Monthly Archives: January 2018

What’s your Long-Game?

The Economy: The State of The Union clearly showed the sharp divide in the U.S. electorate. Pick your flavor. Markets have cheered Trump since the election. Given the ongoing economic expansion, expect the Fed to continue to tap-the-brakes with further interest rate hikes. Jay Powell replaces Yellen as Fed Chair at cob today. Yellen was the most dovish Fed Chair in history. Powell, by contrast is on record as saying, “… it is not the Fed’s job to stop people from losing money.” This in itself will be a sea-change, if there is follow through, since the Fed has been stock market driven since the Financial Crisis. Markets, the media and investors in particular have been enamored with synchronized global growth, tax cuts, profit repatriation, one-time bonuses and historically low unemployment. The Fed interest rate moves have created every expansion and every recession; every bull and every bear market. Party on Garth!

Food for Thought: What is your long-game? Gonzo Hunter Thompson spoke for some when he said, “Life should not be a journey to the grave with the intention of arriving safely in a pretty and well preserved body, but rather to skid in broadside in a cloud of smoke, thoroughly used up, totally worn out, and loudly proclaiming “Wow! What a Ride!” For most however, there are more prosaic goals such as planning for retirement, creating an estate or other bequeaths to family, friends and charitable organizations. Annuities may be the appropriate way to achieve funding needs. Contact us if you have questions about Annuities.

Music of The Week: Chaka Khan “Chaka”

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All Systems Go for the Economy and Davos

The Economy: All systems are go on a global economy that shows signs of continuing to expand. Easy money from central banks remains the order of the day. Trump tax cuts and deregulation have bolstered business confidence. The holidays showed Americans on a spending spree. Naysayers see the band on the Titanic bravely playing as she went down. Optimists see hundreds of billions in repatriated US corporate profits, tight labor markets, inflation and Trumponomics as the next leg up in the economy and the 9-year bull market in stocks. Ray Dalio of Bridgewater has called this a new bear market in bonds as Jerome Powell was confirmed by the Senate as the new Fed Chair. Powell is seen as dovish and a continuation of the Bernanke/Yellen school of gradualism in monetary policy. But it pays to remember that markets tend to drive the Fed and not the other way around. Interest rates are rising. Gold has broken through its $1,300 resistance and oil is at multi-year highs. With global expansion, investors are complacent that central banks will keep stock markets and real estate moving up forever.

Food for Thought: Davos, billed as the Global Economic Summit is in full swing. Over time it has morphed into another rich kid’s confab with the glamorous and notorious. It is known as the Bastion of The Globalists. This year Donald Trump will upset the apple cart as he presents America First Shock and Awe with his appearance and speech on Friday. The annual ego rush of whose private jet is bigger will be sadly missing Prince Alwaleed’s private 747 with the gold throne. The Prince is apparently still confined by his King who reportedly wants billions in return for a kiss-and-make-up return to business as usual.

Music of The Week: Chaka Khan “Chaka”

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More Money in Retirement

The Economy: Data continues to confirm that the global economy in general and the US economy in particular are accelerating. Industrial production is the latest metric to blow through expectations. The Fed’s Beige Book also confirms expansion and modest inflation. Euphoria continues to build support for increased consumer/business spending as the US tax cuts bring the bacon home. Not surprisingly, members of the Fed are beginning to voice caution about the economy overheating. The Fed has also expressed concern that markets are ignoring the interest rate tightening cycle which has already increased the Fed Funds rate by 125 basis points. When the Fed raises rates, its intention is to tighten financial conditions. Borrowing gets harder and more costly at all levels. Investors and banks become less willing to lend and borrowers become less reckless. Credit cools off and the economy slows. … not that we’ve seen any of this yet. By contrast we seem to be at the beginning of a new phase of “Damn the torpedoes; full steam ahead” in business.

Food for Thought: Retirement. One of life’s major events. Some start thinking retirement in high school. Others not until AARP comes calling. Most retirees are shocked at how inflexible their overhead is when they retire. The solution for many boomers is to try to make up for lost time by being aggressively invested in this stock market. George Santayana famously said, “Those who cannot remember the past are condemned to repeat it.” Bitcoin is the latest example of how quickly things can change. Bitcoin has lost 50% of its value since reaching a high in December. A 50% loss in less than one month. US stock markets have been on a rocket ride since Trump was elected. Those approaching retirement and those who are retired should be especially cautious of this market. Structuring an income producing portfolio should be your priority.

Music of The Week: Elvis “Elvis Forever”

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Investor Euphoria

The Economy: The new year is off to a roaring start with tax cut optimism leading the charge. Corporate profits held overseas, estimated in the hundreds of billions, are expected to be repatriated. Stock markets are salivating at the expected new surge in buybacks. Talk from Bulls is that the new round of buybacks will dwarf anything ever seen in history. Bulls anticipate that buybacks will dramatically reduce the number of shares outstanding. Their call is that this is only one of many events that will drive stock prices to dizzying new heights. Small business optimism is at a 32-year high; highest since 1985.

Food for Thought: San Diego feels like a boom-town. Free money, surging stock prices, the Pentagon’s “Pivot to the Pacific”, the hi-tech/med-tech sweep, construction buoyancy and the torrential real estate market have hundreds of thousands of San Diegans walking on air. We toured a new development of $2+ million tract homes that was sold out in record time. Yards small enough that some would call them garden homes and built so close together that you have to hold your breath in order to squeeze between them, real estate bulls are saying they’ll be worth $5 million in just a few years. Bitcoin up 300+% in a few weeks has taken a breather recently. Bitcoin Bulls tout a value of 50,000 to 100,000 in its next run. Jamie Dimon says he regrets calling Bitcoin a fraud. Investor euphoria appears to have arrived.

Music of The Week: Beegie Adair’s “Martini Lounge”

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New Year, Renewed Optimism

The Economy: Happy New Year! … and a happy new year it is for global economic numbers with Germany growing at a blistering pace with the best employment numbers in years. The U.S. economy is likewise continuing to expand with no end in sight. Stocks are up, bonds are up, real estate is up, oil is up, manufacturing is up, optimism is up. Chicken Little is running in circles screaming about high asset valuations. But investors are looking at the Trump income tax trump and singing Happy Days Are Here Again. After all, in addition to the endless self-praise from The Swamp, Central Bankers have proven that at the slightest hiccup, inventive new types of monetary stimulus will rain down like Helicopter Money. Manna!

Food for Thought: Year end and into tax season. Financial planning rewrites. Annual portfolio reviews, document updating. What is the status of your wills, trusts, POAs, medical directives? Get them updated now! We do Monte Carlo Simulations for retirement planning. If we can help, please give us a call.

Music of The Week: Luna Blanca’s “Guitar Island”

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