Mike’s Thoughts on Regulations

Mike’s Thoughts on Regulations

I recently did this really awesome educational video for you on Bonds, but unfortunately I described the characteristics of bond mutual funds in layman terms without a bunch of disclosures, and approval from a higher up regulatory agency is required (come to find out).

So that got me thinking about rules and regulations.  Should we have more or less, are they a cure-all panacea, and most importantly, what are the unintended consequences?

Click on the video below to hear my crazy thoughts on regulations.  All right, they’re not really crazy, but I think the question of more or less is a hard one, and we shouldn’t “knee jerk” one way or another “just because”.

 

Hi there—Mike Brady with Generosity Wealth Management, a comprehensive, full-service wealth management headquartered right here in Boulder, Colorado.

Today, I want to talk about regulations—are they good, are they bad, should we have more, should we have less, and I’m going to tell you that I’m right in between. The most important thing is that it doesn’t solve everything. First off, before you think I’m some kind of a radical, you’ve got two extremes. This is 100% regulation, this is 0% regulation and I don’t think that anybody of sane mind is saying that we should have 100% regulation, that’s government ownership of everything, or is zero regulations. I don’t know what things were like before the 1929 crash, but I definitely know that, after that fact, there has always been some kind of regulation. It’s not necessarily a panacea. It doesn’t solve all your problems and I think that it’s good for us as investors, not to necessarily advocate for more or less, but just to understand that they have a place, but it just doesn’t solve everything and if you think it’s going to then I think you’re going to have a false sense of security, because something is probably going to happen in the future as well.

Let me tell you why I’m even bringing up today’s topic. I’ve probably done 100, maybe 150 of these particular videos over the last five years and the reason why I started doing the videos is I thought it was a great way, an additional way to communicate with clients and friends, maybe perspective clients. It’s a way for me to try to be as clear and concise as possible to share with you what I’m thinking and how I view things without having to pick up the phone and call every single person. That might be a very inefficient way to do it.

I also want it to be educational for you so if you’ve been watching a lot of my videos, you know that I talk about maybe a current topic, maybe a general topic, etcetera, because the way I view things is just because I do this all day, it’s not because I’m smarter than you, but maybe I’m on page five, maybe I’m on page six and because you don’t do this every day, maybe your education level in investments and financial planning is on a page two and so if I can help bring you up to page three or page four we can have a great conversation and I think you’re better off for it and I think I am as well.

Well, out of all those videos I recently did a video last week that was called All About those Bonds, and actually I don’t know if you ever that song, All About that Bass, all that Bass, well I called it All About those Bonds and I figured a couple people would get the joke, but it turned out to be a 16 to 17 minute video about bonds, so I talked about price, I talked about yield, I talked about what a bond is, how it works, premium, discount and in my opinion, it was a beautiful video. I was very proud of myself because I thought that I could refer back to it in coming months and coming years and say wow, you have a question about bonds. Just look at this particular video. Inside there, I talked about bond funds and I talked about the characteristics of bond funds, and so I was trying to talk, in layman’s terms, about the characteristics of them, whether they could lose money, make money and various situations like that and so for 30 seconds, I actually talked and warned about some things in bond funds, but because of that, I talked about the characteristics of bonds. A compliance department examiner doing absolutely her best job and that’s what she’s supposed to do, said Mike, this is actually you can’t talk about characteristics of bonds without FINRA approval. Now FINRA is one of the regulators. It’s a self-regulatory organization. It’s just one of the big regulators out there for broker-dealers. I’m like okay, how do I get FINRA approval. She’s like well you got to pay a certain amount of money. I think it was like $125 and it’s probably going to take five or six weeks and I’m like really, you got to be kidding me, so I just decided it wasn’t worth the hassle really, to go through all that delay and some of the requirements.

It’s not the $125, it’s actually the transcript, and it’s actually more involved than what I’ve led you to believe. So I basically decided it’s just not worth it for me to do it. Now the unintended consequence of that particular regulation is that what I feel is a great educational opportunity for clients is not going to be out there. A warning of some things that you should beware of as it relates to particular bonds, and I think that bonds have a place in a portfolio. I’m not going to lie to you, I think they’re a good place for most people in their portfolio and, of course, you have to personalize it to your individual situation.

