Global ex-U.S. 0.0 7.8 13.2 -0.2 2.2 -0.9
10-year Treasury Note (Yield Only) 2.4 NA 1.9 2.7 2.2 4.6
Gold (per ounce) 1.5 7.6 -0.3 -1.6 -5.8 6.5
Bloomberg Commodity Index -0.7 -3.4 6.7 -14.0 -10.2 -6.7
DJ Equity All REIT Total Return Index 0.4 1.5 7.6 10.9 10.3 4.8
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

 “It ain’t what you don’t know that gets you into trouble.  It’s what you know for sure that just ain’t so,” wrote Mark Twain.

In 2016, NerdWallet commissioned a survey* to get a better handle on Americans’ thoughts about lying when money is involved. It’s interesting to note which money-saving lies participants found acceptable. The list included:

  • Logging on to someone else’s retail or media account to avoid subscription fees (33 percent)
  • Not reporting under-the-table income to avoid taxes due (24 percent)
  • Lying about your age or your child’s age to receive a discount at a restaurant or retailer (21 percent)
  • Lying about annual mileage to lower auto insurance rates (20 percent)
  • Lying about income on a loan or credit card application (12 percent)
  • Lying about smoking tobacco to lower life insurance rates (11 percent)

(The number in the parentheses reflects the percent of those surveyed who said the lie was okay.)

The survey found far more men than women believe it is acceptable to tell lies to save money. For instance, 30 percent of men said it was okay not to report under-the-table income to the IRS. Only 18 percent of women agreed. One-fourth of male survey participants thought it was okay to fudge annual mileage to receive lower auto insurance rates, while just 16 percent of female respondents agreed.

Age also makes a difference. Americans who are age 65 or older were far less likely to find financial dishonesty acceptable:

“The survey found that 11 percent of seniors say it is acceptable to use someone else’s paid account for online movies, music, or articles to save on subscription costs, compared with 39 percent of Americans ages 18-64. Just 7 percent of Americans ages 65 and older think it’s acceptable to lie about annual mileage for lower auto insurance rates compared with 23 percent of Americans ages 18-64. Among all of the lies in the survey, the one that gets the most support from those 65 and older is not disclosing under-the-table income to the IRS in order to pay less in taxes – 14 percent say that’s acceptable.”

When it came down to it, “For all questions, retirees had the lowest rates of acceptance of lies compared with students, employees, and the unemployed.”

*The survey included 2,115 Americans, ages 18 and older, and was conducted February 18-22, 2016, by Harris Poll on behalf of NerdWallet. This survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated.

 

Weekly Focus – Think About It

“I believe that there is a subtle magnetism in Nature, which, if we unconsciously yield to it, will direct us aright.”

–Henry David Thoreau, American author.s84765.gridserver.com

Written by Your Family CFO Team

March 27th, 2017 at 5:01 pm

Click here for Disclosures and Data Sources.

Three Steps and No Stumble…

Technical analyst Edson Gould developed a market rule of thumb known as ‘three steps and a stumble.’ It states stock prices may fall after the Federal Reserve (Fed) raises the Fed funds rate three times in a row without a decline, according to Market Technicians Association.

The idea is three increases show the Fed is serious about keeping rates at a relatively high level for a significant length of time. Higher interest rates could potentially mean higher costs and lower profits for businesses. As a result, stock investors may sell shares and share prices may fall.

Last week, with employment and inflation data approaching Fed targets, the Federal Open Market Committee raised rates for the third time, pushing the Fed funds target rate into the 0.75 percent to 1 percent range, reported Financial Times:

“Fed policymakers’ forecasts for growth and inflation remained little changed, with growth tipped to be 2.1 percent this year and next year, slipping to 1.9 percent in 2019. Core inflation is set to be 1.9 percent in 2017 and 2 percent in the two following years. The possibility of looser fiscal policy emerging from Congress has triggered speculation that the central bank will have to further accelerate its rate-rising campaign, but a number of policymakers are insistent that they want to see firmer plans emerging from Congress before making a call on the impact of possible tax cuts on the economy.”

