Tag Archives: investment advice

Protect Yourself Against Cognitive Decline

My Comments: Readers of my posts know I usually talk about money or some aspect of it. My challenge over the years has been to assess the financial literacy of whomever I’m talking with. And that challenge increases with age; both mine and that of my friends and clients.

This article might start a useful conversation between you and your children and/or other family members. I’ve had clients reach the end of their lives leaving loved ones totally ignorant about their financial lives. It can dramatically increase the pain and frustration of those they leave behind.

by Danielle Howard \ Aug 12, 2017

You could lose the ability to manage your finances and not know it

Many people work hard to make sure there are ample assets to provide for the go-go, slow-go and no-go season of life. Have you ever considered how the mental capacity to manage those resources will change as you age?

A study done in January of 2017 by the Center for Retirement Research at Boston College delves into how cognitive aging could affect financial capacity.

Your financial capacity is the ability to manage your financial affairs in your own best interest. It scopes a broad range of activities ranging from rudimentary money skills (understanding the value of bills and coins) to complex activities such as identifying assets and income, exercising judgment around risk and return of investments or comprehending tax implications of purchases or sales.

Many activities in our financial lives are based on “crystallized” intelligence. This is the knowledge and skills we have gained over time, also known as financial literacy. These are the practical, day to day financial applications or procedures in our lives. It is heightened with the level of involvement in family monetary matters. With normal cognitive aging, knowledge remains largely intact throughout our 70s or 80s.

Our “fluid” intelligence incorporates memory, attention and information processing. As our wealth grows, so does the need to track where it is, and how to best use it for what is important to us. This “fluid” aspect of our intellect can start to decline as early as age 30.

The research found that individuals who age normally are more likely to develop deficits in the area of judgment over their ability to carry out the basic tasks. However, there are cautions in both areas of capacity.

Many people in their fall season are competent of managing the “crystallized” aspects of their financial lives. If a person has not taken an active role in the family finances, they are vulnerable to losing capacity in this area. A “financial novice” may be a person that has had to take over the responsibilities of managing the family finances in the event of a death or incapacitation of another family member. Women who lose a spouse and have not been involved in the family finances are highly vulnerable to losing capacity in this area.

Cognitive impairment, ranging from mild (CMI), to dementia primarily affects financial judgment — the “fluid” intelligence”. This can pose challenges in that a person can feel confident and remain “knowledgeable” about day to day activities, but their impaired judgment makes them more likely to become victims of fraud. As people loose both the “crystallized” and “fluid” elements of their intellect, they are additionally exposed to financial abuse by caregivers.

Since a critical characteristic of cognitive decline or impairment is the unawareness of the deteriorating state, how can we protect ourselves and our loved ones?

1. Become financially literate. I have heard too many stories that started with “my spouse is the money person, I just let them take care of it”. Educate and empower yourself around everything financial. Start somewhere and keep learning.

2. Educate yourself on the aging process. Talk to your elder family members as to what they are experiencing. Embrace and make the most out of it. Do the best you can with your choices to maximize your health in all areas of your life during this season.

3. Build trusted relationships. That includes your relationships with friends, family and advisers (health, spiritual, financial). Make sure everyone has your best interest in mind and communicate with each other. Transparency, integrity and honesty will serve you well.

Danielle Howard is a Certified Financial Planner practitioner. She’s the author of “Your Financial Revolution: Time to Recognize, Revitalize, and Release Your Financial Power.”

ACTION OR NO ACTION?

My Comments: Friends of mine are scared. I’m less so. I want President Trump to be a successful President; our future as a respected state on the global stage is important to me.

But I am less confident today than I was last January. Not because of the Russia issue, but because of his apparent lack of intellectual curiosity. His role as President dictates he move beyond his role as a reality TV host. I’m no longer sure he can or even wants to.

The media and others can be alarmist. After all, that’s how you get an audience and generate revenue. And there are apparently lots of reasons for us to be alarmed. But so much of what we read and hear is simply noise.

