Seems like we’re doing a lot of waiting right now: Waiting for a vaccine to be distributed, waiting for a new administration, waiting for small businesses to be able to reopen, waiting for people to go back to work, and the economy to continue to recover. While we wait, Congress is trying to pass another stimulus bill, which we believe is helping keep the stock market close to all-time highs.
Don’t hold your breath though, Congress has gone back-and-forth for months on approving a $908 billion bill to help bolster the economy as shutdowns continue. A large portion of the funding is expected to help fund states and their programs. Without funding, people are wary of a potential “double-dip” recession.
You may be interested in a second wave of $1,200 stimulus checks. Although this would be a pleasant gift to start the year, Congress has provided mixed reviews as to whether or not it will happen.
Here are some of the details of the stimulus:
An increase in federal unemployment checks by $300/week.
A reopening of the Paycheck Protection Program (PPP) to allow for more businesses to apply for support.
Eviction freezes would continue and be extended for some period of time.
Prolong state funding to essential services, such as food banks.
While we wait for the conclusion of the vaccine distribution, the election, and the economy, we’re making changes to clients’ portfolios.
Growth Stock Portfolio
We recently took advantage of buying Salesforce CRM for the Growth Portfolio. Salesforce specializes in providing software for businesses to help with day-to-day operations. Recent news about them acquiring another company (Slack Technologies ticker: WORK) led to a drop in share price – a great opportunity to buy. We have other stocks and funds on our radar for future buys. With continued uncertainty surrounding COVID, we’ve kept cash aside in case we get another chance to buy.
End of Year Rebalancing
The wild ride of 2020 has provided a variety of opportunities in the stock market. As the year wraps up, we’ll be performing our End-of-Year Rebalancing to make sure accounts are allocated properly. We’ll be able to use this as a time to offset potential tax burdens in the coming year, as well as lock in gains and position for the future. You’ll likely see notifications of this from TD Ameritrade.
Finally, we want to say thank you to everyone that’s trusted us with their important financial decisions this year. From our families to yours, we wish everyone a Merry Christmas this year!
Please let us know if there’s anything we can do for you!
We’re all familiar with how long of a year it’s been, so we’ll spare you from having to rehash the drama. Instead, let’s look forward now that the election is behind us (mostly). Let’s move past 2020.
First Trust is a fund company we’ve utilized in choosing investments. They have some great funds and provide insightful economic commentary to us. Below we’ve paraphrased a recent First Trust publication and listed eleven things we’ve learned since the election. All eleven will have implications for 2021 and beyond.
What we’ve learned since the election:
1. The pollsters were horribly wrong again. They had four years to fix the problem and now there will be even less confidence in polls going forward.
2. The close election shows American voters do not want a radical shift in economic policy.
3. President Trump is pushing back against election results with court cases, and recounts will be automatic in some states because of the closeness of the results…and odds favor a Joe Biden Presidency for the next four years.
4. It appears that Republicans will have at least 50 seats in the US Senate. The outcome of two runoff elections in Georgia, taking place in early January, will determine the final Senate make-up and it appears Republicans will win at least one of those. Because Dems will not have control of the US Senate, we will have a divided government, which is typically good for the stock market.
5. Democrats lost perhaps 10 seats in the House of Representatives, but still retain a majority. This result is causing the moderate wing of the Democrat party to push back against their more progressive members.
6. This means that a major tax hike, the Green New Deal, Medicare for All, and Supreme Court “packing” are probably off the table. A Biden Administration will generate more rules and regulations, but federal courts and the 200+ Trump judge appointees during the past four years are likely to make sure agencies and departments stick to their legal mandates as passed by Congress
7. Expect Congress to pass a stimulus bill in the lame duck session, but it will not be the $3 trillion that Speaker Pelosi and the Democrats were pursuing before the election.
8. Expect some sort of infrastructure spending package, passing with bipartisan support. Because President Biden will need to get some sort of tax victory, look for an increase in the itemized deduction for state and local taxes.
9. Trade wars are off the table, however, it will be hard for a new White House to justify going soft on China or for reversing progress made toward peace in the Middle East.
10. The economy continues to grow with productivity up 4.1% from a year ago. About 90% of S&P 500 companies report revenues are better than expected, and costs have been cut as they have adapted to challenging times.
