Tag Archives: investment advice

The Stock Market Is About To Have A ‘Final Melt Up’

roller coaster2My Comments: Anyone who suggests they know what is likely to happen to the markets in the coming days is probably just hoping they will be right. And that includes me.

A high percentage of significant market downturns have happened in August and September. This article suggests there is an event planned for the end of August that might be the trigger that starts the next one. Obviously we are now in September but the danger level is still high.

My suggestion is to either be in cash, or in a program designed to make money when the markets tump.

Bob Bryan – August 16, 2016

The market has one last run left.

Stocks could get a huge boost as investors worry about missing gains, according to Michael Hartnett, the chief investment strategist at Bank of America Merrill Lynch.

According to a note from Hartnett titled “The Final Melt Up,” the shift of investors from defensive stocks (such as industrials and telecoms) to more cyclical companies (retail, tech, and consumer goods) shows that investors’ appetite for risk is growing.

This will create demand for stocks and drive the market upward.

“Likelihood of melt up in risk assets into Jackson Hole growing … likely followed by jump in yields,” he wrote.

The chart below illustrates the rotation that Hartnett is noticing:

Essentially, a melt up by definition is a sudden leap in the market caused by investors rushing in because they fear missing out. It’s not a sign of improved fundamentals.

In other words, these companies and markets may not have higher earnings or be stronger investment opportunities.

Hartnett doesn’t go into the details of the end of the melt up, but the speech by Federal Reserve Chair Janet Yellen at the Jackson Hole conference at the end of the month appears to be the catalyst that will stop the stampede.

ThrowBack Thursday: My College Days

33 60-62 CavingClub copyAbout this time some 57 years ago I arrived in Gainesville, Florida. I was a freshman with no clue yet what to study and no meaningful focus other than survive on my own with a vague sense of taking the next steps. I found myself enveloped in a group of non-conformists whose extra-curricular avocation was caving. If you were a sophisticate, you would have said spelunking, as performed by speleologists. At the time, we cavers were mostly sober and were prepared to spend much of the night in underground, sometimes muddy, bat infested caves, climbing walls and crawling through narrow passages. Never mind that you missed classes the next day. And on weekends, there were parties with purloined grain alcohol and folksongs. Some of us managed to graduate, despite having no real clue what we were going to do with the rest of our lives.

The link below will take you to a site where I have uploaded images of those days, along with comments that my now 75 year old brain thinks are relevant. Unfortunately, too many of the people shown have passed and exist only in our memories. Perhaps some of you will recognize these folks, or others with similar tastes whose lives touched yours. Good times were had and enjoyed.

Go HERE to see it all: https://goo.gl/09cPIv

Alternatively, I’ve created a PowerPoint slide show and uploaded it to dropbox.com  If you have problems with either of these let me know and I’ll try a new way to get you the stories and pictures.

Don’t Expect To Make Any Money In The Market For The Next 7 Years

InvestMy Comments: I have no idea whether this will prove to be true or not. But it sure enters my thinking whenever I talk about money with clients and how they are going to pay their future bills. And how I’m going to pay my bills.

John Mauldin,  Economics,  Jul. 28, 2016

The next recession is coming, and it will be severe.

My friend Ed Easterling of Crestmont Research just updated his Economic Cycle Dashboard and sent me a personal email with some of his thoughts.

The current expansion is the fourth longest since 1954… but also the weakest. Since 1950, average annual GDP growth in recovery periods has been 4.3%.

This time, average GDP growth has been only 2.1% for the seven years following the Great Recession. That means the economy has grown a mere 16% during this so-called “recovery.”

If this were an average recovery, total GDP growth would have been 34% by now… instead of 16%. So, it’s no wonder that wage growth, job creation, household income, and all kinds of other stats look so meager.

I think the next recovery will be even weaker than this one (the weakest in the last 60 years) because monetary policy is hindering growth.

Now, combine a weak recovery with Negative Interest Rate Policy or NIRP. Asset prices are a reflection of interest rates and economic growth. And both are just slightly above or below zero. So, how can we really expect stocks, commodities, and other assets to gain value?

The upshot is that traditional investment strategies will stop working soon. Ask European pension income recipients about their fears.

Welcome to 0% returns for the next 7 years

All bets may be off if the latest long-term return forecasts are correct. Here’s a chart from my friends at GMO showing the latest 7-year asset class forecast.