I also believe that we are overdue for an in-depth review of the fundamental issues and assumptions about government that go back 75 years and more. This is a healthy process that will either reaffirm the assumptions that got us where we are or cause us to make some necessary changes. I don’t fear change like many of my contemporaries.

Clearly there was and is an imbalance economically among demographic elements of our society. It’s increasingly apparent to me that income inequality is the driving force behind much of the tension in this country. Whether that gets remedied under a Trump administration remains to be seen.

What kind of society do we want going forward, and do we have the courage and conviction to make it happen? I hope we do, and I intend to do what little I can to voice my opinions.

By Zachary Karabell / Feb 12, 2017

Just weeks into Donald Trump’s presidency, you would think that everything had changed. The uproar over the president’s tweets grows louder by the day, as does concern over the erratic, haphazard and aggressive stance of the White House toward critics and those with different policy views. On Sunday, White House aide Stephen Miller bragged, “We have a president who has done more in three weeks than most presidents have done in an entire administration.”

But Miller was dead wrong about this. There is a wide gap, a chasm even, between what the administration has said and what it has done. There have been 45 executive orders or presidential memoranda signed, which may seem like a lot but lags President Barack Obama’s pace. More crucially, with the notable exception of the travel ban, almost none of these orders have mandated much action or clear change of current regulations. So far, Trump has behaved exactly like he has throughout his previous career: He has generated intense attention and sold himself as a man of action while doing little other than promote an image of himself as someone who gets things done.

It is the illusion of a presidency, not the real thing.

The key problem here is understanding Trump’s executive orders and presidential memoranda. Trump very quickly seized on the signing of these as media opportunities, and each new order and memo has been staged and announced as dramatic steps to alter the course of the country. Not accustomed to presidents whose words mean little when it comes to actual policy, opponents have seized on these as proof that Trump represents a malign force, while supporters have pointed to these as proof that Trump is actually fulfilling his campaign promises.

Neither is correct. The official documents have all the patina of “big deals” but which when parsed and examined turn out to be far, far less than they appear. Take the order authorizing the construction of a border wall between the United States and Mexico. The relevant section of the January 25 order read: “It is the policy of the executive branch to … secure the southern border of the United States through the immediate construction of a physical wall on the southern border, monitored and supported by adequate personnel so as to prevent illegal immigration, drug and human trafficking, and acts of terrorism.” That sounds indeed like an order to fulfill a controversial campaign promise. The problem? Congress initially passed a Secure Fence Act in 2006 that mandated the construction of nearly 700 miles of fortified border. By 2011, under the Obama administration, most of that was completed, with a mix of pedestrian fencing and vehicle fortifications. Since then, there has only been minimal funding for further fortifications.

The result is that Trump issued an executive order mandating something that has in many respects already been done—with no congressional funding yet to redo the current fortified border with a larger, more expensive structure. The president does not have the budgetary discretion to build such a wall, and it remains to be seen whether Congress will authorize what promises to be a controversial and redundant project. This executive order, therefore, changes nothing, and only mandates something that has already been mandated, already been constructed and that the president lacks the spending authority to upgrade.

Then take things like the Keystone pipeline permits, the promise to deregulate and the most recently signed orders about crime. The January 24 order on infrastructure begins with a sentiment almost anyone could agree with: “Infrastructure investment strengthens our economic platform, makes America more competitive, creates millions of jobs, increases wages for American workers, and reduces the costs of goods and services for American families and consumers. Too often, infrastructure projects in the United States have been routinely and excessively delayed by agency processes and procedures.” It then declares that the policy of the Executive Branch is to expedite the permitting of such projects. That was followed by two memoranda on the Keystone and Dakota Access Pipelines that had been denied permits during Obama’s tenure, which urges the companies to re-submit their permit applications for review.