11. Although layoffs remain high, a record-breaking 12 million jobs have been added in the past six months and the unemployment rate fell to 6.9% as of 11/6.
With the good news of Pfizer’s 90% effective Covid vaccine yesterday the stocks that have struggled have surged ahead, continued low-interest rates will enable companies to expand, governmental fiscal policies are not likely to change in any major way, the likelihood of more stimulus, and with the entrepreneurial power of the U.S economy the stock market may continue to make new highs.
We remain mostly invested in client accounts with cash ready to take advantage of any overly emotional swings in the stock market.
On another note, we’ve made some changes to our Client Agreement and wanted to send out an updated copy so our current clients can review it. Please click here to review.
Please let us know if there’s anything we can do for you!
Similar to “Ad nauseam,” the Latin term for an argument or discussion that has continued to the point of nausea, but applied to news media.
We’ve heard and talked so much about COVID-19 and the election this year, we’re taking this month off from those topics. We’ll pick it back up Nov 3rd.
Instead, let’s discuss something we CAN control. Not financial planning, that’s boring and overused. We want to discuss crafting VISION for your financial life. Vision is much more interesting. Vision is what entrepreneurs and leaders use to change the world. Vision is what you need to remodel a formerly beautiful 1994 home that could now be on the show “Hoarders” (Tim and his wife Holly’s next project). Vision is what we need to help us make good financial decisions.
As we’ve had financial planning conversations the last 15 years, we’ve noticed there can be a tendency to dive deep into the infinite details of the financial world. Don’t do this. There’s a time for details, but usually, it’s not helpful. Like landing a plane, we need to keep our heads up and be looking down the runway at where we want to end up.
To avoid getting bogged down in the details, use the acronym RETIRED to focus on the major points that need to be considered when crafting vision for you or your family’s financial future. Click the image to see the pdf.
These are topics everyone needs to address, but they are most important to the younger generation. Please forward this to anyone you know that could use a head start in crafting vision for their financial future.
There’s a “Power Off” button on your electronics that will save you stress and potentially high blood-pressure on November 3rd and the days that follow. We suggest you consider using “The Button” if the on-air conflict-of-opinions conversation gets to be too much for your peace of mind.
Our clients have hired us to worry for them…we’re planning on protecting assets in their accounts while looking for bargains these chaotic times may present.
Today the half-million Oregon individuals who evacuated their homes, the thousands whose homes, farms, or businesses are in ashes, and the unbearable story of the Tofte family and the others who lost their lives are quite literally in our prayers.
He raises the poor from the dust and the needy from the ash heap… Psalm 113
Typically we try to provide hopeful, helpful commentary when the financial markets are in ashes, but even after the pullback suffered last week, the smoke is gone and the skies are blue for stocks since the COVID lows of late March.
Although we feel the stock market got ahead of itself on the rebound, it appears to be correcting what’s being called the “raging mania” and we think volatility will settle down after the election. Yes, even if there’s a blue wave.
RealClear Politics average of opinion polls shows Biden’s lead narrowing to 7.5% now. Although we’re all a little skeptical of polls after the last election.
The 10 close elections in the post-World War II era have seen selloffs in the six to seven weeks before the election as uncertainty grows.
No clear winner may emerge on the night of Nov. 3 or even early the next morning, given the extra time to count and the potential for debated results of the mail-in ballots.
A contested election would likely send stocks lower. The hanging chads on Florida ballots in 2000, which ultimately had to be decided by the Supreme Court in Bush v. Gore December 12th, 2000, trimmed 7% from the S&P 500 index.
Maybe a more dramatic response if an uncertain election outcome sparks civil unrest. Extreme polarization and high unemployment is increasing tensions.
The Deutsche Bank strategists find close elections have been followed by strong rallies averaging 5%, regardless of which party wins, as hedges against political risk are closed out.
So what should we make of this? Great question. Guessing the direction of the stock market over the next 2 months, or 2 years, is not our game. We instead like to take a more measured approach. This means small changes to portfolios based on time horizon, risk tolerance, and of course, the levels of the stock market.
For our client accounts, we’re finished locking in gains and are now looking to reinvest those gains should we get opportunities. The pullback has pushed the S&P 500 down approximately 7% from the high it reached early this month.
