Heritage Insider Weekly | Hong Kong Protests Continue

Big market swings, protests in Hong Kong, and potentially more interest rate cuts. We break it all down in this week’s Heritage Insider.

Like our videos? There is plenty more where that came from.

Unfamiliar with the Hong Kong protests? Read more about it here.

How Are You Feeling About Financial Markets?

How Are You Feeling About Financial Markets?

Heritage Insider Weekly November 12, 2018

Some votes are still being counted but investors appear to be happy with the outcome of mid-term elections. Major U.S. stock indices in the United States moved higher last week, and the American Association of Individual Investors (AAII) Sentiment Survey reported:
 
“Optimism among individual investors about the short-term direction of stock prices is above average for just the second time in nine weeks…Bullish sentiment, expectations that stock prices will rise over the next six months, rose 3.4 percentage points to 41.3 percent. This is a five-week high. The historical average is 38.5 percent.”
 
Before you get too excited about the rise in optimism, you should know pessimism also remains at historically high levels. According to AAII:
 
“Bearish sentiment, expectations that stock prices will fall over the next six months, fell 3.3 percentage points to 31.2 percent. The drop was not steep enough to prevent pessimism from remaining above its historical average of 30.5 percent for the eighth time in nine weeks.”
 
So, from a historic perspective, investors are both more bullish and more bearish than average. If Sir John Templeton was correct, the mixed emotions of investors could be good news for stock markets. Templeton reportedly said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”
 
While changes in sentiment are interesting market measurements, they shouldn’t be the only factor that influences investment decision-making. The most important gauge of an individual’s financial success is his or her progress toward achieving personal life goals – and goals change over time.
Let’s take a look at some performance figures…

Data as of 11/9/18
1-Week
Y-T-D
1-Year
3-Year
5-Year
10-Year
Standard & Poor’s 500 (Domestic Stocks)
2.1%
4.0%
7.6%
10.2%
9.4%
11.7%
Dow Jones Global ex-U.S.
-0.3
-11.7
-9.4
3.2
0.3
4.7
10-year Treasury Note (Yield Only)
3.2
NA
2.3
2.3
2.8
3.8
Gold (per ounce)
-1.7
-6.6
-5.7
3.6
-1.1
4.9
Bloomberg Commodity Index
-1.2
-6.0
-5.2
-0.5
-7.7
-4.4
DJ Equity All REIT Total Return Index
3.5
2.3
1.2
8.2
9.6
13.9
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
 
is A Zeal of zebras a better investment than a blessing of unicorns? 
Collective nouns are the names we use to describe collections or significant numbers of people, animals, and other things. The Oxford English Dictionary offered a few examples:
 
  • A gaggle of geese
  • A crash of rhinoceros
  • A glaring of cats
  • A stack of librarians
  • A groove of DJs
 
In recent years, some investors have shown great interest in blessings of unicorns. ‘Unicorns’ are private, start-up companies that have grown at an accelerated pace and are valued at $1 billion.
 
In early 2018, estimates suggested there were approximately 135 unicorns in the United States. Will Gornall and Ilya A. Strebulaev took a closer look and found some unicorns were just gussied-up horses, though, according to research published in the Journal of Financial Economics.
 
The pair developed a financial model for valuing unicorn companies and reported, “After adjusting for these valuation-inflating terms, almost one-half (65 out of 135) of unicorns lose their unicorn status.
 
Clearly, unicorn companies must be thoroughly researched. There is another opportunity Yifat Oron suggested deserves more attention from investors: zebra companies.  Oron’s article in Entrepreneur explained:
What is a unicorn company?
 
“Zebra companies are characterized by doing real business, not aiming to disrupt current markets, achieving profitability and demonstrating it for a while, and helping to solve a societal problem…zebra companies…are for-profit and for a cause. We think of these businesses as having a ‘double bottom line’ – they’re focused on alleviating social, environmental, or medical challenges while also tending to their own profitability.”
 
Including both types of companies in a portfolio seems like a reasonable approach.
 
If you were to choose a collective noun to describe investors, what would it be? An exuberance? A balance? An influence?
 
Weekly Focus – Think About It
 
“In his learnings under his brother Mahmoud, he had discovered that long human words rarely changed their meanings, but short words were slippery, changing without a pattern…Short human words were like trying to lift water with a knife.”
–Robert Heinlein, American science fiction writer
 
Have a great week.

Let’s Talk Turkey!

Let’s Talk Turkey!

 

So, how did Turkey, a country that represents just about 1.4 percent of the world’s economy spark a global selloff?

 

Turkey was once a rising star. The country’s Prime Minister Recep Tayyip Erdogan took office in 2003 and his “conservative, pro-business policies helped pull the country back from an economic crisis,” reported Financial Times.

 

As Turkey’s economy strengthened, investors saw opportunity. Investments from outside the country averaged about $13 billion a year, according to World Bank figures cited by Financial Times, although investment slowed after terror attacks in 2015.