Major U.S. stock market indices finished the week higher, as did most markets in Europe and Asia.  MarketWatch indicated Asian markets were encouraged by indications the Fed may not increase rates as often as expected this year, and CNBC reported European markets were boosted by a better-than-expected outcome for mainstream parties in Dutch elections.

 

Data as of 3/17/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.2% 6.2% 16.6% 8.6% 11.0% 5.4%
Dow Jones Global ex-U.S. 2.4 7.8 10.8 -0.4 2.0 -0.6
10-year Treasury Note (Yield Only) 2.5 NA 1.9 2.7 2.4 4.6
Gold (per ounce) 2.2 6.1 -2.9 -3.7 -5.8 6.5
Bloomberg Commodity Index 1.0 -2.7 4.8 -14.1 -10.3 -6.5
DJ Equity All REIT Total Return Index 2.3 1.1 5.5 10.3 10.1 4.8

 

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

I spy with my little eye…Robots! If you take a cruise anytime soon, the bartender may not be able to lend an ear. According to Financial Times, one cruise line has installed robotic bartenders that produce one drink per minute per arm, and can make up to 120 drinks an hour.

It’s not just cruise lines, either. The food industry in the United States is automating. Financial Times described food preparation at a pizza restaurant in California:

“…Pepe squirts tomato sauce on to a pizza base before his colleague Marta spreads it; Noel has 22 seconds to correct any imperfections and add cheese and other toppings, after which Bruno takes the pizza from the line and places it in the oven. But on this production line, only Noel is human. The others – anthropomorphised by name only – are machines conducting tasks usually performed by people.”

The restaurant has 75 human employees who earn about $18.00 an hour. They all are given opportunities to take coding classes so they can better understand and manage robots as well as the artificial intelligence used to evaluate delivery routes.

Then, there is Sally, a robot offered by a food robotics firm. Sally can produce “… fully-customized, fresh, and healthy salads. Sally’s proprietary technology dispenses measured quantities of more than 20 ingredients – refreshed daily – to create a ready-to-eat meal any time of day.” Alternate versions of this robot will offer Mexican and Indian food choices.

Competition for employees is becoming a significant issue in the restaurant industry, reported the National Restaurant Association. More than a quarter of restaurant operators, who participated in a January 2017 survey, said recruiting and retaining employees is the single most important challenge they face – a 9 percent jump from 2015. That’s the highest level since October 2007.

Soon, the attraction for young children at burger joints may be watching robotic characters pull together kids’ meals!

 

Weekly Focus – Think About It

 

“There is a point in every contest when sitting on the sidelines is not an option.”

–Dean Smith, Former Head Coach, University of North Carolina Tar Heels

 

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Written by Your Family CFO Team

March 20th, 2017 at 4:13 pm

Click here for Disclosures and Data Sources.

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Written by Your Family CFO Team

March 17th, 2017 at 9:16 am

Click here for Disclosures and Data Sources.

Posted in Social Media

Rate Hike Ahead… Maybe

Last week’s U.S. employment report was better than expected. The United States added 235,000 jobs in February, which was a few more than economists had forecast.

It may seem counterintuitive, but the positive economic data helped push U.S. stock markets lower. The jobs report was a sign the American economy continues to be strong and indicates a rate hike may be on the horizon. Barron’s reported:

“If anything, the data just confirms what we’ve known for a while now: The economy is growing, and one rate hike is unlikely to do much damage…There’s still a strong likelihood of some sort of economic stimulus plan from the Trump administration sometime this year…But the fact that tax cuts and infrastructure projects are even being considered at a time when the U.S. economy is adding 200,000-plus jobs a month is ‘unprecedented’…”

Federal Reserve (Fed) interest rate hikes affect stock markets because they make borrowing more expensive. Higher borrowing costs may reduce the amounts people and companies spend and affect companies’ profitability and share values.

At the end of last week, CME’s FedWatch Tool, which gauges the likelihood of changes in U.S. monetary policy, indicated there was better than an 88 percent chance of a rate hike when the Fed meets on March 15.