If the drop continues, we’ll be looking to invest again for everyone with the hope that the passing of the election, progress on COVID-19, and the end to this tumultuous year will settle things down.
Thank you for reading,
– Bruce Porter & Tim Porter, CFP®
PS – We wanted to make sure to say thank you to all who participated in, or who gave their lives nineteen years ago today to save those in the 9/11 attacks!
Our government has been working to avoid an outright depression with a $3+ Trillion stimulus plan, and another $1 to $3 Trillion being debated in DC. But the downside will be very obvious on Thursday when the projected GROSS Domestic Product for the Second Quarter comes out, and it will be GROSS! It will be the worst since the Great Depression we’re told.
1) The…report [is] projected to show a record -35% annualized drop in gross domestic product…gross domestic product, or GDP, represents all goods and services produced in the country…”.
2) This is expected to be the shortest and steepest recession any time in recent history.
3) Resurgent Coronavirus cases across much of the southern and western states have paused or rolled back plans to reopen many businesses and the expected recovery in the second half of the year.
As usual, we have cash set aside in client accounts for a buying opportunity if it comes.
The Pandemic affects not only the markets but also our personal plans. One of our friends remarked yesterday, that usually, they are traveling now…out-of-state or out-of-the-country. Like many, they’re not excited about being locked into in a high-flying, long, narrow metal tube for several hours while re-breathing air with their seat-mates. This year, their travel has been to the Oregon Coast. Not a bad alternative.
Last weekend our family loved the water-sports on Devils Lake in a relative’s boat—we’re hoping these photos of Tim’s kids and a cousin will help you think cool thoughts during this hot weather.
In June of this year, the SEC (Securities and Exchange Commission) placed a new requirement on Investment Advisory firms. We are now required to provide all new and current clients a CRS (Client Relationship Summary) document (download pdf here). This documentaddresses relationship factors that should be considered when working with an advisory firm. I would hope that none of the content will be a surprise to you, but it is always good to review the important concepts related to fiduciary duty, potential conflicts of interest, and how advisors get paid.
Please do let us know if any of the conversation starter questions included in the document spark an interest in a follow-up discussion on one of these topics.
It’s all fun and gains for a handful of stocks this year, but for the rest, it’s been tough. If you’re not a “FAANG” company (Facebook, Amazon, Apple, Netflix, or Google), or a company that’s blazing a path in the new COVID world, like Zoom or Docusign, the stock market has not been kind. The average stock is down approximately -10% since January 1.
This morning I saw the top five stocks in the S&P 500 – FAAMG (remove Netflix and add Microsoft) – now represent 25% of the S&P 500. This is the highest since 1965, during the era of General Motors, Exxon , Ford, General Electric and Mobil.
Goldman Sachs saw this happening at the end of April (article here) when the top five represented 20%. They had these takeaways:
The stock market has been propped up by a handful of mega-cap companies leading into the coronavirus pandemic.
The five largest stocks now account for 20% (now 25%) of the S&P 500 market cap, exceeding the 18% concentration level reached during the dot-com bubble.
Historically, such narrow breadth is a poor signal for future market returns, Goldman Sachs said.
Two things are likely to happen from here: either the poor performing stocks will catch upto the high fliers, or the high fliers will catch down to the poor performers. In similar situations in the past, like 1965 or 1999, it’s been the latter.
In our portfolios we’ve been trimming these high growth positions as they go up, thinking they will come down at some point in the future. Unfortunately, after every sale, they climb to new highs and we feel foolish for selling but happy we booked some profits.
For the time being, we’ll maintain our more conservative positioning as we wait for the next shoe to drop. Here are a few items that could determine the future direction of all of our accounts:
COVID-19 daily death rates jump up, OR death rates stay low
Effective vaccine distribution in the next year, OR vaccine takes longer/no vaccine
Democratic sweep in November, OR Republicans hold on
Surprising recovery in corporate earnings, OR surprising deterioration in earnings
Last month we sold First Trust Internet Fund FDN for a nice double-digit gain that we bought in the heat of the crisis in March. We moved that cash to a short-term bond fund to wait for another opportunity to invest in it again.