See that dotted line, the one that not a single asset class gets anywhere near? That’s the 6.5% long-term stock return that many supposedly wise investors tell us is reasonable to expect.

GMO doesn’t think it’s reasonable at all, at least not for the next seven years.

If GMO is right—and they usually are—and you’re a devotee of passive or semi-passive asset allocation strategy, you can expect somewhere around 0% returns over the next seven years… if you’re lucky.

See that nearly invisible -0.2% yellow bar for “U.S. Cash?” It’s not your eyes. Welcome to NIRP, American-style.

The Fed’s fantasies notwithstanding, NIRP is not conducive to “normal” returns in any asset class. GMO says the best bets are emerging-market stocks and timber.

Those also happen to be thin markets. Not everyone can hold them at once.

Prepare to be stuck.

10 Retirement Decisions You Will Regret Forever

My Comments: This list comes from Kiplinger, and is relevant to many of the people I talk with daily. I’ve only include two of the ten here. To to find the rest you’ll need to click on any of the images which will take you to the Kiplinger site. If for any reason, they block you out, let me know and I’ll figure out a work around for you.

By Bob Niedt

As more and more baby boomers start eyeing the coastline of retirement, thoughts turn from the daily worry over the Monday-through-Friday commute to concerns about how to fund the golden years.

How prepared are you? Do you know the ins and outs of your pension (if you’re lucky enough to have one)? How about your 401(k), IRA and other retirement accounts that make up your nest egg? Do you have a good handle on when to claim Social Security benefits? These are some of the questions you will have to contemplate as the work days wind down. But long before you punch out, make sure you are making the right choices.
To help you out, we’ve compiled a list of retirement decisions some of you may regret forever. Take a look to see if any sound familiar.

Planning to work indefinitely
Many baby boomers like me have every intention of staying on the job until 70, either because we want to, we have to, or we desire to maximize our Social Security checks. But that plan could backfire. You could be forced to retire early for any number of reasons.

Consider this: One in four U.S. workers expects to work beyond age 70 to make ends meet, according to a recent Willis Towers Watson survey. Yet, you can’t count on being able to bring in a paycheck if you need it. While 51% of workers expect to continue working some in retirement, found a separate 2015 survey from the Transamerica Center for Retirement Studies, only 6% of actual retirees report working in retirement as a source of income.

Whether you work is not always up to you. Three out of five retirees left the workforce earlier than planned, according to Transamerica. Of those, 66% did so because of employment-related issues, including organizational changes at their companies, losing their jobs and taking buyouts. Health-related issues—either their own ill health or that of a loved one—was cited by 37%.

The actionable advice: Assume the worst, and save early and often.

Putting off saving for retirement

The single biggest financial regret of Americans surveyed by Bankrate was waiting too long to start saving for retirement. Not surprisingly, respondents 50 and older expressed this regret at a much higher rate than younger respondents.

“Many people do not start to aggressively save for retirement until they reach their 40s or 50s,’’ says Ajay Kaisth, a certified financial planner with KAI Advisors in Princeton Junction, N.J. “The good news for these investors is that they may still have enough time to change their savings behavior and achieve their goals, but they will need to take action quickly and be extremely disciplined about their savings.”

Morningstar calculated how much you need to sock away monthly to reach the magic number of $1 million saved by age 65. Assuming a 7% annual rate of return, you’d need to save $381 a month if you start at age 25; $820 monthly, starting at 35; $1,920, starting at 45; and $5,778, starting at 55.

Uncle Sam offers incentives to procrastinators. Once you turn 50, you can start making catch-up contributions to your retirement accounts. In 2016, that means older savers can contribute an extra $6,000 to a 401(k) on top of the standard $18,000. The catch-up amount for IRAs is $1,000 on top of the standard $5,500.


A DIVIDED AMERICA: Rural vs. Urban

My Comments: Economic reality drives most lives today. It shapes our ideas about politics, about family, about national security, and our fears. Almost all of us agree that life is better with more money than with less money.

So where you live has a huge influence on your economic reality, and as a result, how you expect and hope your life and that of your loved ones will play out. What follows does not provide a definitive insight for us, but it does help explain a lot of the conflict we are experiencing.


ROCKY FORD, Colo. (AP) — Peggy Sheahan’s rural Otero County is steadily losing population. Middle-class jobs vanished years ago as pickling and packing plants closed. She’s had to cut back on her business repairing broken windshields to help nurse her husband after a series of farm accidents, culminating in his breaking his neck falling from a bale of hay.

