Sniffed Links

Market Commentary - March 2017

Last year at this time the S&P 500 was recovering from one of the worst starts to a year in history and this year it is off to one of it’s best starts. Furthermore, as I write this, the first day of March is providing the largest gains of 2017.

While the US market continues to establish new record highs, the real head scratcher for me is the lack of volatility. The Dow Jones Industrial Average just ended a streak of 12 consecutive record closings. That has only happened two other times in the last 120 years. Even more surprising is the S&P 500 Index has gone over 90 straight days without dropping more than 1% in a market session.

Politics aside, markets seem to be embracing the administration’s goals of sharp tax cuts for corporations and individuals, reduced regulation and a $1 trillion spending proposal on infrastructure. Now this is where things get a bit tricky. If the market is “building in” pricing based on these potential events what happens if they don’t come to fruition? This could be many months or years down the road but it is still something we think about.

John Maynard Keynes said, "The market can stay irrational longer than we can stay solvent." Markets are forward looking mechanisms and at present seem to be pricing in the new administration’s plans. Some say it is extremely overvalued and some say there is plenty of upside left to come. These differing opinions are what makes the market. Remember for every buyer there is a seller.

Obviously there are many questions still to be answered. While reducing taxes and boosting infrastructure spending sounds favorable, the question remains how will this be financed? Reducing government inflows (taxes) while boosting spending can lead to further deficits and cause severe economic damage if economic activity doesn't accelerate fast enough. Furthermore the Federal Reserve seems very confident on raising rates multiple times in 2017 and that increases borrowing costs for corporations and governments. The last 10 years the global economy has become accustomed to ultra low rates and we have to see how the economy handles multiple rate hikes.

I’ll probably keep saying it throughout my career but our opinion remains that the “answer” to the unknown in markets is a risk adjusted globally allocated portfolio that takes into account taxes and fees.

New Year, New Links

Sniffed Links

The Fed raised rates this week for the first time in a year. We think this was the right move. As for next year and the notion they will raise 3-4 times...let's hope so. It's time. 

Only one of this week's links has to do with investing or finances (the last one). The other are just some really good things I came across over the last couple of weeks. Enjoy.

How to Write Email with Military Precision

Tilting my mirror (motivation is delicate) | Derek Sivers

A Realistic, Positive Picture of the State of Humanity

Diversification Is No Fun


All opinions in the links are the authors' own and are not meant to be investment advice.

Sniffed Links

Some really good reading this week. Particularly the "Something I'm Worried About" piece regarding the scary state of pensions. The last article from Morningstar actually attacks their own star ratings. We don't hear much about star ratings anymore but back in the early 2000's almost every investor we met with would ask about the "star rating" of a particular fund. We knew back then that the ratings had very little to do with the potential of the fund but it was hard to get that point across. Now it is much easier.

Only In 403(b) Land Could You Find This

How to Get Better Prices on Amazon Automatically – Kate McConnell – Medium

How Bad Could Bond Market Losses Get?

Something I’m Worried About

Does the Star Rating for Funds Predict Future Performance?


All opinions in the links are the authors' own and are not meant to be investment advice.

Not A Rally

This market “rally” was something we can say that no one saw coming. U.S. markets rallied nearly 7% from the lows of Tuesday night to the close on Wednesday. The Dow had its best week since 2011. This is yet one more example of why we usually tell clients to not try and time the markets.

The rally however was not as much of a rally as some seem to think. A well-diversified portfolio didn’t see the gains you might expect. While the Dow Jones and Small Cap Indices hit all time highs, many equity and bond markets were sold off as traders repositioned assets based on what they perceive a Trump victory will mean on the global economy. Asset classes such as emerging markets, European stocks, commodities, alternatives, emerging market bonds, European bonds and most U.S. bonds sold off sharply from Wednesday to Friday after the election. Utilities and consumer staples were also down. Facebook, Amazon, Netflix, Google. All down. Bonds suffered their worst week in over 3 years as the yield on 10-year treasuries surged and more than $1 trillion was erased from bond values.

