Weekly Commentary March 25th, 2013

The Markets

Like a not-quite-dead villain in a horror film, the Eurozone crisis raised its ugly head again last week, scaring investors and causing many stock markets to close flat or slightly down for the week, according to Barron’s. Investors’ worries strengthened demand for Treasuries, pushing the yield on the benchmark 10-year bond lower.

The hero of last week’s drama might have been the United States which delivered a plethora of stronger economic data that included a steady decline in unemployment claims, an increase in factory activity, and a rise in existing home sales. The positive news suggested that the U.S. economy was gaining momentum. In addition, Federal Reserve Chairman Ben Bernanke reiterated the Fed’s commitment to accommodative monetary policy. He set the expectation short-term interest rates will stay at exceptionally low levels until unemployment falls to 6.5 percent. Some believe that could happen in 2015.

Signs of strength in the U.S. economy were overwhelmed by another crisis in the Eurozone. This time the issue was Cyprus, an island nation that accounts for a tiny portion of the Eurozone’s economic production. Cyprus has relatively robust growth and boasts a small budget deficit, so why did it ask for a bailout? According to The Economist, the issue is the country’s banks are bigger than its domestic economy. Since a bank deposit guarantee is only as good as the country providing it, Cyprus needed assistance. Cyprus is a microcosm of the Eurozone which has about “€8 trillion of deposits and only €4.5 trillion of annual government revenues,” according to BCA Research cited in The Economist.

Eurozone leaders responded to the Cypriot bailout request by suggesting the country impose a tax on bank deposits. The Cypriot parliament rejected the suggestion and the European Central Bank responded with an ultimatum: accept a bailout by Monday or else. The government’s decision will affect Cyprus’ largest banks and, possibly, the country’s participation in the Euro.

All eyes will be on Cyprus on March 25.

you may hate filing taxes, but identity thieves don’t. That’s probably because they expect to get refunds. The Internal Revenue Service (IRS) reports tax refund identity fraud is a rapidly growing crime. During fiscal year (FY) 2011 (which started October 2010), 276 investigations were initiated. For FY2012, that number had increased to 898. During just the first three months of FY2013, 542 investigations have been opened.

How does it work? According to the IRS, identity thieves use stolen personal information to file fake tax returns and collect undeserved refunds. In one case, a criminal filed false returns in the names of deceased taxpayers. In another, criminals broke into a tax preparation office, stole files containing personal information, and filed tax returns claiming fraudulent refunds.

The IRS reports it is taking steps to protect taxpayers. They suggest taxpayers take basic steps to protect themselves, as well:

• Don’t carry your Social Security card with you
• Don’t give your Social Security number or Individual Taxpayer Identification Number  to businesses (verbally or in writing) unless it is required
• Check your credit report at least once each year
• Protect your personal computers with firewalls, anti-virus software, and updated security patches
• Choose hard-to-break passwords and change them frequently
• Don’t provide personal information to anyone unless you know them well and understand how they plan to use it

Source: Internal Revenue Service

If you have aging parents, it’s important to discuss identity theft and encourage them to take necessary precautions. Developing good habits – such always keeping your personal identification numbers and financial documents in a secure place – can go a long way toward keeping personal information safe. 

Weekly Focus – Think About It

“When you are courting a nice girl, an hour seems like a second. When you sit on a red-hot cinder, a second seems like an hour. That's relativity.”

--Albert Einstein, theoretical physicist

2013 Five Star Wealth Manager Announcement

I’m excited to announce that for the third year in a row I have been recognized as a Five Star Wealth Manager in this year’s 2013 Five Star Wealth Managers April issue of Seattle Magazine. To be nominated by my peer group and then selected for this award is certainly an honor. This award is given to less than 7% of the financial advisors in the Seattle area. It confirms the fact that our wealth advisory services at Triad Financial Strategies, Inc. and all our hard work is continuing to gain more and more respect around our local investment community. The Five Star award is based on client responses to surveys regarding the advisor's customer service, integrity and expertise among other criteria.

Our goal has always been to give exceptional personalized service and I feel that this award validates what we are doing and plan on continuing to do. Thanks to many of you, we have continued to be blessed in large part to the trust you have in us, as evidence by the introductions you have made to us with those people in your lives that you feel might benefit from our services over this last year.

My hope is that this recognition will help affirm your confidence in the work we are doing for you and also allow you to feel comfortable introducing us to those in your life that may be in need of a second opinion or fresh outlook on their retirement planning strategy and/or investment management.

Thank you to all of you for continuing to trust me to help you pursue your financial independence.

Weekly Commentary March 18th, 2013

The Markets

Like winded runners, stock markets slowed at the end of last week.   