 

Bloomberg reported Prime Minister Erdogan has become more authoritarian since being re-elected in 2018, giving himself power to name the head of Turkey’s central bank. Financial Times reported the Prime Minister’s “…unorthodox views on interest rates…has proved disruptive for monetary policy, leaving…Turkey’s central bank, struggling to contain inflation that is running at close to 16 percent.”

 

Lack of central bank autonomy concerned investors. The Turkish lira began to weaken against the U.S. dollar, making it costly for businesses to repay dollar-denominated debt.

 

Politics have factored into the situation, as well. During 2018, negotiations were underway to secure the release of an American pastor who was arrested on “farcical terrorism charges,” reported The Economist. However, talks collapsed early in August. Asset freezes and sanctions followed, along with promises of additional tariffs on Turkish goods imported by the United States.

 

The subsequent steep drop in the value of Turkish lira sparked concerns that rippled through global markets. Financial Times reported:

 

“Turkey’s deepening crisis punished emerging market currencies and sparked a global pullback from riskier assets on Friday…The S&P 500 fell 0.7 percent in New York on Friday. Treasury yields also moved lower, with the 10-year dipping below 2.9 percent for the first time this month, as investors sought safe assets…Investors’ shift from risky assets knocked equities across Europe, with Germany’s Dax, France’s CAC 40 and Spain’s Ibex all about 2 percent weaker.”

 

For quite some time, investors have appeared immune to geopolitical risks. Perhaps that is beginning to change.

 

 

Data as of 8/10/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -0.3% 6.0% 16.2% 10.4% 10.9% 8.1%
Dow Jones Global ex-U.S. -1.5 -5.5 1.7 2.9 2.6 1.1
10-year Treasury Note (Yield Only) 2.9 NA 2.2 2.2 2.6 4.0
Gold (per ounce) -0.2 -6.3 -5.5 3.5 -2.0 3.6
Bloomberg Commodity Index -0.8 -4.5 0.8 -3.1 -7.9 -7.7
DJ Equity All REIT Total Return Index -1.5 1.7 5.8 7.7 9.2 7.3

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

 

 

3 things to consider Before claiming social security benefits: timing, spousal benefits, and work status.

Most Americans understand they can choose when to begin receiving Social Security benefits. The choices are fairly straightforward:

 

  • Early (age 62 to full retirement age). People who decide to collect benefits early typically receive a smaller monthly benefit than they would if they waited until full retirement age. The reduction in monthly income may be as large as 30 percent. However, they receive benefits for a longer period of time.

 

  • Normal (full retirement age). An American’s full retirement age is determined by his or her date of birth. For someone born in 1960 or later, full retirement age is 67 years. The amount of income a person receives at normal retirement age is determined by the amount earned during his or her working years.

 

  • Delayed (after full retirement age to age 70). By delaying the start of Social Security benefits, a person can increase his or her monthly benefit by accruing delayed retirement credits. For Americans born in 1943 and after, credit accrues at a rate of 8 percent each year.

 

While it’s important to understand timing options for Social Security benefits, choosing when to take benefits may not be the most important decision you make, especially if you’re married.

 

There are several different claiming strategies that may help married couples optimize their benefits and the benefits available for children who are minors or have special needs. These options should be carefully considered before filing for benefits.

 

Your filing decision may also be affected by your work status and income. If you file early while still working, and your earnings exceed established limits, then a portion of your benefit may be withheld. In addition, your income will help determine whether your Social Security benefit is taxable.

 

If you would like to discuss your options for claiming Social Security benefits, give us a call.

 

Weekly Focus – Think About It

 

“Take time for all things: great haste makes great waste.”

–Benjamin Franklin, Founding Father

Stocks Remain Bullish in 2nd Quarter!

Stocks Remain Bullish in 2nd Quarter

July 9, 2018

 

The Markets

 

What a rollercoaster of a quarter!

 

When it comes to the American Association of Individual Investors (AAII) Sentiment Survey, respondents tend to be more bullish than bearish about U.S. stock markets. The survey’s historical averages are:

 

  • 5 percent bullish
  • 0 percent neutral
  • 5 percent bearish

 

As the second quarter of 2018 began, investors were feeling less optimistic than usual. (About 36.6 percent were bearish and 31.9 percent bullish.) Their outlook was informed by a variety of factors, according to an early April article in The New York Times, which said:

 

“First there was the risk that the economy might be growing too fast, which could prompt central banks to hike interest rates sooner than expected. Then there was the risk of a trade war ignited by the White House imposing tariffs on certain products, an action that quickly prompted countries like China to erect trade barriers of their own. Next came the threat of a government crackdown on technology companies, after revelations of their misuse of customer data.”