It’s interesting to note investor sentiment has become less optimistic. Last week, the AAII Investor Sentiment Survey showed investor pessimism had reached its highest level since February 2016. Bearish sentiment increased by almost 11 points, finishing at 46.5 percent. That’s significantly higher than the historic average of 30.5 percent. Bullish sentiment fell by almost eight points to 30 percent. That’s below the historic average of 38.5 percent. The AAII survey is often used as a contrarian indicator.

 

Data as of 3/10/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -0.4% 6.0% 19.3% 8.1% 11.6% 5.4%
Dow Jones Global ex-U.S. 0.1 5.2 11.7 -1.7 1.9 -0.9
10-year Treasury Note (Yield Only) 2.6 NA 1.9 2.8 2.0 4.6
Gold (per ounce) -1.9 3.8 -5.0 -3.6 -6.7 6.4
Bloomberg Commodity Index -3.4 -3.7 6.2 -14.6 -10.3 -6.6
DJ Equity All REIT Total Return Index -4.2 -1.1 8.3 9.8 10.3 4.4

 

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

They’re all on the pro rodeo circuit. They all grow corn and soybeans. They all have renowned universities. In addition, according to The Economist, Texas, Iowa, Nebraska, Mississippi, Alabama, and Michigan are likely to experience the biggest increase in tariffs – as a percent of state gross domestic product (GDP) – if and when the North American Free-Trade Agreement (NAFTA) is revised.

Under NAFTA, goods are imported from and exported to Mexico and Canada without tariffs, which are essentially taxes on imported goods. Tariffs typically increase the cost of imports, making them less attractive to consumers. This can help support the market for domestically produced goods and help protect domestic jobs and industries. Currently, the United States sends about $240 billion worth of goods to Mexico, each year, and Mexico sends even more to the United States.

The Economists analysis measured potential increases in tariffs, in tandem with the volume of state exports to Mexico, to determine the possible impact on a state’s economy. (The analysis did not include Canadian exports, even though Canada is also a NAFTA participant.) While the effect on the majority of states’ economies would be relatively small, the impact on others could be more significant:

“In 2015, Iowa’s farmers shipped $132M of high-fructose corn syrup to Mexico. Without NAFTA, Mexico would slap a tooth-aching 100 percent tariff on the stuff…Among this group, Texas stands out. It faces an average tariff of only 3 percent, but its exports to Mexico are worth nearly 6 percent of its GDP (compared with 1.3 percent nationally)…Michigan also fits this category. Its exports of cars and parts – many of which end up back in America – would attract tariffs averaging only about 5 percent. But, with such shipments totaling $4.1B, the bill would be painfully large.”

No one yet knows how renegotiating NAFTA may affect any of the countries involved because talks are not expected to begin for several months.

 

Weekly Focus – Think About It

“Making good decisions involves hard work. Important decisions are made in the face of great uncertainty, and often under time pressure. The world is a complex place: People and organizations respond to any decision, working together or against one another, in ways that defy comprehension. There are too many factors to consider. There is rarely an abundance of relevant, trusted data that bears directly on the matter at hand. Quite the contrary – there are plenty of partially relevant facts from disparate sources – some of which can be trusted, some not – pointing in different directions. With this backdrop, it is easy to see how one can fall into the trap of making the decision first and then finding the data to back it up later. It is so much faster. But faster is not the same as well-thought-out.”

–Thomas C. Redman, “the Data Doc”.s84765.gridserver.com

Written by Your Family CFO Team

March 13th, 2017 at 4:25 pm

Click here for Disclosures and Data Sources.

Grand Slam!

Major U.S. stock markets were positively euphoric following President Trump’s speech on February 28. Optimism about the new administration’s pro-growth policies propelled the four major U.S. stock indices to record highs, despite a dearth of policy details, reported Financial Times.

It’s hard to pinpoint exactly why stocks have moved so far, so quickly. However, it appears that mom-and-pop investors have become quite enthusiastic about the asset class according to data from JPMorgan Chase cited by Bloomberg. While institutional investors (pensions, insurance companies, etc.) have been reducing exposure to stocks, smaller investors have been loading up on shares.