Well, because of this particular regulation, that message isn’t getting out there. Look at prospectuses. Prospectuses—once again, I wasn’t around in the 1930’s and the 1940’s but the prospectus were probably very small. I’ve been doing this for 24 years. I started working with clients in 1991 and, at that point, the prospectuses were pretty fat. Over the years, my perception has been they get fatter and fatter and fatter because more and more either regulation or disclosure gets in there and to a certain degree, unfortunately, most people don’t read the prospectus. I highly encourage you to read the prospectus, okay, and I give out prospectuses to every client prior, or concurrent with an investment. However, the unintended consequence of some regulations has been to a certain point where it has now done, possibly, it just has not achieved its ultimate goal which is to inform the client. They’ve overinformed with so much information that you get nothing okay.

Back in 2008, there was a big discussion about too big to fail, that there were some various banks and institutions that were so big, that we shouldn’t have that. We shouldn’t have—people would say wait a second, we shouldn’t have to bail these things out and you shouldn’t be allowed to be too big to fail. Well, unfortunately, many of the regulations that come out work against the decentralization because every regulation has some kind of a cost associated with it and sometimes it’s hard to say what that actual cost is, but if it’s an extra sheet of paper that’s required, it’s an extra piece of documentation. I mean I have to tell you, I’ve gone through in the last 24 years, you have periodic audits and if I don’t have a folder with a label on it, even though it’s empty, I have to have that label and that folder, but if I don’t they’ll ding me.

So there’s a lot of bureaucratic type of things that add to the cost of doing business and the unintended consequence of some regulations are that it causes smaller operations, smaller businesses to just not be able to survive and be profitable and so they have to merge with larger ones and pretty soon you have, instead of five small ones, you might have two or three or maybe have one because they have to group together for the economy of scale. Now, I’m being very broad here and very general, but the most important thing is that regulations are not a cure-all for everything. Do I think we should have some regulations—absolutely, and I certainly hope you’re not getting from me that we should have no regulations, but I like to think of it as, even the prison system, I mean I think that there are some people who are a danger to society, they just are and it’s for the good of the community that they are put away and shielded from us and from harming us, but it’s very easy to say, well, I’m tough on crime so, therefore, the easy is let’s more people in prison. After decades of saying that, pretty soon we have a lot of people in prison and we have a huge amount of money going towards prison, because the easy answer was well, let’s just put him in prison. That’s the answer for everything.

Every time some kind of a crime happens, we need to be tougher on crime. Well, it’s the same way when something bad happens in the financial world. It’s like, well let’s throw more regulations on there because that’s kind of a kneejerk answer and in my response is, just so that you know where I stand is usually, well, let’s look at what we currently have and do they need to be modified? Are there some regulations that maybe need to be cut, that actually were an unintended consequence that led to that bad action and so it’s really more piling on, piling on, piling on.

That’s my video today. Really, the most important thing I want you to take away from this is that I think regulations are good and I’m glad that we have regulators. I truly believe that, but it is not an answer to everything and one of the unintended consequences at times of some regulations are unforeseen. That’s why they’re unintended, okay, they weren’t intended to begin with, but also sometimes the end investor is actually hurt and, in my case, I think the video that I did was wonderful and beautiful and, unfortunately, you’re never going to see it, but it was a good education I think for all my clients who see this particular video. If you want to know more about bonds, give me a call, because I’ll be able to do that for you in person and I think that over this next year, I’m going to make a commitment to at every meeting, really educating you on what’s the difference between price and yield, why is a 10-year Treasury important. Why has this been in the news all this time and where, in my portfolio speaking as you, where in a client’s portfolio, do bonds have a place? Do they have a big place, a little place, what is for you, so I’m going to now do it for you individually since doing it en masse didn’t work out for me. I’m looking forward to doing another video for you in a couple of weeks. I’m doing this on a Thursday afternoon so, hopefully, you’re getting it Thursday night, maybe Friday morning, because a consideration is oh, Mike, we’ll look at your stuff right away, so you can get your newsletter so anyway, I hope you have a great day. I hope you have a great weekend and you have a wonderful day. Thanks, bye bye.

Current Market Conditions

Current Market Conditions

As volatility has increased in the past 3 weeks, I want to keep you well informed of my thoughts.

Are the past weeks normal, have the fundamentals changed, or is this the canary in the coal mine we’ve been waiting for?