Since the start of the year, the Dow Jones Industrials Index has risen by almost 11 percent, hurdling past new highs several times. The S&P 500 Index gained 9.4 percent over the same period. The index moved higher in 10 of the past 11 weeks and finished last week just shy of its all-time high. However, the Dow and the S& P’s momentum – and that of some other U.S. stock markets – slowed on Friday as stronger economic data was offset by an unexpected slump in consumer sentiment.

Economists expected the Thomson Reuters/University of Michigan consumer sentiment index – which gauges Americans’ feelings about their current financial health, the health of the economy over the shorter-term, and growth prospects for the economy over the longer-term – to move higher in March. Instead, the index fell from 77.6 to 71.8, reaching its lowest level since December 2011. Markets fell on the news even though the negative results contradicted those of other consumer confidence measures, such as Bloomberg’s Consumer Comfort Index which has moved higher for six consecutive weeks.

The consumer sentiment surprise also pushed Treasury yields down. Yields on benchmark 10-year Treasury notes fell to 2 percent. The Treasury market remains concerned that stronger economic data could lead the Federal Reserve to change its policy on quantitative easing. The Federal Reserve’s next Open Market Committee meeting is next week, and may provide further insight to the matter.

the middle class is growing. In the United States, households that earn between $35,600 a year and $94,600 a year are considered to be middle class. That’s about 40 percent of U.S. households (another 40 percent earn less than the middle class and 20 percent earn more). Scholars and pundits have noted that job insecurity and stagnant income levels have weakened the middle class in the United States during the past few years, but that’s not what’s happening in the rest of the world.

The global middle class has been growing and is expected to continue to grow over the next few decades. The Organization for Economic Development defines the global middle class as including people earning between $10 and $100 a day with purchasing power parity. (Purchasing power parity is the theory that currency exchange rates should adjust so the same goods cost the same in different countries. It’s what the Big Mac Index measures.) By 2030, according to Ernst & Young, the global middle class is expected to more than double, adding three billion new members. These up-and-comers primarily will live and work in rapidly-growing countries.

As the global middle class grows so should its spending power. Between 2011 and 2030, middle class demand for goods and services is expected to increase from $21 trillion to $56 trillion. Forty percent of that spending will be done by the burgeoning middle class in Asia, including China and India. According to Forbes, these consumers are creating demand for all kinds of goods and services including cosmetics, automobiles, cell phone minutes, personal banking, and retirement planning.

For many decades, consumer spending has been an important driver behind economic growth in the United States. It’s likely to play a significant role in the economic growth of emerging countries, too. As developing countries become developed countries, interesting opportunities for investment are likely to emerge.

Weekly Focus – Think About It

“A man who carries a cat by the tail learns something he can learn in no other way.”

--Mark Twain, American author and humorist

Weekly Commentary March 11th, 2013

The Markets

During periods of strong market performance, like the one we’ve experienced since the end of last year, it’s important to remember that markets ebb and flow over time. Since December 31, 2012, the Dow Jones Industrial Index has gained 9.9 percent and the Standard & Poor’s 500 added 8.8 percent. Last week, the Dow reached highs last seen during 2007, and the S&P 500 ended the week less than one percent from its record high, which was also realized during 2007.

While the strong performance of U.S. stock markets has given investors reason to smile, significant economic challenges remain. The effect of sequester spending cuts on the American public and economic growth remains relatively unknown. Also, U.S. earnings growth appears to be slowing and that could affect stock prices. (Earnings are a measure of a company’s profitability and influence its share price.)

Global markets were largely up last week, too, as investors seemed to celebrate stronger U.S. and Chinese economic data, as well as the fact that Central banks in Europe, the United Kingdom, Australia, Japan, and Canada met and left their monetary policies unchanged.

In the Eurozone, economic growth remained relatively weak and inconsistent. While the European Central Bank has stepped up to help countries affected by poor demand for bonds, insufficient bank-to-business lending has negatively affected economic growth, especially in southern Europe, leaving some countries mired in recession.

In the United States, yields on 10-year Treasuries rose higher last week despite Federal Reserve assurances that it will continue to pursue its current monetary policy for some time.

Is a wedding in your future? If so, prepare yourself. Between the planner, venue, food, flowers, cake, dress, drinks, photographer, videographer, invitations, programs, and all the rest, you’re likely to be hearing a lot of this: Ka-ching! Ka-ching!

More than $50 billion is spent on weddings in the United States each year. According to the 2012 Wedding Report, the average wedding has about 133 to 143 guests and costs more than $25,000, not including the honeymoon. The good news is the average cost of a wedding in 2011 was less than the average cost in 2007. The bad news is that, according to CostofWedding.com, the cost of any wedding could increase by 50 to 100 percent if the planners choose designer labels, popular event locations, custom products and services, or if they invite significantly more guests.