That might seem like an order to have the pipelines built. But Keystone remains almost entirely an idea, and oil shipments and infrastructure from Canada have long since been routed elsewhere given the years and years of delay in ever authorizing it. The Dakota Access Pipeline is largely complete, with a major dispute over its passage through tribal lands, and here too, it is unlikely that a presidential memorandum has any legal bearing on how that issue is resolved given that it lies within the purview of the Army Corps of Engineers and cannot simply be countermanded by the White House.

Or take the orders of deregulation. Those were widely hailed as a rollback of Dodd-Frank, especially given that the morning that the order was issued, February 3, Trump met with bank CEOs and expressed his dislike for many of the legislation’s provisions. The actual order, however, delivers much less than it promises, merely directing the secretary of the Treasury to review existing regulations and report back on which ones might be refined to achieve better outcomes.

Or the crime orders signed on February 9, which were widely hailed as cracking down on “transnational criminal organizations” and “preventing violence against … law enforcement officers.” Nothing in the text of these orders is either objectionable or in any respect a departure from current law and policy. One order states plainly that it shall be the policy of the administration to “enforce all Federal laws in order to enhance the protection and safety of Federal, State, tribal, and local law enforcement officers, and thereby all Americans.” The other says that the administration will seek to use existing laws to crack down on trafficking. You would have known none of that from the headlines both supporting and denouncing the efforts. Breitbart claimed “Trump Signs Three Executive Orders to Restore Safety in America” while many took these orders as a sign that police will have new, expanded powers and protections. In truth, the orders changed the status quo not one whit.

On it goes: The recent crackdown on undocumented immigrants that followed Trump’s January 25 order on enforcement priorities may depart from Barack Obama’s post-2102 policies to de-emphasize deportation of undocumented immigrants who do not have criminal records, but it appears fully consistent with deportation actions during both Obama’s first term and during significant portions of George W. Bush’s administration. The orders on health care, on defeating ISIS, on rebuilding the armed forces—all were essentially statements of intent with no legal force and requiring no action except a mandate to relevant departments and agencies to study issues and report back.

The travel ban, of course, is different. It was an actual policy order that dramatically changed immigration and visa policies for seven Muslim-majority countries. It was swiftly rejected by the courts, however, which meant that the signature policy of the Trump administration is now not a policy at all—at least, unless and until the White House finds a different approach.

Yes, what the president says matters. Trump’s casual relationship with the truth and his carefree use of tweets set the public agenda and help determine how foreign countries relate to our government. Intent also matters, and clearly, the Trump administration is determined to do a variety of things—from border security to health care to trade to immigration—that many, many Americans find objectionable, wrong and against the best interests of the country.

And yet, words are not the same as actions. Trump can issue as many documents called executive orders and presidential memoranda as he wants. As the fate of the travel ban shows, however, that doesn’t mean that even the more meaningful ones are actionable, and the preponderance of the orders to date would in any other administration have been news releases stating broad policy goals that may or may not ever become actual policy.

But too many of us take these words as action. That confirms both the worst fears of what the Trump administration is and the greatest hopes of what Trump wants it to be: a White House that shoots first and asks question later, a White House of action and change that shakes the status quo to the core and charts a new path for America and Americans. To date, this White House has broken every convention and rule of tone and attitude, toward Washington and toward the truth. But in reality, it has done far less than most people think.

In the time ahead, as Congress turns to actual legislation and the White House presumably does normal things like propose a budget and specify its legislative ideas, there will be real actions for us to probe and debate. Distinguishing between words and action is essential: When senators say silly things about legislation, we know to separate those public statements from votes takes and laws passed. When leaders of other countries speak aggressively, we do not immediately act as if war is imminent; if that were the case, we’d have invaded Iran and North Korea years ago. Words should be taken as possible indicators of future action, but not as absolutes and not always.

Trump poses a challenge to decades of tradition and precedent. He is masterful as conflating words and actions in a way that enrages and alarms his opponents and exhilarates and excites his supporters. It’s more important than ever to distinguish what is from what isn’t. Understanding the difference between what this president says and what he does is one of the only things that will keep our public debate from plunging ever deeper into the hall of mirrors.