These questions are answered in my video.

Hi, Mike Brady here with Generosity Wealth Management, a comprehensive, full service wealth management firm, headquartered right here in Boulder, Colorado.

I last spoke to you a couple of weeks ago and at that time, I talked about the third quarter. I said it’s been a tough quarter, very volatile and it was down.   We’ve taken some steps back as it relates to the unmanaged stock market indexes. So far this quarter in the last couple of weeks, that has continued on the downside. Nobody ever minds volatility on the upside. One thing that’s interesting is over the last 25 years the daily average of volatility has been 0.77%, about eight-tenths of 1% on a daily basis. So far this year for the first half of this year, it was a half of 1%. It was kind of the average volatility on a daily basis. One of the reasons why the last two to three weeks seems so alarming is because the volatility has been over 1% so it’s two to three times what we’ve been kind of lulled into feeling the first half of this year and also what is normal when we look back over a 25-year timeframe. Two weeks ago, I mentioned that the smart money looks at the data and what’s happening now and says okay, so how far out an outlier is this? Is this something that actually happens quite often or periodically and that it’s a part of the game investing, part of what we should expect or is this is a precursor to something much more deadly? Are the fundamentals telling us that this is an early canary in the coal mine of some bad that’s going to happen? My answer is the first, not the latter, in that this is actually normal even if it is painful, a part of the process. When we look at a longer time horizon which is what sort of the smart money should do is looking at it from where does this fit in one year, five year, 10 year and even longer than that.

I’m going to throw up on the graph there up on your screen there, looking back over a 17-year time horizon for the S&P 500 which is an unmanaged stock market index and this is as of September 30. I’m going to put a little red mark where we are right now just to give it some perspective. I’m doing this Tuesday night so I know exactly what our closing number was and hopefully you’re getting this on Wednesday or Thursday. You can kind of see that in the whole scheme of things we could have said at that other line that I just put in there, yeah, you can see it’s a pop. It’s not going to go any higher and then we could have done it all the way from that bottom arrow all the way to where we are today. We could have said, oh my gosh, this is a high, it can never go any higher.

I’m going to put on the screen now a second graph which is looking back 114 years. You can see that there are consolidation periods and then there are times of advance, consolidation periods of times of advance. You can see there and I’ve just circled it where I believe that we are. I actually believe that we are on a longer-term advanced than we are in consolidation or a decline. Other people can make an argument to the downside; that’s okay. We always joke that economists have predicted 17 of the last the last three recessions so that’s an easy thing to do. The hard thing is for me to try to be as straightforward with you and say this is a part of that long-term process. As a matter of fact, our emotions have a tendency want to react in the wrong way. I’m going to throw a chart up on the screen there. You can see that in the late 90s, consumer confidence was at an absolute high, but that was the worst time to buy. Okay? Now you’re going to see back in the beginning of ’09 which was the beginning of that huge upswing that I showed you in the first graph that consumer confidence was a low. Then two years ago right before last year’s really strong stock market gain, consumer confidence was once again at a low. It’s almost contrary of what you would think. Like oh, people are feeling all negative so the market must go down negative. No, it’s quite the opposite. In fact, kind of what we call a lagging indicator where people actually do the wrong thing at the wrong time.

The next graph that I want to show you is up on that screen there. I think this absolutely essential. What you are going to see is those red numbers at the bottom are the intra-year decline. What that means is if the market was up 10% and then it drops 7% and at the end of the year at 3% or maybe it even ended at a different number, the high to the low throughout that year is normally a seven, eight, nine, 10, sometimes double digits so it is normal for there to be corrections within the year. It does not mean the year will end that way. I think that’s absolutely essential for us to keep in mind because we do take five steps forward at times and four steps back. If we believe that in the future that the market will be higher than where it is today, that’s why we have investments. If we didn’t believe that, why would we have investments? Keep it in your mattress, keep it in the bank. That makes no sense if you believe that long term the market is going to be lower than it is today over long term. I think that’s not a very wise bet.

I’m going to throw another chart on the screen; it’s a table. The reason why I throw this up there is because there is a well, you know, it’s just like the 1990s or it’s ‘07. Let me just tell you, look at the price to earnings ratio of about 15%. It was double that back in the late ‘90s. I mean from a valuation point of view, we’re nowhere near where we were in previous times when we’ve had a huge decline. We have lots of cash, a huge profitability, leveraging is down so this is a very good thing and the fundamentals I feel are still strong.