Growth Stock Portfolio
In the last few months, we’ve made a few changes to this portfolio. We trimmed high flier Mercadolibre (MELI) to lock in gains and trimmed the underperforming Grand Canyon Education (LOPE) to generate cash to buy Target (TGT), again. We owned TGT for five weeks in the spring for a quick gain. Finally today, we’re pairing back our position in Zoom (ZM), that we bought May 1 for almost half its current price.
We hope everyone is safe and sound and we look forward to talking soon. Until then, please let us know if we can do anything for you.
I know the shut-down is being relaxed across the country, but most of us are still spending a lot of time at home. Before you fill up your calendar, I have something to add to your quarantine to-do list; the Get-Your-Stuff-Together Notebook.
Creating a notebook can be a tedious process, which is why it rarely gets done. Who has the time to weed through all their papers, compile a list of all your important financial details, then put them together in a somewhat organized fashion? Well, thanks to a global pandemic and a stay-at-home order, you do.
If you’ve ever had to search for documents after a loved-one passed, then you know the importance of having financial information organized and available. You can help alleviate family members’ unneeded stress at this difficult and challenging time.
If you’re interested in taking this on, below are 8 sections you’ll want to include. If you’d rather pick up a book that’s ready to fill in, contact us at (503)387-3222 or firstname.lastname@example.org and we’ll put our Allevi-8 Book aside for you. We have 25 available to give out.
1. Financial Plan
This is a good spot to put your overall financial plan for the future. What are you contributing to retirement accounts? How much are they likely to grow? Any annuities? What about investment property? Inheritances, pensions, social security…. We can help you put one of these together if you’d like.
Some of the most helpful information a beneficiary/executor could have is to know the professionals you were working with. Contact information for the financial advisor, estate attorney, accountant, and insurance agent, are a few that should be listed.
This is an important section for obvious reasons. Where are the assets that you’ve accumulated? Not just personal bank and investment accounts, but think about accounts as well that may be more difficult to access. You may want to include the company, account #, type of account, and approximate value. This should be updated at least annually.
There’s over $1 Billion in life insurance that beneficiaries don’t collect every year because they didn’t know a policy existed. Don’t let this happen to you. Make a list of all the insurance policies (life, disability, long-term care…) you have and include: company, policy, type of policy, and the benefit coverages.
5. Estate Plan
Updating your will or trust is vital to making sure you leave a legacy and not a logjam. Include your will, trust, or leave a note of where to find those documents. This could also be a good spot for a letter with additional instructions for heirs. I wrote a note to my wife, “Uh oh, this isn’t good. If you’re reading this either I’m gone or you’re wishing I was!”
After someone is gone, there’s a final tax return that needs to be prepared for their estate. Having past tax returns can be helpful for an accountant to complete this. Consider keeping a copy of your last few years of returns in this section.
7. Real Estate
Real estate is often the largest asset for an individual or family. This is a great spot for the deed/title, mortgage statements, and leases for an investment property.
This is like the junk drawer for all the random stuff you didn’t put in earlier sections. Here are some ideas to include: passwords, car titles, business information, pet information, spare keys… The list goes on…
Once you’ve completed this, duplicate it electronically and store it in the cloud. Information in these cloud folders can be shared with anyone you desire.
Now, get organized, create a plan, alleviate your loved-ones-stress, and get-your-stuff-together.
Stock Portfolio Changes
We’ve made a few changes in our Stock Portfolio in the last few weeks. We received great news from quarterly earnings reports from the South-American Amazon, Mercadolibre MELI, and cybersecurity firm Fortinet FTNT last week. Both were up greater than 20% in one day!
To celebrate the good performance, we sold some other stocks we bought during the downturn to raise cash; Target TGT and Home Depot HD got the boot out of the portfolio after approximately a 15% gain each. We also sold payment processor Square SQ after a puzzling 10% gain in one day after showing a terrible loss in the first quarter.
After making the sales, we bought a small position in the video call company Zoom Video Communications, Inc. ZM, anticipating a better than expected earnings report in June. The stock is up 18% since we bought it just two weeks ago.
It’s extremely challenging to outperform the stock market, but that’s what we’ve been trying to do in this portfolio. The stock market is now down approximately -8.5% for the year but the Stock Portfolio is positive by several percent (depending on the particular portfolio) over the same time period.