Wall Street is sending huge warning signs for stocks

My Comments: Sooner or later, the penny will drop.

Joe Ciolli \ Jul 30, 2017

To a growing chorus of strategists and investors across Wall Street, the stock market looks like it’s headed for a rude awakening.

Their mounting pessimism comes at a time when US equities are looking healthy, at least on the surface. Major indexes are hovering near record highs they reached this past week, while corporate earnings are growing at a blistering pace.

Yet some market experts think this apparent strength is just masking deeper problems brewing under the surface.

Count Marko Kolanovic, JPMorgan’s global head of quantitative and derivatives strategy, as one of those stressing caution. In a client note on Thursday, he said that record-low volatility should “give pause to equity managers.” Kolanovic even went as far as to compare the strategies that are suppressing price swings to the conditions leading up to the 1987 stock market crash.

“The fact that we had many volatility cycles since 1983, and are now at all-time lows in volatility, indicates that we may be very close to the turning point,” he said.

A sudden move down in US stocks on Thursday — including a notably outsized loss in tech — was widely attributed to Kolanovic’s note, highlighting just how seriously many investors have started taking such warnings.

His consternation extends into the hedge fund world, where investment managers are also crying foul about low volatility to anyone that will listen.

Baupost Group, a $30 billion fund, recently highlighted the lack of price swings as a harbinger of pain to come, calling it a possible “accelerant for the next financial crisis.” Meanwhile, Highfields Capital Management, which oversees $13 billion, said this past week that low volatility is giving people the false impression that the market is risk-free.

Going beyond the much-maligned low-volatility environment, Bank of America Merrill Lynch has its own reasons for expecting an upcoming rough patch in stocks — one it sees coming sometime this autumn.

Michael Hartnett, the chief investment strategist of BAML Global Research, points to how the S&P 500 has continued climbing to new highs, even as the size of the Federal Reserve’s balance sheet has stayed relatively unchanged. He says this divergence is a “classic euphoria signal.” Such overexuberance has historically been a sign that investment sentiment is overextended.

Legendary investor Byron Wien, who currently serves as vice chairman of Blackstone’s private wealth solutions group, agrees with BAML. He sees the stock market outpacing the Fed’s balance sheet as problematic and called the development “disturbing” in a July 26 client note.

BAML also points to record low private client cash levels as a sign that the stock market may be close to maxing out. With investors looking fully invested, there’s limited dry powder for them to put to work in the market, should they feel inclined to add to positions.

And, perhaps most importantly to BAML’s call for a market top this autumn, a proprietary indicator maintained by the firm sits on the brink of reaching a sell signal. It’s put together a list of things that need to happen for the market to peak in August:
• The dollar index falls to 90, coinciding with “unambiguous” US labor/consumer weakness (non-farm payrolls lower than 100,000) and a flatter yield curve
• The end of high-yield leadership, which “should be an early warning system”
• Fatigue in equity growth leadership, in areas like the Nasdaq Internet Index, emerging markets Internet, and semiconductors

But, amid the growing pessimism, there are still strategists on Wall Street who see the S&P 500 hanging in there, at least through the end of 2017. A survey of 20 chief equity strategists conducted by Bloomberg shows an average year-end forecast of 2,439, basically unchanged from Friday’s close.

So while it’s anyone’s guess what will transpire in the coming months, it’s good to at least be aware of the cracks forming in the market’s foundation. And don’t say you weren’t warned.

How do I safely invest my retirement savings for growth?

My Comments: Financial illiteracy is a huge problem. But many people have no idea it applies to them.

The other day I was trying to explain something to a widow in her 70’s and it was like talking to my six year old grandson.