 

As the quarter progressed, investor optimism increased on signs of economic strength. In early June, CNBC reported the economy appeared to be “operating close to full employment, with an unemployment rate at 3.8 percent, inflation still hovering at or below 2 percent, and business and consumer confidence strong.”

How did corporate earnings do this quarter?

Robust corporate earnings helped spur optimism, too. FactSet Insight wrote, “The S&P 500 reported earnings growth of 25 percent for the first quarter – the highest growth since Q3 2010.” In mid-June, the AAII survey showed 44.8 percent of respondents were feeling bullish, 21.7 percent were bearish, and 33.5 percent were neutral.

 

As talk of tariffs and trade wars resumed, investor optimism plummeted. By the end of June, just 27.9 percent of respondents were bullish and more than 39 percent reported they were feeling bearish. AAII explained:

 

“Many – but not all – individual investors anticipate continued volatility and/or think that the current political backdrop could have a further impact on the stock market. Trade policy is influencing some individual investors’ sentiment as well. While many approve of the Federal Reserve’s plan to continue gradually raising interest rates, some AAII members are concerned about the impact that rising rates will have. Also influencing sentiment are valuations, tax cuts, earnings growth, and economic growth.”

 

Despite a downturn in bullishness, major U.S. stock indices moved higher last week.

 

Data as of 7/6/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 1.5% 3.2% 14.5% 10.1% 11.0% 8.2%
Dow Jones Global ex-U.S. 0.0 -4.9 5.6 3.5 4.0 0.8
10-year Treasury Note (Yield Only) 2.8 NA 2.4 2.3 2.6 3.9
Gold (per ounce) 0.4 -3.2 2.5 2.5 0.3 3.2
Bloomberg Commodity Index -1.4 -2.2 4.6 -4.5 -7.5 -9.4
DJ Equity All REIT Total Return Index 1.9 3.2 9.0 9.2 9.3 8.9

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

there’s a carbon dioxide (CO2) shortage. really, it’s true.

Many people agree the world has too much CO2. It’s the reason representatives from countries around the world signed the Paris Climate Agreement. They committed to “adopt green energy sources, cut down on climate change emissions, and limit the rise of global temperatures,” reported National Public Radio.

 

The effort has been less successful than many had hoped, according to the International Energy Association (IEA). After several years without increases, energy-related emission rose by 1.4 percent in 2017. That’s the rough equivalent of putting 170 million more cars on the road, reported Scientific American.

 

Emissions rose primarily in Asia, although the European Union (EU) saw increases, too. The biggest decline was in the United States. There’s a certain irony there, since President Trump announced he would withdraw from the agreement in June 2017, reported The Washington Post.

 

Despite realizing a 1.5 percent increase in ­­­­­ emissions, the EU is experiencing a shortage of food-grade CO2. The Economist reported:

 

“Food-grade CO2 is a vital ingredient: it puts the fizz in carbonated drinks and beer, knocks out animals before slaughter and, as one of the gases inside packaging, delays meat and salad from going off. A shortage of the stuff has therefore created havoc in food makers’ supply chains.”

 

The EU’s food-grade CO2 is a harvested by-product of processes for making ammonia and other chemicals, reported The Economist. Three of Britain’s five ammonia plants have been closed because farmers are using less fertilizer, and CO2 does not deliver enough revenue to keep the plants running.

 

Let’s hope the shortage of CO2 doesn’t affect the supply of beverages available to World Cup fans.

 

Weekly Focus – Think About It

 

“My garden is an honest place. Every tree and every vine are incapable of concealment, and tell after two or three months exactly what sort of treatment they have had. The sower may mistake and sow his peas crookedly; the peas make no mistake, but come up and show his line.”

–Ralph Waldo Emerson

Weekly Market Insights

Heritage Weekly Market Insights

January 30, 2018
This Week In The Markets

The numbers are coming in.

Publicly-traded companies report their earnings and sales numbers for the previous quarter in the current quarter. For example, fourth quarter’s sales and earnings are reported during the first quarter of the year, and first quarter’s sales and earnings will be reported during the second quarter, and so on.

Through last week, about one-fourth of the companies in the Standard & Poor (S&P)’s 500 Index had reported actual sales and earnings for the fourth quarter of 2017. As far as sales go, a record number – 81 percent – of companies sold more than expected during the fourth quarter. That was quite an improvement. FactSet reported:

“During the past year (four quarters), 64 percent of the companies in the S&P 500 have reported sales above the mean estimate on average. During the past five years (20 quarters), 56 percent of companies in the S&P 500 have reported sales above the mean estimate on average.”

The mean is the average of a group of numbers.

The money a company makes through sales is called revenue. For instance, if a lemonade stand sells 100 glasses of lemonade for $1 each, then the proprietors have earned $100. That is the stand’s ‘revenue.’ Of course, as every parent who has financed a lemonade stand knows, revenue doesn’t include the cost of the product. ‘Earnings’ are what the company has left after expenses – the bottom line. If every glass of lemonade cost 50 cents, then the stand’s earnings are $50.