CNBC reported some industry professionals, including Goldman’s chief U.S. equity strategist David Kostin, believe stocks have become too highly valued. ZeroHedge.com quoted Kostin, who said:

“Cognitive dissonance exists in the U.S. stock market. S&P 500 is up 10 percent since the election despite negative EPS [earnings per share] revisions from sell-side analysts…Investors, S&P 500 management teams, and sell-side analysts do not agree on the most likely path forward. On the one hand, investors, corporate managers, and macroeconomic survey data suggest an increase in optimism about future economic growth. In contrast, sell-side analysts have cut consensus 2017E [estimated] adjusted EPS forecasts by 1 percent since the election and ‘hard’ macroeconomic data show only modest improvement.”

Financial Times reported pessimism prevails in the bond market. One bond market professional said, “The bond market is taking a totally different view from the equity market. Blowing raspberries is a good way to put it…There’s no belief that the growth agenda will be dramatic.”

So, is strong economic growth ahead? Do bond investors or stocks investors have it right? Are institutional investors or mom-and-pop investors positioning themselves correctly? Only time will tell.

 

Data as of 3/3/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.7% 6.4% 19.6% 8.9% 11.8% 5.7%
Dow Jones Global ex-U.S. -0.2 5.2 12.2 -1.4 1.7 -0.5
10-year Treasury Note (Yield Only) 2.5 NA 1.8 2.6 2.0 4.5
Gold (per ounce) -2.2 5.8 -1.9 -3.1 -6.4 6.8
Bloomberg Commodity Index -0.3 -0.4 13.4 -13.6 -9.8 -6.2
DJ Equity All REIT Total Return Index -1.0 3.2 12.4 11.0 11.2 5.5

 

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

Don’t Think So!  Tax season is upon us. That means we can all use some entertainment. While many folks dread the process of completing and filing taxes, some see it as an opportunity to test the boundaries of the system. Here are a few deductions Americans have taken that have failed to pass muster in tax court, courtesy of Kiplinger.com:

  • You cannot deduct the cost of a good night’s sleep. A tax preparer who worked from home escaped to a hotel because her clients were calling in the wee hours of the night and causing her to lose sleep. When she attempted to take a business deduction for the hotel expense, the tax court ruled a good night’s sleep is a non-deductible personal expense.
  • You cannot take a theft loss deduction for poor construction. A couple moved into their newly built dream home only to realize the builder had cut some corners. The house had some serious issues, including its foundation. The couple claimed the builder had defrauded them and took a large theft loss deduction. While taxpayers can deduct losses from a home-related theft, shoddy construction doesn’t qualify.
  • You cannot take a depletion deduction for bodily fluids. A woman earned $7,000 a year donating blood plasma because of her rare blood type. She took a depletion deduction, claiming “the loss of both her blood’s mineral content and her blood’s ability to regenerate,” wrote Kiplinger. While companies that take coal, iron, and other minerals from the ground can take a depletion deduction, the tax court ruled that individuals cannot claim depletion on their bodies.
  • You cannot deduct a business trip if there are no formal business meetings involved. A repo firm sponsored a trip to Las Vegas for its bank customers. The firm’s employees chatted with clients about business on the way to Vegas, but no formal meetings were held. The tax court denied the deduction.

 

Before you get creative with your taxes, consult with a tax professional.

 

Weekly Focus – Think About It

 

“Because of your smile, you make life more beautiful.”

–Thich Nhat Hanh, Vietnamese Buddhist monk and peace activist.s84765.gridserver.com

Written by Your Family CFO Team

March 6th, 2017 at 4:38 pm

Click here for Disclosures and Data Sources.

Dow Finishes at a Record High

Once upon a time, five blind men discovered an elephant. Each man examined a different part of the elephant and formed a unique impression about the animal. One believed an elephant was like a pillar, while another decided an elephant was like a snake.

In recent weeks, stock and bond markets have been telling different stories, too.

Following a rally on Friday, the Dow Jones Industrial Average finished at a record high for the 11th time last week. Reuters reported major U.S. benchmark indices have been driven higher by optimism about tax reform, eased regulation, and increased infrastructure spending.