People should be exposed to the markets. But they need to shift some of the risk associated with the stock and bond markets to an insurance company. Over the next 10 – 20 years they’ll have a better overall rate of return without the headaches. There is a way to remain invested and not be exposed to all the risk. But you have to be careful about the fees. Send me your email (see Contact Info above) and I’ll explain further.

by Walter Updegrave/May 30, 2017

I have a retired friend who knows he needs growth to ensure his nest egg will last throughout retirement, but at the same time is nervous about the investing in the stock market. Any advice for how he should invest?–D.F.

First, let me say that I don’t blame you (I mean your friend) for being skittish. Even though stock prices have more than tripled after bottoming out in the wake of the financial crisis a little more than eight years ago and now stand at or near record highs, there’s that nagging concern in the back of many investors’ minds that the market could suddenly reverse course and we could be looking at another major selloff and a prolonged slump.

And, of course, at some point that will happen, as it has many times before. We just don’t know when or what will trigger the downturn. So the question is how do we invest our nest egg so we can take advantage of stocks’ potential for long-term growth without leaving ourselves too vulnerable to devastating setbacks that could jeopardize our retirement security?

The answer comes down to balance. But not just balance in an investing sense, or creating an investing strategy that reflects an acceptable tradeoff between risk and reward. I’m talking about balance in an emotional sense too, achieving a level of equanimity that helps us keep our composure when the markets are in turmoil, so we don’t do something we’ll later regret, like selling stocks in a panic at depressed prices.

The first step toward achieving investing balance is to build a portfolio of stocks and bonds that can generate acceptable returns while also providing reasonable downside protection. For help in creating such a stocks-bonds mix, you can go to Vanguard’s free risk tolerance-asset allocation tool.

The tool will also give you a sense of how such a blend of stocks and bonds has performed in the past, and you can also see how many years the various portfolios have suffered a loss and how each has performed on average over many decades.

You shouldn’t think of this as any sort of guarantee of how a given combination of stocks and bonds will fare in the future. If anything, many pros believe average returns going ahead for both stocks and bonds will be considerably lower than in the past. But at least you’ll have a good idea of how different mixes have behaved under a variety of market conditions.

In your zeal to protect yourself against setbacks, however, you don’t want to end up with a mix that’s so wimpy that you run a high risk of running through your nest egg too soon. So to get a sense of whether your recommended mix of stocks and bonds will be able to support the type of spending you envision during a retirement that could very well last 30 or more years, I suggest you also go to this retirement income calculator.

(The tool assumes you’ll live to age 95, which I think is a reasonable assumption for planning purposes. But if you’d like to see how long you might be around based on your age and health status, you can check out the Actuaries Longevity Illustrator.)

The calculator will estimate the chances that you’ll be able to maintain your planned level of withdrawals from your nest egg. If that probability is lower than you’d like — as a general rule, I’d say you’d like to see an estimated success rate of 80% or more, give or take — then you can re-run the numbers with different asset mixes and different withdrawal rates.

In general, though, as long as you keep your initial withdrawal rate within a range of 3% to 4% or so, you should be able to have decent assurance that your nest egg will support you at least 30 years. You can go with a higher withdrawal rate, but you’ll find that the chances of your money lasting throughout a long retirement start to drop off pretty quickly as you push your withdrawal rate above that range.

Once you’ve settled on an asset mix and withdrawal rate, you can turn your attention to emotional balance. I don’t know of a tool that can help with this aspect of investing and planning. Rather, the idea is to find ways to stay cool when the markets are (or seem to be) crumbling around you, and to avoid giving in to the impulse to take action when every fiber of your being is screaming at you to do something, anything!

One way you might maintain your composure when most investors are all shook up is to remind yourself that not all market downturns turn into full-fledged routs. You could even take a few minutes to review instances in recent years (Brexit, the Greek debt crisis, fears of a slowdown in China’s growth rate) when many investors were convinced a market drop would lead to a major selloff but stocks recovered. If nothing else, this exercise could reinforce the notion that it’s foolish to try to outguess the markets.
And even if things get truly ugly, you might take a few minutes to recall the process you went through to arrive at your portfolio and remind yourself that you factored the likelihood of a significant setback into your decision-making when you settled on your asset mix. Indeed, the whole point of the exercise was to create a portfolio that you could stick with regardless of what’s going on in the markets and that, aside from occasional rebalancing, you wouldn’t have to re-jigger.