Companies in the S&P 500 are doing pretty well on earnings, too. About three out of four companies have reported earnings higher than expected. Overall, earnings are 4.5 percent above estimates.

Through Friday, annual earnings growth for S&P 500 companies was 10.1 percent. It’s still early in the fourth quarter earnings season, but the data so far seem likely to confirm that 2017 was a bright, sun-shiny year for U.S. companies.

Let’s Take A Look at Performance

Data as of 1/26/18 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 2.2% 7.5% 25.1% 11.8% 13.9% 7.8%
Dow Jones Global ex-U.S. 1.9 7.0 28.2 7.8 5.5 1.6
10-year Treasury Note (Yield Only) 2.7 NA 2.5 1.8 2.0 3.6
Gold (per ounce) 1.4 4.4 13.7 1.8 -4.0 3.9
Bloomberg Commodity Index 2.6 3.0 2.9 -3.4 -8.4 -7.1
DJ Equity All REIT Total Return Index 1.7 -2.8 4.6 2.8 8.2 7.4

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

certain parts of the circular economy

probably adapt to cities and towns better than they do to rural areas. 

What is the circular economy?

It is “a system that reduces waste through the efficient use of resources. Businesses that are part of the circular economy seek to redesign the current take/make/dispose economy, a model which relies on access to cheap raw materials and mass production. For example, car sharing addresses the inefficiency of privately owned cars – which are typically used for less than one hour a day,” explains Morgan Stanley.

Imagine not owning a car.

Clearly, it’s not something that would work everywhere. However, if you live in a city or town that has public transportation, ride sharing, car rentals, and bicycles, it’s possible. If you’re retired and you can organize your days in the way you like, it may even be sensible because owning a car is expensive. Transportation costs are the second highest budget item for most households, reports U.S. News. Housing costs top the list.

Giving up a car could help households save a lot of money.

According to AAA

owning and operating a new car in 2017 cost about $8,469 annually, on average, or $706 a month. Small sedans are the least costly ($6,354 per year), on average, and pickup trucks are the most expensive ($10,054 per year), on average, of the vehicles in the study. The calculations include sales price, depreciation, maintenance, repair, and fuel costs.

AAA’s estimate does not include insurance. In 2017, the national average premium for a full-coverage policy was $1,318 annually, according to Insure.com. Auto insurance premiums are highest in Michigan ($2,394) and lowest in Maine ($864).

Combining the averages, the cost of auto ownership is almost $10,000 a year. It’s food for thought.

Weekly Focus – Think About It

“Conservation is a state of harmony between men and land.”

–Aldo Leopold, American author and conservationist

 

Best regards,

 

The Heritage Team

 

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

continued

* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.

* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* You cannot invest directly in an index.

* Stock investing involves risk including loss of principal.

* Consult your financial professional before making any investment decision.

 

Sources:

https://insight.factset.com/record-percentage-of-sp-500-companies-beat-sales-estimates-for-q4

http://www.investinganswers.com/financial-dictionary/ratio-analysis/arithmetic-mean-2546

https://www.accountingcoach.com/blog/what-is-the-difference-between-revenues-and-earnings

https://insight.factset.com/sp-500-earnings-season-update-january-25

https://insight.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_012518.pdf (Page 18)

http://www.morganstanley.com/access/circular-economy

https://money.usnews.com/money/personal-finance/saving-budget/articles/2017-02-14/how-to-save-money-by-ditching-your-car

http://newsroom.aaa.com/tag/driving-cost-per-mile/

https://www.insure.com/car-insurance/car-insurance-rates.html

https://www.brainyquote.com/quotes/aldo_leopold_387729

President Trump’s Speech

President Trump’s Speech

 

It was a grand slam.

Major U.S. stock markets were positively euphoric following President Trump’s speech on February 28. Optimism about the new administration’s pro-growth policies propelled the four major U.S. stock indices to record highs, despite a dearth of policy details, reported Financial Times.

It’s hard to pinpoint exactly why stocks have moved so far, so quickly. However, it appears that mom-and-pop investors have become quite enthusiastic about the asset class according to data from JPMorgan Chase cited by Bloomberg. While institutional investors (pensions, insurance companies, etc.) have been reducing exposure to stocks, smaller investors have been loading up on shares.

CNBC reported some industry professionals, including Goldman’s chief U.S. equity strategist David Kostin, believe stocks have become too highly valued. ZeroHedge.com quoted Kostin, who said:

“Cognitive dissonance exists in the U.S. stock market. S&P 500 is up 10 percent since the election despite negative EPS [earnings per share] revisions from sell-side analysts…Investors, S&P 500 management teams, and sell-side analysts do not agree on the most likely path forward. On the one hand, investors, corporate managers, and macroeconomic survey data suggest an increase in optimism about future economic growth. In contrast, sell-side analysts have cut consensus 2017E [estimated] adjusted EPS forecasts by 1 percent since the election and ‘hard’ macroeconomic data show only modest improvement.”