She collects newspaper clippings on stabbings and killings in the area — one woman’s body was found in a field near Sheahan’s farm — as heroin use rises. “We are so worse off, it’s unbelievable,” said Sheahan, 65, who plans to vote for Donald Trump.

In Denver, 175 miles to the northwest, things are going better for Andrea Pacheco. Thanks to the Supreme Court, the 36-year-old could finally marry her partner, Jen Winters, in June. After months navigating Denver’s superheated housing market, they snapped up a bungalow at the edge of town. Pacheco supports Hillary Clinton to build on President Barack Obama’s legacy.

“There’s a lot of positive things that happened — obviously the upswing in the economy,” said Pacheco, a 36-year-old fundraiser for nonprofits. “We were in a pretty rough place when he started out and I don’t know anyone who isn’t better off eight years later.”

There are few divides in the United States greater than that between rural and urban places. Town and country represent not just the poles of the nation’s two political parties, but different economic realities that are transforming the 2016 presidential election.

Cities are trending Democratic and are on an upward economic shift, with growing populations and rising property values. Rural areas are increasingly Republican, shedding population and suffering economically as commodity and energy prices drop.

“The urban-rural split this year is larger than anything we’ve ever seen,” said Scott Reed, a political strategist for the U.S. Chamber of Commerce who has advised previous GOP campaigns.

While plenty of cities still struggle with endemic poverty and joblessness, a report from the Washington-based Economic Innovation Group found that half of new business growth in the past four years has been concentrated in 20 populous counties.

“More and more economic activity is happening in cities as we move to higher-value services playing a bigger role in the economy,” said Ross Devol, chief researcher at the Milken Institute, an independent economic think tank. “As economies advance, economic activity just tends to concentrate in fewer and fewer places.”

That concentration has brought a whole host of new urban problems — rising inequality, traffic and worries that the basics of city life are increasingly out of the reach of the middle class. Those fears inform Democrats’ emphasis on income inequality, wages and pay equity in contrast to the general anxiety about economic collapse that comes from Republicans who represent an increasingly desperate rural America.

These two different economic worlds are writ large in Colorado. It is among the states with the greatest economic gap between urban and rural areas, according to an Associated Press review of EIG data.

The state’s sprawling metropolitan areas from Denver to Colorado Springs is known as the Front Range. As it has grown to include nearly 90 percent of the state’s population, it has trended Democratic. Rural areas, which have become more Republican, resent Denver’s clout. In 2013, a rural swath of the state unsuccessfully tried to secede to create its own state of Northern Colorado after the Democratic-controlled statehouse passed new gun control measures and required rural areas to use renewably generated electricity.

In Denver, City Councilman Rafael Espinoza elected to Denver’s last year as part of a group of candidates questioning the value of Denver’s runaway growth. Espinoza has seen his neighborhood of modest bungalows occupied by largely Latino families transformed into a collection of condominiums housing affluent professionals.

“Money just drives the discussion. In the presidential, Bernie Sanders was my guy for that one reason,” Espinoza said.

In contrast, Bill Hendren is desperate for money. He has about $4 in coins in a plastic cup he keeps in the cottage on a small farm where he lives, rent-free. Hendren’s truck was stolen 18 months ago and he was unable to travel to perform the odd jobs in Otero County that kept him afloat. He’s now functionally homeless and a Trump backer.

“I don’t ever see a president caring about anyone who’s living paycheck to paycheck — if they did they’d have put the construction people back to work,” Hendren said. “Trump’s got the elite scared because he doesn’t belong to them.”

If bad luck and geography conspired to impoverish Bill Hendren, it’s an excess of money that’s to blame for Robin Sam’s plight. Sam, 62, left one apartment counting on moving into another one being built in the rapidly-gentrifying and historically black neighborhood where he grew up. But that facility raised its rent over the threshold of Sam’s $1,055 Section 8 voucher, and he’s been living in a homeless shelter all year, unable to find a new place in Denver’s fiercely competitive housing market.

“I feel like I’m being pushed out,” said Sam, who is black. He recalls houses and apartments being barred to blacks in his youth decades ago, but senses something else at play now.

“It’s money — and money changes everything,” he said

Growth Stocks vs. Value Stocks

bear-market--My Comments: If you believe, as I do, that some of your money needs to be working harder than, say a Certificate of Deposit, then your likely solution is some kind of mutual fund or brokerage account. Most of us are not sufficiently sophisticated financially to explore other options, so for new, let’s assume you decide to own a stock portfolio of some kind.