And while I wouldn’t go so far as to suggest you don’t keep track of economic and financial news, you certainly don’t want to follow it obsessively, especially if watching every tick of the market’s downward trajectory gets you so rattled that you’ll eventually cave in to the urge to abandon your long-term strategy.

That’s not to say you can never make a move. There may be times when you should. If, for example, it becomes apparent that you overestimated your appetite for risk when setting your stocks-bonds mix, then you need to re-assess and do some fine-tuning. But if you do make a move, you should do it calmly, rationally and as part of a well-thought-out plan, not in response to the latest dip in the market or on the basis of some pundit’s prediction of coming Armageddon.

The Next Recession

My Comments: It’s a given there will be a ‘next recession’. People much smarter than me say it’s not many months away. It’s a normal event and we’ll most likely survive.

What we may not survive, however, apart from a random collision with an asteroid, are the effects of income inequality across the planet and the massive debt overhang facing us in this country. Combine those two forces and you know there’s going to be chaos down the road.

Olivier Garret, Forbes Contributor / Jun 26, 2017

In the coming years, we will have to deal with the largest twin bubbles in history. It’s global debt (especially government debt) and the even larger bubble of government promises.

Together, these twin bubbles make up what investor John Mauldin calls “The Great Reset.” Nobody can tell how this crisis will play out, but one thing is for sure, it will affect everyone in a big way.

The Debt Burden Is at a Breaking Point

The mere existence of these bubbles has profound economic implications, as research shows high debt levels weigh heavily on economic growth.

The total debt-to-GDP ratio is at 248% today. The non-partisan Congressional Budget Office (CBO) projects it will rise to 280% by 2027. And that’s assuming nominal GDP grows at 4% per annum.

Despite the post-election optimism, nominal GDP growth in 2016 was just 2.95%—making it the fifth-worst year on record since 1948. There are no signs it will pick up soon either.

That means the reality may be even gloomier than what the CBO projects.

If a higher debt burden means lower growth, the recovery from the next recession, whenever it arrives, will be even slower than the last.

Now Count in Government Promises

Those sky-high debt-to-GDP ratios don’t factor in the unfunded liabilities—pensions, Medicare, and Social Security, which the US Government has promised to millions of Americans. Those total about $100 trillion today.

The chart below shows that by 2019 those unfunded liabilities, along with defense and interest, will consume ALL tax revenue:

Last year, the first baby boomers turned 70. The average boomer has just $136,000 in retirement savings. If that individual lives for 15 years after retirement, his annual income comes to just $9,000.

Because boomers are living longer and need income, they’re staying in the job market longer. The fastest employment growth now is among people 65 and older.

However, with 1.5 million boomers turning 70 every year for the next decade, a huge strain will be put on government finances in the form of pensions and Social Security.

But the pension crisis isn’t just in the US.

A Citibank report shows that the OECD countries face $78 trillion in unfunded pension liabilities. That is at least 50% more than their total GDP.

Pension obligations are growing faster than GDP in most, if not all, of those countries. Those obligations sit on top of a 325% global debt-to-GDP ratio.

Prepare in Advance

Politicians and central bankers could try to “fix” these problems in several ways.

They could default on the debt and pension obligations, or they could print money to fund them. There is no way of knowing ahead of time how these bubbles play out.
What we do know is the chosen approach will bring a different type of volatility and effect on the markets.

For investors, this will be a period of enormous volatility.

That’s why it’s essential to arm yourself with the knowledge of how to deal with this volatility ahead of time.

When Will the Bull Market End?