Financial Times reported pessimism prevails in the bond market. One bond market professional said, “The bond market is taking a totally different view from the equity market. Blowing raspberries is a good way to put it…There’s no belief that the growth agenda will be dramatic.”

So, is strong economic growth ahead? Do bond investors or stocks investors have it right? Are institutional investors or mom-and-pop investors positioning themselves correctly? Only time will tell.

in the markets

Data as of 3/3/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.7% 6.4% 9.6% 8.9% 11.8% 5.7%
Dow Jones Global ex-U.S. -0.2 5.2 12.2 -1.4 1.7 -0.5
10-year Treasury Note (Yield Only) 2.5 NA 1.8 2.6 2.0 4.5
Gold (per ounce) -2.2 5.8 -1.9 -3.1 -6.4 6.8
Bloomberg Commodity Index -0.3 -0.4 13.4 -13.6 -9.8 -6.2
DJ Equity All REIT Total Return Index -1.0 3.2 12.4 11.0 11.2 5.5

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

don’t think so!

Tax season is upon us. That means we can all use some entertainment. While many folks dread the process of completing and filing taxes, some see it as an opportunity to test the boundaries of the system. Here are a few deductions Americans have taken that have failed to pass muster in tax court, courtesy of Kiplinger.com:

You cannot deduct the cost of a good night’s sleep.

A tax preparer who worked from home escaped to a hotel because her clients were calling in the wee hours of the night and causing her to lose sleep. When she attempted to take a business deduction for the hotel expense, the tax court ruled a good night’s sleep is a non-deductible personal expense.

You cannot take a theft loss deduction for poor construction

A couple moved into their newly built dream home only to realize the builder had cut some corners. The house had some serious issues, including its foundation. The couple claimed the builder had defrauded them and took a large theft loss deduction. While taxpayers can deduct losses from a home-related theft, shoddy construction doesn’t qualify.

You cannot take a depletion deduction for bodily fluids

A woman earned $7,000 a year donating blood plasma because of her rare blood type. She took a depletion deduction, claiming “the loss of both her blood’s mineral content and her blood’s ability to regenerate,” wrote Kiplinger. While companies that take coal, iron, and other minerals from the ground can take a depletion deduction, the tax court ruled that individuals cannot claim depletion on their bodies.

You cannot deduct a business trip if there are no formal business meetings involved

A repo firm sponsored a trip to Las Vegas for its bank customers. The firm’s employees chatted with clients about business on the way to Vegas, but no formal meetings were held. The tax court denied the deduction.

Before you get creative with your taxes, consult with a tax professional.

Weekly Focus – Think About It

 

“Because of your smile, you make life more beautiful.”

–Thich Nhat Hanh, Vietnamese Buddhist monk and peace activist

Executive Orders

Executive Orders – Heritage Insider

February 7, 2017

U.S. stock markets were unsettled last week.

President Trump’s executive orders banning travel from seven predominantly Muslim countries to the United States for 90 days, in tandem with some disappointing earnings reports. As a result, this inspired turmoil and uncertainty that helped push U.S. stock markets lower early in the week. The Dow Jones Industrial Average dropped below 20,000.

Markets remained confused after the Federal Reserve left interest rates unchanged, leaving many to ponder their next move.

The Federal Reserve left open the door to hike rates further should the trend in inflation accelerate. They also maintained the option to hold rates steady for an extended period. I expect the minutes to be released in a few weeks will show a more wide ranging debate than that indicated by the policy statement. A potential drawback would be the clear lack of visibility on key policy issues. For example, trade, tax, spending, and regulatory initiatives would be welcomed in the next statement.

Late in the week, markets rallied when the Bureau of Labor Statistics delivered a reasonably strong jobs report. Employers added a healthy 227,000 workers to their payrolls in January. However, despite a surge of local minimum-wage increases in states across the country, wage growth was meager.

Financial shares gained on Friday. The market showed great optimism  after The Wall Street Journal published an interview with Gary Cohn, White House Economic Council Director. Cohn indicated President Trump planned to sign executive orders preparing to reduce financial regulation. In particular, dismantling Dodd-Frank reforms and limit other regulations affecting the financial industry. Consequently, financial stocks rallied hard. Other executive orders may be on the way in regards to financial reform as well.

The Dow finished the week just above 20,000.