Here are a few tips that may help ensure wedding costs don’t spiral out of control:

·         Establish a budget. Set a budget for the wedding, but make sure you build in a cushion of 10 to 15 percent for cost overruns, just as you would if you were putting an addition on your house or remodeling.

·         Understand venue and reception costs. When negotiating the cost of your reception, it’s important to ask for the per person cost, all-inclusive. If you’re given an all-inclusive price and you find the words ‘additional costs may be incurred’ or ‘plus the cost of setup and delivery’ in your final contract, ask what those costs are, specifically, and be prepared to negotiate.

·         Make smart liquor choices. The drinks served at the reception often are a significant expense. Many venues charge for every bottle opened. To save on the cost, you could opt to serve beer, wine, and champagne for toasts. Alternatively, you could offer signature cocktails that require a single type of liquor, which can help limit the number of bottles opened.

After evaluating costs, you may decide that the best option is for the happy couple to elope, marry in an exotic locale, and celebrate with a big party when they return. If that’s not an option, make sure to take advantage of the plentiful online resources available.

 

Weekly Focus – Think About It

“The greatest happiness of life is the conviction that we are loved; loved for ourselves, or rather, loved in spite of ourselves.”

--Victor Hugo, French poet and novelist

Weekly Commentary March 3rd, 2013

The Markets

It was a bumpy week for stock markets. Early on, markets in many countries were negatively affected by the outcome of Italian elections. Italy’s anti-establishment Five-Star Movement, led by comedian Beppe Grillo, won about one-fourth of the votes in both the country’s upper and lower houses. Markets lost value as investors anticipated political gridlock could delay Italian economic reforms. Since Italy is the third largest economy in Eurozone and its public debt is significantly higher than its Gross Domestic Product, political stalemate in Italy could negatively affect the Eurozone.

As the week progressed, events in Italy were eclipsed. Ben Bernanke reiterated the U.S. Federal Reserve’s intention to keep monetary policy loose until unemployment levels drop. This helped stock markets recover some lost ground. Positive economic news, including higher pending home sales and a rise in consumer sentiment helped push the Dow Jones Industrials, NASDAQ, and Standard & Poor’s 500 Indices even higher, and they finished the week in positive territory.

Concerns about Italian election results affected bond markets, too, pushing yields on 10-year Treasuries lower during the week. Lower yields were also driven by uncertainty about the potential impact of sequestration – $85 billion in automatic spending cuts – on America’s economic growth.

Despite great political hullaballoo, no action was taken to prevent or modify the spending cuts and they took effect on Friday, March 1. Over the next decade, sequestration is expected to cut government spending by about $1.5 trillion. The cuts will reduce defense discretionary spending, including weapons purchases, base operations, construction work, and more. Cuts also will shrink mandatory and discretionary domestic spending. Two of the domestic programs affected are the unemployment trust fund and Medicare (specifically, Medicare’s provider payments).

The National Retirement Risk Index (NRRI) measures whether Americans will be able to maintain the same standard of living they enjoy today after they retire. When it was updated for 2012, the index showed the number of “at risk” households had increased by nine percentage points – from 44 percent to 53 percent – between 2007 and 2010. In its explanatory comments the Center for Retirement Research at Boston College (the group that compiles the index) attributed the change to the combined effects of the financial crisis, poor investment returns, low interest rates, and the continuing rise in Social Security’s full retirement age.

Americans are not unaware of the situation. The 2012 Retirement Confidence Survey found almost one-half of working Americans are ‘not too’ or ‘not at all’ confident they’ll have enough money to live comfortably throughout retirement. If you fall into either of these categories – and even if you don’t – it’s important to evaluate your current retirement plan in light of key risks that may influence its effectiveness. These include:

·         Longevity risk. A recent headline suggested that 72 is the new 30. The scientists who made the determination meant that modern man, at age 72, has the same chance of dying as primitive man did at age 30. That makes longevity risk – the chance you'll outlive your savings – an essential consideration when planning for retirement. One way to address longevity risk is by developing a retirement income plan that will allow you to generate income for as many years as you may need it.

·         Inflation risk is the chance your savings and investment will grow more slowly than inflation, reducing your purchasing power. For example, a gallon of milk that cost about $2.00 in 1990 would have set you back $3.50 in 2012 – and that was after a period of relatively low inflation. One way to address inflation risk is to consider investing in a well-allocated and well-diversified portfolio that may have the potential to outperform inflation over time.

If you have any questions about saving for retirement, or would like to review your retirement plan, please give us a call.

 

Weekly Focus – Think About It

When planning for a year, plant corn. When planning for a decade, plant trees. When planning for life, train and educate people.

--Chinese proverb