My Comments: Be assured, I have no idea. But then, I don’t know what I’m going to have for lunch either. All I know is that I will have lunch and one of these days, this bull market will end.

The trick is to understand that it will end, and if you’re not ready to watch a ton of your money disappear, then you have to be ready. Some of you may have enough money that you really don’t give a damn. Good for you.

But if you worry about this, even a little bit, then you should talk with someone who has some answers. Someone you can relate to. I promise it won’t hurt much.

By Anne Kates Smith, Senior Editor @ Kiplinger, June 26, 2017

As the second-longest bull market in history makes its way into its ninth year, many investors are understandably asking: When will it end? We’d all be rich if there was a foolproof way to figure that out. But we can make some educated guesses.

One thing to remember is that bull markets don’t die of old age alone. Something’s got to kill them. And the surest weapon is a recession. That’s not always the case. There have been bear markets without a recession, as the crash of 1987 shows. But many of the worst downturns have been accompanied by a recession – or, more accurately, followed by one. The Great Recession that began in December 2007 was preceded by the start of a bear market in October of that year that went on to lop 57% off stock prices. The recession that began in March 2001 followed a March 2000 market peak that initiated a 49% stock decline.

False alarms are frequent, says economist and market strategist Ed Yardeni, of Yardeni Research. “The next bear market will start when the market anticipates the next recession – and turns out to be correct. The market has anticipated lots of recessions since 2008 that have turned out to be buying opportunities,” says Yardeni.

When recessions do pair with stock market peaks, they can do so immediately, as with the concurrent start of the recession and bear market of July 1990, or they can lollygag more than a year behind. On average, recessions begin 7.7 months following a stock market peak, according to market research firm InvesTech Research.

If we only knew when the next recession would begin. Well, Yardeni has a date in mind: March 2019. He bases his determination on the average number of months the economy has continued to expand after it has reached its previous peak, going back to the early 1970s. Counting from November 2013, which is when the economy finally surpassed its 2007, prerecession peak, Yardeni arrives at March 2019.

The date is not an official forecast, says Yardeni, who adds that it comes with no guarantees and plenty of questions. “What do we know today that suggests that March 2019 is a realistic date, or that a recession will come sooner or later? Right now, March ’19 looks realistic,” says Yardeni. “But if pressed,” he adds, “I’d say it might be later.” If the economic cycle sticks to the averages and if the stock market does, too – both big “ifs” – then investors should look for a market top around August of next year.

4 signs of recession

Sam Stovall, chief investment strategist at investment research firm CFRA, looks at four indicators when he’s searching for a recession on the horizon. Every recession since 1960 has been preceded by a year-over-year decline in housing starts, says Stovall. The dips have ranged from a 10% decline to a drop of 37%, and they have averaged 25%. The most recent report on housing starts showed a decline of less than 3%. “So we’re on yellow alert, not red,” says Stovall.

Consumer sentiment is another signpost. Before a recession kicks in, you’ll typically see an average decline of 9% in the University of Michigan’s monthly sentiment index compared with the previous year, says Stovall. Current reading: up 2.4%.

A drop over a six-month period in the Conference Board’s Index of Leading Economic Indicators means trouble, too, with declines of 3%, on average, registering ahead of an economic downturn. Latest six-month change: up 3%.

Finally, when yields on 10-year bonds dip below the yields on one-year notes – known as an inverted yield curve – look out, says Stovall. Ominously, long-term rates recently have been under pressure while the Federal Reserve pushes short-term rates higher. “We’re getting a flatter yield curve, but nowhere near an inversion,” says Stovall. His conclusion: No recession is in sight.

Before you fixate on the twin risks of recession and a bear market, ponder a third risk – exiting a bull market too early. The payoff in the final year of a bull market is historically generous, with returns, including dividends, averaging 25% in the final 12 months and 16% in the final six months.