Both Reuters and Financial Times wrote some investors have become more cautious amidst growing doubts about the pace at which the new administration’s economic policies may be achieved, as well as concerns about the outcome of European elections. These concerns are reflected in the bond market. Barron’s reported:

“The market’s recent advance has taken place on expectations of the reflationary impact of the Trump administration’s policies…the action in global bond markets suggests something else. The 10-year U.S. Treasury yield ended the week at 2.317 percent, the lowest since late November, despite the reflation trade in stocks and expectations of a Fed hike by June, if not May. Even more startling was the slide in the German two-year yield, to minus 0.95 percent, by week’s end, close to a record low, amid growing concern about France’s coming presidential election. While stock investors are smiling at daily Dow records, the bond crowd seems to be hunkering down.”

Who is correct? As with the folk tale about the elephant, both stock and bond markets may be right. Fiscal stimulus could boost economic growth, supporting higher stock values. However, the positive effects of a potential stimulus package are unlikely to be felt before 2018, according to Treasury Secretary Mnuchin. In the meantime, uncertainty about governments and policies at home and abroad may have investors opting for investments they perceive to be lower risk, such as U.S. Treasuries, and that could keep bond yields lower than some had expected.

 

Data as of 2/24/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.7% 5.7% 22.7% 8.6% 11.6% 5.0%
Dow Jones Global ex-U.S. -0.2 5.4 18.5 -1.9 1.5 -1.3
10-year Treasury Note (Yield Only) 2.3 NA 1.7 2.8 2.0 4.6
Gold (per ounce) 1.3 8.2 0.2 -2.1 -6.7 6.2
Bloomberg Commodity Index -0.7 0.0 15.4 -13.2 -10.2 -6.6
DJ Equity All REIT Total Return Index 2.1 4.2 19.5 11.7 11.5 4.6

 

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

THE BEST INVENTIONS OF 2016.  

Late last year, Time Magazine selected 25 inventions that “are making the world better, smarter, and – in some cases – a little more fun.” Past editions have included underground parks, gluten sniffers, and the desktop DNA lab. For 2016, the list included:

 

  • Spherical tires. Intended for self-driving cars, spherical tires move in every direction, allowing cars to maneuver in new and unexpected ways. For example, a car can slide sideways into a parallel parking space. A critical difference between current tires and spherical tires is magnetic levitation. That’s right. The tires hover beneath the car instead of being bolted on.
  • Levitating lightbulbs. This wireless floating lightbulb “relies on electromagnetism to levitate and spin, and on resonant inductive coupling – a technical term for wireless power transmission – to shine.” The bulbs were so popular, the company created levitating clocks (with custom orbits that can be set for one minute or one year) and planters.
  • Smarter toothbrushes. The war on gum disease is never over. Dental hygiene slackers may find using these electric toothbrushes, which vibrate every 30 seconds to remind users to switch brush position, more rewarding. Next up: a more satisfying flossing experience.
  • Assistive tableware. If you have a loved one with a cognitive disability, assistive tableware may provide a mealtime solution, helping users eat more and maintain their dignity. The trick is in the design – bright colors, wide rubber bases, and easy-to-hold cups and flatware.
  • Playful prosthetics. A new prosthetic arm for children encourages play and is likely to make siblings and friends jealous. “When they need a hand, they have one. But they can replace it with any number of toy-like attachments, all of which are compatible with” a famous brand of building blocks.

It’s always impressive to discover what a well-leavened blend of technology and cleverness will produce.

 

Weekly Focus – Think About It

 

“Their conclusion: more gender diverse companies offer similar return with lower volatility. In other words: More gender diversity, particularly in corporate settings, can translate to increased productivity, greater innovation, better decision-making, and higher employee retention and satisfaction.”

–Morgan Stanley, An Investor’s Guide to Gender Diversity.s84765.gridserver.com

Written by BFG Editor

February 27th, 2017 at 4:15 pm

Click here for Disclosures and Data Sources.

A ‘Phenomenal’ Week for the Markets

What’s the word ‘phenomenal’ worth? It all depends on who says it.