We’re so thankful to the advice of the people we follow at Morningstar, Motley Fool, Jim Cramer, and Barron’s for helping us achieve this! We’ll hope it continues!
Fund Portfolio Changes
We’re still holding a big position in a technology fund, First Trust Internet Fund FDN, in the Fund Portfolio we bought during the downturn. It has a 15% gain so far and we will likely sell at some point in the near future if the stock market continues to go higher.
If we see a “second wave” of the virus, the stock market will pull back and we will use some of the 15% cash we have to buy yet again.
We hope everyone is safe and sound and we look forward to talking soon. Until then, please let us know if we can do anything for you.
What do you say if someone offers you a barrel of oil? No Tanks! I can almost hear you all groaning.
Life feels a little better today than a month ago. Not because it is better, but because we seem to have passed peak fear and are now letting just a little optimism seep into our outlooks. While the stock markets have stabilized – although still down from the beginning of the year – the low price of oil has been a continued concern.
The world’s crude oil is almost “homeless”…storage facilities in U.S. major crude-oil trading hub, Cushing, Oklahoma, are expected to fill up to capacity in the coming weeks.
“At least 18 Saudi-hired supertankers…due to arrive next month in the US…are ripe to be rerouted and will likely park as floating storage until a buyer emerges.” Wall Street Journal 4/21/2020
About 80 supertankers out of 750 worldwide are now used to store oil rather than transport it, according to Saudi officials. Very Large Crude Carriers (VLCCs) rates were $27k/day four weeks ago. Today, they are getting $300k/day because there’s no place to put the oil they are carrying. See image that links to the Seatrade Maritime News article.
Markets have reacted with negative prices to this worldwide glut of oil. In effect, oil producers are saying, “We will pay you to take this oil off our hands because we have no place to store it.”
Why does the historic negative oil price have such a profound effect on stock prices? Some reasons:
Banks – that have loans to oil-related companies, will be weakened as these loans are subject to default as the oil producers suffer with below profit level prices.
Jobs – there are many oil-related jobs that will be eliminated…adding to the largest (and quickest) U.S. unemployment stats since the Great Depression due to COVID-19.
Sentiment – as if the Virus Crisis wasn’t enough, this oil price drop has added to the impression that the “sky is falling” and some investors sell out to avoid risk.
Our take on this oil glut is that when the government-mandated business and personal shutdown is concluded, life will begin a “new normal.” At some point oil use will gradually rise along with travel, eating out, theater attendance, and retail shopping…all with a new emphasis on personal hygiene and social distancing.
Many expect pent-up demand to buoy markets once the Virus Crisis has subsided. Buying patterns may be different…perhaps more online purchases than in brick and mortar stores.
In all this, we have found some positions in our accounts that have actually gained, and in some cases, we’ve taken profits.
In our portfolio of funds, we bought SPDR Technology Fund XLK and sold it three weeks later for an 11% gain. We expect to buy that again if/when the market drops again. In other cases, we’ve sold to eliminate liabilities in our portfolio such as Emerging Markets positions. We now have an average of 15% in cash in this portfolio to deploy at the next pullback.
In our portfolio of stocks, we bought Microsoft MSFT, Home Depot HD, and Target TGT during the pullback. All are at gains today helping the return of this portfolio beat the stock market return by several % year-to-date. We also trimmed some winners: cybersecurity firm Fortinet FTNT and video game maker Activision ATVI, and sold some losers: online travel company Booking BKNG and the Chinese Google, Baidu BIDU. We now have approximately 15% cash in this portfolio to take advantage of the next leg down.
We hope everyone is safe and sound and we look forward to the day when we can have in-person meetings once again. Until then, please let us know if we can do anything for you.
As we see it there are three areas our clients should know about the $2 Trillion stimulus bill signed yesterday: Checks, Retirement Account Changes, and Small Business Relief. Below we’ve tried to list the details and point to some of the best resources we’ve found that could be helpful to our clients.
How much will I receive?
Individuals who made less than $75k/yr will receive $1,200
Married couples who made less than $150k/yr will receive $2,400
Checks will be reduced by $5 for every $100 earned above those limits.
A credit of $500 will be added for each child under the age of 16
It appears people with taxable income less than $2,500/yr will not be eligible for the check.