Still, though, the collapse that some were worried about and others were rooting for has not taken shape. It seems much of Trump’s focus is going to be on possible de-regulation and infrastructure spending. Time will tell. Time will also tell if these things will help the economy and the markets. But we may not know until the next President is in office. Many financial policies take years to take shape and make their effects known. It is highly likely we could have a recession during Trump’s term. Whether it will be his fault or whether it is just the cycle of the economy will be an argument for the economists.

It is important to remember that diversification helps minimize the volatility in a portfolio but there are short periods where it doesn't work as effectively as we like but over the long-term diversification is a must. Making investment decision should never be based off one week, regardless of how bad it is and one must always focus on the big picture as investors in the market are not day traders and have a longer outlook then 1-2 weeks.

The rather quiet volatility environment we saw over the summer has ended and we are once again facing fragile markets that will likely respond to every piece of news. Every political appointment and every time Trump speaks will be an opportunity for the markets to react.

Pre Election Thoughts

As we have mentioned previously we believe there may be some market volatility after the election. We have seen some of this already as the markets react to polls. The only thing more uncertain than polling date is short term market movements. While the markets very well may react to either candidates election it seems that it may react more negatively to a Trump win. Either way it is important to remember that emotion is something we all should strive to eliminate from investing decisions. Much of what may occur in the markets initially will be based off emotion. We compare it to the post Brexit reaction. Remember, the markets recovered much of those loses within days. 

The longer term effects a President has on markets and economies are often not determined for years, if ever. Many policies either never come to fruition or get so watered down through the actual political process that the effects are minimal. 

Like many of you, we are ready for it to just be over. And therein lies what we think could be the biggest issue to markets. If we wake up on Wednesday without a clear winner then the process could be extended for weeks or months. Our assumption is the markets will not like that sort of uncertainty. That is the worst case scenario as far as the markets are concerned. 

We are certainly not recommending clients make changes to portfolios based on any of this. Speculation and market timing is not something that puts the odds in investors' favor. It is important to look at the long term and take as much emotion out of investing as possible. This election makes it much harder for investors because of the amount of emotion involved this time around. As always, however, let us know if you have any concerns you'd like to discuss.

Market Commentary - November 2016

The current state of the economy is one in which there are conflicting signs of strength and weakness. Economists are finding it harder to use traditional data to project their opinions. One of the reasons for this is the rise of the “sharing economy”. If you are unfamiliar with this term you are probably very familiar with some of the apps and services that make up this growing sector of the economy that is somewhat unaccounted for in traditional economic statistics. The sharing economy is basically the sharing of resources. These resources can come in many different forms. Time, intellectual, and physical goods are just a few examples.

Airbnb and Uber are the poster children for the sharing economy but there are hundreds of others (i.e. TaskRabbit, Fancy Hands). With Airbnb people share their home. With Uber people share their car and time. An economic transaction occurs outside the norm of traditional transactions like hotels and taxis. It allows almost anyone with time to make money and anyone with money to save time.

Elon Musk has talked about a time in the future when someone who drives their care to work can stop just having it sit in the parking lot all day but instead have it drive around and pick up people who don’t have a car and need a ride. The economic transaction for this type of thing includes one person making money off a resource while another person saving money by not having to buy an expensive car. In traditional economics this could make the economy look worse off. Why? Decreased car sales.

In the same way jobs numbers can appear worse than they really are. If you own a house with spare space in a metropolitan area you could make a decent amount of money renting a room out on Airbnb. Maybe this allows you to not work full time at a traditional job. Or, maybe you get tired of the traditional 9 to 5 job and decide to take tasks on Task Rabbit. Maybe you are a stay at home parent whose kids are in school and you want to take on a few “jobs” during school hours every once in a while and sign up for Fancy Hands. In all of these “alternative work relationships” your work may not appear as such in the BLS jobs numbers since their data is compiled by surveys and answers based on how people view themselves. I doubt many Airbnb “landlords” considered it employment.

Though the sharing economy is a relatively new concept, A survey conducted by Pricewaterhouse Coopers indicates that 7% of adults are working on sharing platforms. This is expected to continually increase each year as people continue to adapt. Even further, a survey conducted by Pew Research indicates that 72% of American adults have used at least one sharing service.