Data Check
Data as of 2/3/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.1% 2.6% 10.1% 9.7% 11.3% 4.7%
Dow Jones Global ex-U.S. 0.3 4.3 15.3 -0.1 1.8 -1.0
10-year Treasury Note (Yield Only) 2.5 NA 1.9 2.6 2.0 4.8
Gold (per ounce) 2.6 4.8 7.4 -1.3 -6.9 6.5
Bloomberg Commodity Index -0.1 0.5 15.3 -11.4 -9.6 -6.1
DJ Equity All REIT Total Return Index 0.8 0.7 13.4 12.5 10.2 4.2

does college open doors?

A new study examined how college affects Americans’ social mobility by researching data from the Department of Education (from 1999-2013) with 30 million tax returns. The researchers looked at the earnings of graduates from various colleges and how graduates’ earnings varied relative to parental income.

Some colleges do a better job of boosting poor students up the income ladder than others. Previously, the best data available showed only average earnings by college. For the first time it is known how the entire earnings distribution of a college’s graduates relates to parental income.

The data shows the likelihood of ending up in the 1 percent. It suggests that graduates of elite universities are the most likely. They credit single-digit admissions rates and billion-dollar endowments as the main catalysts. Having wealth parents also improves the odds. Despite recent efforts to change, their student bodies are still overwhelmingly wealthy.

legacy admissions…

Legacy admissions give preferential treatment to family members of alumni. Many feel that this exacerbates the imbalance at these institutions. Of Harvard’s most recently admitted class, 27 percent of students had a relative who also attended. There’s evidence that this system favors the already wealthy. MIT and the California Institute of Technology, two elite schools with no legacy preferences, have much fewer students who hail from the ranks of the super-rich.

 

The top colleges by mobility rate , which is defined as students moving from the bottom to the top 20 percent, includes: Cal State University-Los Angeles, Pace University-New York, SUNY-Stony Brook. It also includes, Technical Career Institutes, University of Texas-Pan American, CUNY System, Glendale Community College, South Texas College, Cal State Polytechnic-Pomona, and University of Texas-El Paso.

 

 

Weekly Focus – Think About It

 

“Oh give me a home where the buffalo roam,

Where the deer and the antelope play,

Where seldom is heard a discouraging word,

And the skies are not cloudy all day.”

–Lyrics to Home on the Range

 

About Heritage

Heritage Financial Advisory Group provides financial planning and investment management to individuals, families, and businesses. For more information how we can help you pursue a work option lifestyle, visit us at Long Island Financial Advisor.

Dow Jones 20k?

Dow Jones 20,000?

December 27, 2016
The Markets

The Dow Jones Industrial Average (DJIA) got within 13 points of 20,000 last Tuesday. It finished the week about 90 points below the vaunted milestone. As a result, the Dow Jones has gained nearly 10 percent since the end of October, more than double its 4.1 percent rise during the first nine months of the year, spurred in part by Donald J. Trump’s victory in the 2016 U.S. presidential election.

 

The major U.S. indices have been strong performers since early November. Many people are wondering whether they will continue to do well in 2017. The Economist suggested 2017 could hold a surprise that will negatively affect investors’ expectations:

 

“By definition, a surprise is something the consensus does not expect…investors are expecting above-trend economic growth, higher inflation, and stronger profits…So it is not too difficult to see how the first surprise might play out. Expectations for the effectiveness of Mr. Trump’s fiscal policies are extraordinarily high. But it takes time for such policies to be implemented, and they may be diluted by Congress along the way (especially on public spending). Furthermore, it may well be that demography and sluggish productivity make it very hard to push economic growth up to the 3-4 percent hoped for by the new administration.”

Profitability on the rise?

On the other hand, profitability has improved. As a result, american companies have seen earnings rebound, and many companies are positioned to benefit from the corporate tax cuts promised by the new administration. However, this good news may already be reflected in current share prices. Robert Shiller’s cyclically adjusted price-earnings (CAPE) ratio, a measure of valuation based on average inflation-adjusted earnings of companies in the Standard & Poor’s 500 index from the previous 10 years, was at 27.99 on December 23. That’s almost 70 percent above its long-term average of 16.05 and indicates markets may be overvalued.

 

Regardless of potential negative surprises and current market valuation, many analysts expect a positive performance from U.S. stock markets next year. MarketWatch reported, “Most house projections from the big investment banks and brokers converge around the S&P closing the year at 2350 – a scant 5 percent above current levels. Only one strategist…dares to suggest that 2017’s gains could be as much as 20 percent.”