Barron’s shared Wilshire Associates’ calculations which indicated the word was worth about $175 billion – the amount markets gained last Thursday – when President Trump used it to describe the tax plan his administration will deliver “ahead of schedule.” Markets gained another $100 billion in value on Friday. Barron’s reported:

“While tax reform is definitely coming, a final bill is still a long way off, and a 2017 effective date is looking less likely…Yet, as the action late last week suggests, the equity markets are more than willing to give the new administration the benefit of the doubt. Something’s coming, even if we don’t know what or when. And that seems good enough to bid stocks higher…”

The word ‘phenomenal’ is probably worth a bit less than Wilshire’s estimate. United States stocks pushed higher on positive earnings growth, too. With 71 percent of companies in the Standard & Poor’s 500 Index reporting results for the fourth quarter of 2016, “…the blended earnings growth rate for the S&P 500 is 5.0 percent. The fourth quarter will mark the first time the index has seen year-over-year growth in earnings for two consecutive quarters since Q4 2014 and Q1 2015.”

Consumer confidence remained high, but wavered a bit in February, according to the University of Michigan Surveys of Consumers. Americans are happy with their current financial circumstances, but expectations for the future dropped sharply. Surveys of Consumers chief economist, Richard Curtin, wrote:

“… a total of nearly six-in-ten consumers made a positive or negative mention of government policies. In the long history of the surveys, this total had never reached even half that amount…These differences are troublesome: the Democrat’s Expectations Index is close to its historic low (indicating recession) and the Republican’s Expectations Index is near its historic high (indicating expansion). While currently distorted by partisanship, the best bet is that the gap will narrow to match a more moderate pace of growth.”

This week could be bumpy. On Valentine’s Day, Fed Chair Janet Yellen will testify about the state of the economy before the U.S. Senate.

 

Data as of 2/10/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.8% 3.5% 25.1% 8.8% 11.5% 4.9%
Dow Jones Global ex-U.S. 0.4 4.7 19.2 -1.0 2.0 -1.0
10-year Treasury Note (Yield Only) 2.4 NA 1.7 2.7 2.0 4.8
Gold (per ounce) 1.1 6.0 3.2 -1.3 -6.4 6.3
Bloomberg Commodity Index 1.6 2.1 20.9 -11.3 -9.2 -5.9
DJ Equity All REIT Total Return Index 1.1 1.9 22.4 11.6 10.9 4.3

 

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

On the road to brexit… Last week, Members of Parliament (MPs) approved the Article 50 bill, green-lighting Britain’s exit from the European Union (EU). If the House of Lords follows suit, which is far from certain, then the British government will follow the lead of the British people and invoke Article 50 of the Lisbon Treaty. (Article 50 gives member states the right to withdraw from the EU.)

The Economist reported:

“But a different sort of Brexit bill is approaching and will be harder to manage. It could yet scupper the whole process. Leave campaigners promised voters that Brexit would save the taxpayer £350m ($440m) a week. That pledge was always tendentious. But officials in Brussels are drawing up a bill for departure that could mean Britain’s contributions remain close to its membership dues for several years after it leaves. In a new report for the Centre for European Reform, a think-tank, Alex Barker, a Financial Times correspondent, puts the figure at anything between €24.5bn ($26.1bn) and €72.8bn.”

Michel Barnier, the EU’s chief Brexit negotiator, indicated the matter of how much Britain owes must be settled before questions about Britain’s future relationship (i.e., trade agreements) with the EU can be addressed, according to Bloomberg.

To date, Prime Minister Theresa May has been taking a hard line, which has roiled tempers throughout the EU. Bloomberg reported the Prime Minister’s comments:

“…are elevating the likelihood that the United Kingdom leaves the bloc in 2019 without an exit deal, let alone the sweeping trade pact it seeks…The messages from the diplomats are that EU governments are preparing to enforce their line that the United Kingdom can’t be better off outside the bloc than inside it and that they value safeguarding their own interests and regional stability above the need to maintain good relations with the United Kingdom.”

The pending negotiations bring to mind the words of German Field Marshal Helmut Von Moltke, “No operation extends with any certainty beyond the first encounter with the main body of the enemy.”

 

Weekly Focus – Think About It

“What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know.”

–Warren Buffett, The Oracle of Omaha

 

.s84765.gridserver.com

Written by Jon McGraw

February 13th, 2017 at 4:56 pm

Click here for Disclosures and Data Sources.