A 200k+ monthly jobs report was a regular occurrence in 2014 and 2015, happening 19 out of 24 months. 2016 paints a much different picture as it has only occurred three times year to date. The global economy did not fall off a cliff in the last two years and while many uncertainties still exist, part of me thinks the shared economy is having a bigger impact and making the BLS jobs numbers look worse then they actually are.

For those who want to learn more about the sharing economy, here is an insightful podcast to listen to.

Sniffed Links

Back with your links this week. With the recent Wells Fargo fiasco it is a good reminder to check your credit reports regularly.  It also makes we reflect on how these things can happen. With the numerous regulatory agencies in existence it is beyond me how any bank and financial institution can get away with things like this. Of course the problem lies in how these regulatory agencies are structured. In our world it is FINRA and the SEC. The Consumer Financial Protection Bureau will surely be making its voice heard soon and now we also have the DOL in our "business". FINRA, SEC and CFPB are much different from the DOL in the fact that they can levy fines. Fining companies is needed but it also is what leads to the bigger problem in my opinion. The CFPB's fine on Wells Fargo came well after the acts started. Shouldn't the acts be caught sooner and stopped? Are these organizations protection agencies or fine generators? This is a much longer discussion for another day but the conversation is needed.

Policing the Banks Is an Inside Job - The New York Times

America is running out of vacant apartments - Business Insider

Why does it feel like the economy is still stuck in neutral?

FAFSA and DRT Process


All opinions in the links are the authors' own and are not meant to be investment advice.

Market Commentary - October 2016

I guess this month is as good as any to address the election year and the relationship to elections and markets. Before sharing some statistics let’s address the fact that this year’s election seems to be bringing out more “fear” of what the market may do if a particular candidate wins. While the markets could have a short term reaction we do not believe it is necessary to make any sort of long term investment decisions based on this. Volatility is what makes markets what they are and at times it is higher or lower than the average, but volatility is a constant. This is not to say tweaking a portfolio is unwarranted but making drastic changes based on who the next President might be is not advisable.

Now on to some anecdotal numbers just for fun. Historically, both parties have been good for markets with average annual gains of 6.7% under Republicans and 9.7% under Democrats. A misconception (one we have even made) is the assumption that a divided government is better for markets since both parties will have to "give in" and compromise or get nothing done. The annual returns paint a much different picture. In the two years following an election, the S&P 500 has gained on average 16.9%, when one party controls the White House and Congress vs. 15.6% when one party controls Congress and the other party controls the White House

One final interesting stat I came across was regarding the S&P 500's performance the three months leading up to an election. Since 1948, if the S&P 500 rises from July 31st through October 31st, 88% of the time the incumbent party/person gets reelected. Take that for what it's worth, which honestly isn't much!




Fed Week Sniffed Links

The Fed decided to leave rates unchanged yet again. The markets love it. Not sure we do but alas what can we do. The Fed presumably knows more than us. For now, enjoy the ride and buckle up for what could be bumpy fall. Here are this week's links. The first one is pretty interesting. You can plug in your income and see where you rank worldwide. Enjoy.

Global Rich List

How Higher Wages Could Sink the Economy | The Fiscal Times

10 Things Found In Warren Buffett's Office | SparkFin

The Greatest Bubble of All-Time?


All opinions in the links are the authors' own and are not meant to be investment advice.

Volatility Returns Sniffed Links

Most of the Summer marked what seemed like one of the least volatile few weeks in recent memory. Gone were the triple digit swings in the market. We welcomed the mundane double digit ups and downs. Well the volatility has returned. We believe it is a mix of the "will they or won't they" Federal Reserve debate around interest rates that is once again mixing markets. We still think they will raise rates at least once this year but we certainly aren't counting on it. Mix this with the absolute craziness of the election and we expect some volatile weeks ahead. Here are some links to get you through the weekend...

  1. Birth of the Index Mutual Fund: 'Bogle's Folly' Turns 40 - MoneyBeat WSJ

  2. How Higher Wages Could Sink the Economy | The Fiscal Times

  3. Here's the Salary You Need to Buy a Modest Home in New York City, San Francisco & 25 Other Places — Reality Check | Apartment Therapy Therapy

All opinions in the links are the authors' own and are not meant to be investment advice.