Nonetheless, investors have every right to ratchet up the caution level at this stage of the game. Now is a good time to make sure your portfolio reflects your stage in life and your risk tolerance. Stick to a regular rebalancing schedule to lock in gains and maintain the appropriate balance between stocks, bonds and other assets, domestic and foreign. And whatever you do, make sure your portfolio is where you want it to be before you go on summer vacation next year.

This Is Not How A Bear Market Starts

My Comments: Today is Memorial Day, and the markets are closed in this country. It’s a day for us to instead remember those of us who gave their lives that we might continue with ours. Pray that fewer lives will be given in the years to come.

The following comes from someone whose name I do not know. But if you can wade through the math and graphics, you may find that the world is not about to end. At least financially.

Here’s how the author describes himself: “I have a degree in Math and Science from the University of Toronto, as well as a degree in education, also from U of T. I have traded private equity for 38 years and have developed a proprietary Price Modelling System which has provided me with consistent profitable trading success. In partnership with my computer scientist son, Aidan Gomez, we have automated this model using neural networks, and offer a Trade Alert service that lets subscribers replicate the trades we are involved in.”.

To see the charts, you’ll want to visit the source article HERE.

May 22, 2017 | ANG Traders

Summary
There has been much digital ink spilled trying to convince us that the bull market is on its last legs.

We present fundamental and technical reasons to support the idea of an ongoing bull market.

Black swans aside, this is not how bear markets start.

There has been, and continues to be, an inordinate amount of digital ink spilled promulgating the imminent demise of the bull market. Most of the arguments for this, center around the near-historic levels of certain metrics, such as PE ratios and S&P averages, but they ignore the factors that truly coincide with the launch of bear markets. In this piece, we will attempt to elucidate several of the metrics that we have correlated with bear or bull markets, and hopefully, show that the bull market is alive and well.

Rate Differential
When the 10-y minus the 2-y Treasury rate inverts, it has a way of marking the end of bull markets. When this differential turns negative, in conjunction with low unemployment, investors should look for an exit. Today, the unemployment rate is low, but not as low as in 2000 or 2007, and the 10-y minus 2-y rate is still a healthy +1%. It will take several sizable Fed rate hikes before the rate differential inverts (chart below). This does not look like the start of a bear market.

Fed Funds Rate

It is obvious that when the Fed raises rates, the bull market dies, but often when it comes to the market, what is obvious, is obviously wrong. In fact, three of the last four bull markets occurred while the Fed raised rates – the latest bull market being the exception (chart below). The Fed has lots of room to raise into a growing business cycle. Bear markets do not start when low rates are being raised.

Industrial Production
Except for a five-month period in 2002, a rising industrial production has coincided with a rising SPX. The chart below demonstrates this strong positive correlation. Bear markets do not start with rising industrial production.

GAAP Earnings

The Generally Accepted Accounting Principles (GAAP) earnings enjoy a positive correlation with the S&P 500. The GAAP earnings started rising two quarters ago, and the current quarter is shaping up to be positive also. Bear markets do not start with rising GAAP earnings.

Technical Indicators
The 8-month moving average remains above the 12-month moving average, the MACD is rising, the ADX is displaying a bullish pattern, and the RSI and stochastic are elevated, but they can remain elevated for long periods of time (chart below). This is not how bear markets start.

Investor Sentiment
Bull markets climb the proverbial “wall of worry.” There is a lot of geopolitical and intramural politics to worry about, and which are feeding the bull market. Bear markets do not start when there is fear around. They start when investors are confident and throw caution to the wind. The AAII investor sentiment indicator stands at a fearful 24% bullish sentiment, and 34% bearish sentiment (red and blue arrows respectively on the chart below). Bear markets start when bullish sentiment is over 50%, and bearish sentiment is under 30% (red and blue oval on the chart below). This is not how bear markets start.

In conclusion, the evidence presented paints a picture of a bull market that is still fearful and healthy. That is not to say that a black-swan won’t fall out of the sky and ruin the picnic, but judging from what we can and do know, a bear market is not imminent.