Lets take a look where we’re at:
Data as of 12/23/16 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.2% 6.8% 7.7% 7.4% 12.3% 4.8%
Dow Jones Global ex-U.S. -1.2 0.8 0.4 -3.3 2.8 -1.1
10-year Treasury Note (Yield Only) 2.5 NA 2.3 2.9 2.0 4.6
Gold (per ounce) -2.8 6.5 5.9 -1.9 -6.8 6.1
Bloomberg Commodity Index -2.1 9.8 10.5 -12.2 -9.4 -6.3
DJ Equity All REIT Total Return Index -0.5 7.1 7.3 12.2 11.5 5.1

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

 

america’s most wanted…

Don’t worry. Robots have not yet replaced human workers. In fact, according to The World In 2017 (published by The Economist):

 

“…automation seems to be pushing people from routine jobs, such as factory work, into non-routine ones, particularly those that require cognitive and social skills. Technological progress will cause a shift in the nature of jobs available and the skills they require. It is impossible to know for sure what these new jobs will be – the Luddites who campaigned against the mechanization of weaving in the early 19th century could not have imagined that new fields such as railways, telegraphy, and electrification were coming. But two tools can help us take a stab at identifying the jobs of the near future: hard-nosed statistics and predictive intuition.”

Statistically speaking..

So, what do statistics tell us about the new jobs young people and career changers should be preparing to do? The U.S. Bureau of Labor Statistics looked at current trends and projected the fastest growing jobs from 2014 to 2024 would be:

 

  1. Wind turbine service technician (up 108 percent)
  2. Occupational therapy assistants (up 43 percent)
  3. Physical therapy assistants (up 41 percent)
  4. Home health aides (up 38 percent)
  5. Commercial drivers (up 37 percent)
  6. Nurse practitioners (up 35 percent)
  7. Physical therapists (up 34 percent)
  8. Statisticians (up 34 percent)
  9. Ambulance drivers (up 33 percent)
  10. Physician assistants (up 30 percent)

 

Predictive intuition suggested quite a different set of careers. The World In 2017 suggested there could be demand for drone technicians and support staff as the use of autonomous vehicles increases. There may also be demand for bot wranglers, such as ‘chatbot’ specialists, who help bots provide customer service through speech and text. Indoor farming may prove to be a growth industry as urban populations increase. Other career possibilities included virtual fashion designers, robo-psychologists, and synthetic tissue engineers. Clearly, there is a world of opportunity.

 

Weekly Focus – Think About It

 

“So, I’m going to challenge all of you. I want you to true your wheels: be honest about the praise that you need to hear. What do you need to hear? Go home to your wife – go ask her, what does she need? Your husband, what does he need? You should go home and ask those questions, and then help the people around you.”

–Dr. Laura Trice, Therapist and life coach

Interest Rates on the Rise

Interest Rates on the Rise

Heritage Financial Weekly – December 19, 2016

 

The Federal Reserve put a hitch in the markets’ giddy-up last week, raising interest rates for the first time in over a year.

It wasn’t the Fed’s second interest rate hike in a decade that caused markets to stumble. December’s rate hike was old news before it happened. In mid-December, Reuters reported Fed funds futures indicated there was a 97 percent probability the Fed would raise rates one-quarter percent at its December Federal Open Market Committee (FOMC) meeting. In addition, all 120 economists polled by Reuters agreed rates were headed higher.

 

It was the dot plot – a chart showing FOMC members’ assessments of appropriate monetary policy going forward – that unsettled investors. Barron’s explained:

 

“The market, however, was surprised when the Fed turned ever-so more hawkish, with its “dot plot” indicating they will raise interest rates 3 times next year, up from two. Still, stocks handled the news better than might be expected, with the Standard & Poor’s 500 index dropping 0.8 percent immediately following the announcement but still finishing the week down just 0.1 percent to 2258.07. The NASDAQ Composite fell 0.1 percent to 5437.16, while the Dow Jones Industrial Average gained 86.56 points, or 0.4 percent, to 19843.41, its sixth consecutive winning week.”

 

Bond market investors weren’t too happy last week, either. The yield on 10-year Treasury notes has nearly doubled during the past five months, rising from 1.36 percent to 2.6 percent. When bond rates move higher, bond prices move lower.

What do Interest Rates mean for bonds?

If there is a silver lining for bond investors, it may be some specialists believe changes in Treasury rates will be modest during 2017. Barron’s reported, “For what it’s worth, the 10 firms surveyed in our Outlook 2017 see the 10-year yield at 2.69 percent late next year, just a tad above today’s level.”

 

Data as of 12/16/16 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) -0.1% 5.5% 3.9% 8.1% 13.1% 4.7%
Dow Jones Global ex-U.S. -1.0 1.0 1.9 -2.7 3.3 -1.3
10-year Treasury Note (Yield Only) 2.6 NA 2.3 2.9 1.9 4.6
Gold (per ounce) -2.8 6.5 5.2 -2.9 -6.6 6.3
Bloomberg Commodity Index -1.2 10.9 13.0 -11.7 -8.7 -6.3
DJ Equity All REIT Total Return Index -0.5 7.2 7.6 12.9 12.4 5.0

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

 

to 20,000 and beyond!