Market Commentary - September 2016

While most of the focus lately seems to be on the U.S. and European economies, emerging markets are slowly starting to show some signs of life. If the global economy is going to stage a recovery, emerging markets may hold the key. The world seems fixated on the Federal Reserve and whether they will or won't hike rates by a quarter point and the impact of BREXIT. Much more attention needs to be shifted to emerging markets.

Emerging market countries possess securities markets that are progressing toward, but have not yet reached, the standards of developed nations. The four largest emerging market countries are known as BRIC (Brazil, Russia, India & China) followed by Mexico, Indonesia, Turkey & Saudi Arabia. While a country like India is already an enormous economy, they are just scratching the surface of their potential.

While advanced/developed economies have seen minimal GDP growth the last four years, many emerging market countries have experienced contractions. Many remain export heavy economies which rely on commodities (oil, wheat, gold, natural gas etc). The violent crash in commodity prices from late 2014 through early 2016 put pressure on many emerging markets. The asset class has seen negative returns in 4 of the last 5 years but, so far in 2016, emerging markets are showing much better returns and are well above most international indices. 

The importance of emerging markets in the global economy can not be forgotten. Historically they are export focused economies but as they grow and develop, they can turn into consumption driven economies. This makes the long term growth potential very high. For example, less than 300 motor vehicles are owned per thousand people in each BRIC country with India coming in at only 18 cars per thousand people! Another example, less than 106 computers are owned per thousand in each BRIC country. The opportunity for global growth and expansion is enormous. According to the IMF, emerging markets share of global GDP hit 50.4% in 2013 and that was up from 31% in 1980.

Most emerging market countries sport low debt levels and are able to grow rather quickly. Couple that with a young population demographic and further advances in technology and that should lead to an increase in productivity and spur further economic growth. Of course many risks still exist, such as political unrest, currency fluctuation and inflation to name a few. The risks and volatility in emerging markets can be extreme but if commodity prices continue to stabilize could the next big global growth driver come from "the other guys”?


Rio Fever Sniffed Links

Every four years I feel like the Olympics sneaks up on me. Of course I know its coming since NBC usually starts promoting it 12 months in advance but I don't really get excited about it until it starts and then I go all in. Other than the normal events everyone has been watching (swimming, gymnastics, etc.) I have enjoyed Ping Pong and Rugby. I never realized how quick one of these Rugby matches can be. They go for like 15 minutes and then its over. Anyway, if you find some time between commercials, here are some interesting things to read.

Most Underfunded Pension Plans: States - The Big Picture

Maybe Negative Yields Are a Sign of Prosperity - Bloomberg View

Facebook 2026

Arnold Palmer State of the Game: Golf Goes for the Gold | Golf Channel


All opinions in the links are the authors' own and are not meant to be investment advice.

Market Commentary - August 2016

As we approach a little past the mid-way point of the year, it's always good to reflect on the first half. I can confidently say the first six months of 2016 was one of the wildest periods in recent memory. Ranging from a potential market crash in China, crumbling oil prices, rising oil prices, Brexit panic, Brexit rebound and numerous things in between. 

One reason for these wild market swings could be the fact that we have less clarity on the global economy and interest rates today then we did at the beginning of the year.  If you recall in December of 2015, the Fed finally raised rates for the first time in nearly 10 years and took rates from zero to 0.25%. The Fed took action and stated their plan of 2-3 rate hikes in 2016.

Seven months later we are still at 0.25% with seemingly no clarity of when the next hike will be. Also, rates have continued to drop here and around the world. Now there are talks of the Fed possible lowering back to zero or even lower. (For what it's worth we don't think this will happen). The employment picture in the U.S. hasn't helped provide any clarity with a staggeringly low May production of only 38,000 jobs (the worst since September 2010) and then a June in which a whopping 287,000 jobs were created.

The U.S. equity market has been extremely resilient as we stand near all time highs. But the issues we faced at the beginning of this year did not all resolve themselves and are likely to shed uncertainty for some time to come. 

As we always stress, risk management is the most vital component for an investor. The recent large rally in the equity markets gives investors a chance to catch their breaths and hit the reset button. Many investors were caught off guard by the severe drop in January to Mid February. Now is a good time to revisit your risk profile and make sure it matches up with your comfort level.