When will I receive my check?
The timeframe for delivery isn’t clear, possibly mid-April at the soonest.
If you elect to receive tax refunds via Direct Deposit, you will likely receive it sooner than mailed versions.
What year is my income based on?
Income is based on 2019’s tax return.
If you have not filed 2019, it will be based on 2018’s tax return.
RETIREMENT ACCOUNT CHANGES
Below is a good concise set of bullets from financial-planning.com giving a summary of changes to retirement accounts this year. The image links to the article.
SMALL BUSINESS RELIEF
We’ve been working with our banker to figure out the details of what’s available for small business (eligibility, amounts, etc.), and he just sent a pdf from the US Chamber of Commerce that explains them well. If you’re a small business owner, sole proprietor, or self-employed you’ll want to give this a read. It’s the most helpful piece I’ve seen yet. The entire document is below.
Hope some of these details are helpful. Contact us if we can answer any questions.
It feels as if we haven’t had a single bit of good news since the start of this crisis. That’s not true of course. A few countries have had some success, but the negative news has significantly overwhelmed it.
Higher and higher infection numbers, devastating deaths, dire economic projections, pictures of empty shelves, shuttered businesses and “stay home” orders have dominated.
The result has been stocks, bonds, gold, and oil have all gone down. Almost everything is lower this month except for guarantees and cash as we search for good news.
BUT TODAY, we have a glimmer of hope. A tiny ray of sunshine is emerging as Italy’s infections grew by the slowest amount, approximately 8% since the beginning of the crisis and Germany appears to be having success flattening the curve as well. See images from Johns Hopkins data.
This is great news for the country of Italy, and those of us looking to estimate what the scenario could look like here in the US. It took Italy 32 days from the first 100 community spread infections to flatten the curve. It took Germany 24. If we’re on the same time-frame as Italy, we should see our curve flatten by April 4th. We’ll hope before.
Add that ray of hope to a $1 to $2 Trillion stimulus bill that “should” pass today, and we have the makings of some actual good news. Yes, honest-to-God good news! This will help our loved ones, our economy, suffering industries, the stock market, and our investment accounts.
Lest we get too optimistic though, let me quote Churchill after their first victory against the Germans in Egypt during WWII:
“We are not at the end, or the beginning of the end, but perhaps, the end of the beginning.”
We also are not at the end of our war against the virus. The stock market takes time to work through events such as these and typically goes through multiple stages. See chart of 2008-9.
1) An initial panic selloff, which stems from all bad news, max uncertainty, and no clear solution.
The month of March has clearly been the first stage.
2) A short-term relief rally following good news after investors realize it’s not as bad as feared.
Starting today brought by peaking numbers across the globe, the expectation of the passing of the stimulus bill, and good news (hopefully) on the COVID-19 treatments from Gilead, Regeneron and/or other drugs.
3) A second and final drop when the terrible economic data – high unemployment, slower GDP, falling earnings – accompanies the fear.
These numbers will start to come in as early as Thursday with HUGE unemployment numbers being reported, but most figures will be coming in April and May.
4) The stock market bottoms when the end of the crisis is in sight. Followed by hope for the future and a permanent move higher.
This will take new infections leveling off, shelter-in-place orders removed, people back in restaurants, planes and hotels. Then, it needs to be confirmed by companies reporting profits again.
Realistically, we don’t know how severe this downturn will be or how quickly the country can get back to work. The only thing we do know is there is a global effort to defeat this virus and with time it will be defeated.
To take advantage of some of this initial panic shock, we bought a little more yesterday. In the Growth Stock portfolio, we bought my wife’s favorite store Target TGT. Costco and Walmart have gotten most of the press lately for long lines and empty shelves, but Target will also benefit from Christmas-like sales in Spring. We like the company and love the stock at these lower levels.
We’re in the process of calling all our clients to talk through their current situation. We’re about half the way through the list and will be finishing those before month-end. One thing we want to stress is that each client needs to have enough cash for their distributions for the rest of the year. That way we won’t have to sell any stocks at depressed levels to fund distributions.
We’re looking forward to chatting with you if we haven’t already. Feel free to reach out to us if you need anything. We’ll either be in the office or taking calls from home.