One point on the decision tree is to choose between growth stocks and value stocks. If I’ve now confused you to the point of paralysis, then read the rest of this and see if it makes any sense.

by Sean Williams June 19, 2016

You can make a solid argument that the stock market is the greatest creator of wealth over the long term.

We’ve definitely witnessed a surge in home values since the 1990s, but the previous 100 years (1890-1990) saw home prices outpace the inflation rate by a paltry 0.21% per year, based on estimates from Robert Schiller via Irrational Exuberance. By comparison, inclusive of dividend reinvestment, the stock market tends to rise by about 7% per year, which is roughly double the rate of inflation between 1914 and 2014. Investing in the stock market arguably gives Americans their best chance of reaching their retirement goal and leaving the workforce at a time of their choosing.

The age-old debate: growth stocks vs. value stocks

However, the path by which an investor gets from Point A to Point B in the stock market has long been up for debate. There are easily more than a half-dozen investing strategies to choose from, but few get more credence than growth investing and value investing.

Growth investors are typically seeking companies that offer a superior growth rate relative to the overall stock market and perhaps their peers. Companies that are growing faster are often trendsetters, and presumably they should be able to keep up their superior growth for a long time to come. Companies with a high growth rate also have the potential to see their stock prices soar. The downside, as you might imagine, is that growth stocks aren’t always making money, and the valuations of growth stocks can be prone to getting ahead of themselves because of emotional investing.

By comparison, value investors are seeking investments trading at a discount to the overall market or a sector in question. Value stocks usually have mature business models that seek to maintain strong pricing power, modest growth, and typically reward long-term shareholders with a dividend or stock repurchases. On the downside, value stocks can always get cheaper, because trying to time a low is a fruitless practice. Additionally, since value stocks usually have mature business, they don’t offer the same eye-popping returns that can occasionally be seen with growth stocks.

“So which method is best over the long haul?” you wonder? That’s exactly what Bank of America/Merrill Lynch sought to find out.

Based on the study findings from Bank of America/Merrill Lynch over a 90-year period, growth stocks returned an average of 12.6% annually since 1926. However, value stocks generated an average return of 17% per year over the same timeframe. Said Bank of America/Merrill Lynch chief investment strategist Michael Hartnett, “Value has outperformed Growth in roughly three out of every five years over this period.”

Perhaps more interesting is that value stocks have tended to outperform during periods of economic growth, while growth stocks have proved better when the economic weakens or contracts. This would certainly help to explain why value stocks have left growth stocks in the dust, since the economy is expanding for a much longer period of time than it’s contracting or stagnating.

Also worth noting is that we’ve seen a bit of a reversal to this trend since the end of the Great Recession. In other words, growth stocks have substantially outperformed value stocks despite the U.S. economy returning to growth. However, we’ve also witnessed historically low lending rates during this seven-year period, which has made access to capital cheaper than ever for growth stocks looking to hire, expand, and acquire competitors. As lending rates normalize in the years ahead, we’re liable to see this divergence from the historic trend wane.

Source article: http://goo.gl/f0bCjz

How to Invest in Mutual Funds

InvestMy Comments: Mutual funds have been around for about 100 years. Some genius decided to create a new investment model, a stand alone investment. With one investment you now could own shares of hundreds of stocks, in smaller amounts. And the rest is history.

Today there are more funds to choose from than you can imagine. Some have good records and some not so good. None of them are free; employees and rent has to be paid, and that ultimately comes from whomever owns shares of the fund. But the costs you think you pay are only those costs that the regulators determine must be reported. There are costs that escape disclosure which you can only guess about. Buyer beware.

This is a useful overview for anyone with money in the markets that is not just X shares of company A or Y certificates issued as a bond by company B or government C. If you are a relatively conservative investor or working with money that has to support your retirement, you have to first decide how much money you can lose in any given year and not have heartburn. Only then can you begin to decide if a fund choice will be a good option for your money.

by Matthew Frankel – The Motley Fool – June 25, 2016

The best mutual funds to invest in are those that fit your investment objectives without charging high fees. When choosing funds, you should look for:
1. Funds that meet your objectives.
2. No-load funds.
3. Low expense ratio — companies like Vanguard and Fidelity offer some extremely cheap funds.
4. Good Morningstar and/or Lipper ratings.
5. Strong performance history.