You may have noticed investors have been pretty enthusiastic about U.S. stocks in recent weeks. It’s possible the Dow Jones Industrial Average will surpass 20,000. The fervor for U.S. stocks may be due to improving corporate earnings growth or it may reflect expectations for the incoming U.S. President. The Economist reported:

 

“…the American stock market rally since the election has been quite remarkable, given the qualms expressed by many investors before the election. The big hope is that Mr. Trump will focus on his plans for fiscal stimulus and corporate tax-cutting; this will boost America’s economy and corporate profits. But, it may also push up inflation so investors are switching out of Treasury bonds and into equities. At the same time, investors are counting on Mr. Trump to forget about, or downplay, his protectionist rhetoric; as yet, they have been remarkably sanguine about his twitter wars with China.”

Last Week

Last week, the American Association of Individual Investors (AAII) Sentiment Index showed more than 40 percent of participants (44.7 percent) are optimistic share prices will move higher during the next six months. The historic average for bullish sentiment is 38.4 percent. About 32 percent of participants were bearish, which is also above the historic average of 30.3 percent. It’s interesting to note the percentage of bearish participants rose by 5.8 percent from the previous week when it was below the historic average.

 

Any time investors become exuberant, the words of Warren Buffett come to mind: “Two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable…We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” The U.S. bull market may have further to run, but contrarians may see better relative opportunities elsewhere.

 

Weekly Focus – Think About It

 

“The supreme quality for leadership is unquestionably integrity. Without it, no real success is possible, no matter whether it is on a section gang, a football field, in an army, or in an office.”

 

–Dwight D. Eisenhower, 34th President of the United States

Fragile Markets

Fragile Markets

Heritage Financial Weekly – December 12, 2016

 

Dad: “Fra-gee-lay” …it must be Italian!

Mom: I think that says “fragile,” honey.

Dad: Oh, yeah.

 

This holiday season, investors’ enthusiasm for U.S. stocks has rivaled old man Parker’s passion for his major-award leg lamp in ‘A Christmas Story.’ Last week, three major U.S. indices hit all-time highs.

Consumer Sentiment on the Rise good for stocks?

Barron’s reported consumer confidence is helping make this the most wonderful time of the year for U.S. stock markets. The University of Michigan’s Index of Consumer Sentiment rose to 98 in December, reflecting a surge in consumer confidence. It was the highest reading since January 2015 and is closing in on the highest level since 2004. Surveys of Consumers chief economist, Richard Curtin, wrote:

 

“The most important implication of the increase in optimism is that it has raised expectations for the performance of the economy. President-elect Trump must provide early evidence of positive economic growth as well as act to keep positive consumer expectations aligned with performance. Either too slow growth or too high expectations represent barriers to maintaining high levels of consumer confidence.”

 

In his December Investment Outlook, Bill Gross cautioned while many aspects of Trump’s agenda – tax cuts, deregulation, fiscal stimulus – are good for stocks over the near term, investors should keep an eye on the longer term, as protectionist policies could restrict trade and, together with a strong dollar, could lead to more fragile markets.

 

European stocks also moved higher last week as a result of the European Central Bank (ECB) announcing a taper. Quantitative easing will continue through 2017, but ECB purchases will fall each month beginning in April.

A Look At The Numbers

Data as of 12/9/16 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 3.1% 4.6% 5.4% 7.7% 12.5% 4.8%
Dow Jones Global ex-U.S. 2.7 2.0 2.1 -2.8 2.7 -1.1
10-year Treasury Note (Yield Only) 2.5 NA 2.2 2.9 2.1 4.5
Gold (per ounce) -0.8 9.5 7.6 -2.0 -7.4 6.4
Bloomberg Commodity Index 1.3 12.2 11.2 -11.2 -9.2 -6.3
DJ Equity All REIT Total Return Index 3.8 7.7 10.8 12.1 12.6 4.8

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

 

Divorced? you may want to investigate spousal benefits.

If you weren’t the top wage earner in your marriage, or your job was raising the children, then Social Security’s spousal benefit could prove advantageous. As a result, it provides the lower earning spouse with 50 percent of the higher earning spouse’s benefit at full retirement age, even if you’re no longer married.

 

“Social Security operates with a philosophy that a divorced person may deserve a personal benefit, having been the long-term partner and helpmate of a member of the workforce. The benefit is similar, in fact, to the spousal benefit that is available to a person who is still married.”

 

What Does it all Mean?

To qualify, you do have to answer ‘yes’ to a significant list of requirements:

 

  • Married for at least 10 years
  • You are unmarried now
  • Age 62 or older
  • Your ex-spouse is entitled to Social Security benefits
  • The benefit you qualify to receive based on your work, is less than the benefit your ex-spouse qualifies to receive because of several factors. There are other factors that could affect your application for spousal benefits, including whether your ex-spouse has begun taking benefits. If you would like to learn more, contact your financial professional .
Weekly Focus – Think About It

“My mission in life is not merely to survive, but to thrive; and to do so with some passion, some compassion, some humor, and some style.”

–Maya Angelou, American poet