Decide what you want to invest in
There are mutual funds that invest in all types of stocks, bonds, CDs, commodities, and more, so the first step is to decide what you want to invest in. And there are two main types of mutual funds to choose:
• Passively managed funds track a certain index, such as the S&P 500 or the Russell 2000. These simply invest in all of the companies in an index, and don’t require too-much effort on the part of the fund’s managers. Because of this, these funds tend to come with relatively low fees.
• Actively managed funds have a manager who chooses its investments, and decides when to buy and sell. Because the main goal of actively managed stock funds is to beat the market, and because of the additional effort required, actively managed funds usually have higher fees than passively managed ones.

Lower costs = more money in your pocket
When looking for mutual funds, I automatically narrow my search to “no load” mutual funds — which means that the fund doesn’t come with a sales charge or commission. In most cases, your brokerage will clearly differentiate no-load mutual funds.

The most-important number you should look at when comparing mutual funds is known as the expense ratio. This tells you the total ongoing cost of investing in the fund on a yearly basis as a percentage of your assets.

For example, an expense ratio of 1% tells you that, if your investment is worth $10,000, you’ll pay $100 in various fees. If you’re interested, here’s a thorough discussion of what makes up an expense ratio; but for most investors, it’s sufficient to know that a lower expense ratio means a “cheaper” fund.

You may see two different expense ratios listed for a particular fund: gross expense ratio, and net expense ratio. Net expense ratio can be lower, as it includes any discounts or temporary reductions in fees. The gross expense ratio is the permanent amount, and is the primary number to pay attention to.

Small differences in expense ratios can have a big impact
It’s important to emphasize that seemingly small differences in expense ratios can make a big difference over long time periods. As a simplified example, let’s compare two hypothetical mutual funds, both of which track the same index. The only major difference between them is that the first charges an expense ratio of 0.75%, while the second charges a cheaper 0.5%.

If you invest $10,000 in each fund, and the underlying index produces average annualized returns of 8% per year before expenses, after 30 years, the first investment will be worth $81,643. Your investment in the cheaper second fund would grow to $87,550. If you ask me, a difference of more than $5,900 is well worth the effort of shopping around for a cheaper option.

This isn’t to say that a fund with a lower expense ratio is automatically better than a more-expensive one in all cases. For passively managed funds, comparing expense ratios can be a highly effective practice. However, with actively managed funds, a higher — but still reasonable — expense ratio can be justified by a strong track record of market-beating performance.

What those fund ratings mean
Two of the most-frequently used ways of rating mutual funds are the Morningstar and Lipper ratings. Morningstar ratings use a five-star system to rate funds, and take into account the fund’s past performance, the manager’s skill level, risk- and cost-adjusted returns, and consistency of performance. Five stars is best, and only 10% of the funds evaluated get the coveted rating. Regarding the rest, 22.5% get four stars, the middle 35% get three stars, the next 22.5% get two stars, and the bottom 10% get one star.

Lipper uses five criteria: consistency, preservation of capital, expense ratios, total return, and tax efficiency. With this information, the funds in a given category are broken down into quintiles — in other words, 20% get the highest rating, 20% get the next highest, and so on.

Both ratings are calculated over different time periods — three-year, five-year, and 10-year periods, respectively. These can be useful in your research; just remember that these ratings are based on past performance, and are not necessarily a guarantee of future results.

Past performance doesn’t guarantee future results, but…

Just because a mutual fund has performed well in the past doesn’t necessarily mean it will do the same in the future. In fact, mutual funds tell you this themselves — it’s generally written right near the historic returns section on each fund’s prospectus.

However, that doesn’t mean you should ignore that section, especially when it comes to actively managed funds — those that don’t simply track a specific index. Consistently strong fund performance over the years is one sign of good management, and a smart strategy. It’s also important to look at a fund’s performance during tough economic t After all, if you look at a fund’s performance over the past five years, take the information with a grain of salt. The S&P 500’s total return was 83% during that time, and it’s not difficult to make money in markets like that. Instead, it’s a good idea to also take a look at how the fund did during, say, 2008, in order to get an idea of how the fund’s investments hold up in bad markets.

The bottom line on mutual funds
Shopping for mutual funds can certainly be intimidating — after all, there are literally thousands to choose from. However, by determining your investment objectives, considering highly rated funds, comparing expense ratios, and evaluating past performance, you can narrow down the selection, and find mutual funds that are right for you.