This last graph I want to show you I think is very, very important and that it shows historical returns by holding period. What you’re going to see is that on a yearly basis, that’s the one on the far left-hand side, there is a huge variance. The left one is 100% stock, unmanaged stock market index. The next one is 100% bond index and then there is a mix of the two together. With the one year, there is a huge variance. That’s just the way things work. Once we look out five years, 10 years, even 20 years that variance, that kind of expected return or that highs and lows have a tendency to kind of, the highs go lower and the lows go higher. For a 50/50 split historically, of course it could be different in the future, there actually has never been a five-year timeframe when the worst you’ve done is make 1% a year. Moving out to cash, thinking that you’re going to try to outsmart everyone else, that you are reading the headlines and you have some supposition of about what’s going to happen in the future I think is not very wise.

The very last thing I want to show before I cut this video is the benefits of having a stock and a bond mixed together. You’ve seen me do this before even with my hand. Up on the screen there is the 10-year Treasury note yield. It’s declined which is a good thing. The yield goes down when the price goes up. You can see that there is actually huge volatility in the last year. Those arrows there are in the last kind of year-to-date. This has been a great year to have bonds. In hindsight, having 100% of your portfolio in bonds would’ve been a fine thing to do. We don’t know hindsight so that’s why we have a mix of stocks and bonds and of course that mixture depends on the client what’s appropriate. Of course, having a well-diversified portfolio does not guarantee against declines in a general declining market, but I do believe that it is the wise way to go going forward. You can see that in the last month or so as the stock market has rarely gone down that the bonds have actually gone up. Once again, we know that because the graph went down which is counter-intuitive, but it actually meant that bonds went up so this is a good thing for bonds when the graph looks on the downside from left to right like that.

That’s what I have for right now today. I’m going to continue with these updates to you, my clients and to my friends and prospects, prospective clients. I’m here if there are any concerns that you have, 303-747-6455. Investments are a part of the big picture of getting you to where you want to go with your goals, etc., but I’m not overly freaked out about where things are at this point. Hey, would I wish that things were higher? Of course, of course, but do I over react and scrap my plan based on some weeks and months of data? Absolutely not and you shouldn’t either.

Mike Brady, Generosity Wealth Management, 303-747-6455. You have a great day, see you, bye-bye.

Pimco Founder Bill Gross

Pimco Founder Bill Gross

Pimco is a mutual and ETF firm with a huge bond fund that has been the player in that space for the past 40 years.  Bill Gross founded the firm in 1971, and it is now around $2 trillion dollars under management. Bill Bross

Last week Bill Gross decided to leave the fund and move to Janus.  This is important because of the disruption to the bond market as huge sums could (and I say could) move from one firm to another.

The bond market doesn’t get as much coverage as the stock markets, but this is a pretty big change, equal to the Denver Offensive team picking up and going to Oakland.  Heaven forbid.

 

Bill Bross from Pimco 

Definition:  High Yield

Definition: High Yield

2013 12 13 high yield

Defined:

A high paying bond with a lower credit rating than investment-grade corporate bonds, Treasury bonds and municipal bonds. Because of the higher risk of default, these bonds pay a higher yield than investment grade bonds.

Based on the two main credit rating agencies, high-yield bonds carry a rating below ‘BBB’ from S&P, and below ‘Baa’ from Moody’s. Bonds with ratings at or above these levels are considered investment grade. Credit ratings can be as low as ‘D’ (currently in default), and most bonds with ‘C’ ratings or lower carry a high risk of default; to compensate for this risk, yields will typically be very high.

Also known as “junk bonds”.

 

Current Market Situation

There is so much in the news right now, most of it about the impending debt ceiling crisis. Most of what you read, hear, and watch is sensationalized (in my opinion), so in this quarter’s video I basically dissect where we are right now, paying attention to the data points that I think are relevant.

Being the contrarian I am, I also address some common, assumed facts or assumptions that I simply don’t believe.

A longer than normal video, but let me conclude by saying I’m still optimistic, and not freaked out (unlike pundits on TV).

Click on my video to get my thoughts

 

Transcript:

Hi, there, clients and friends. Mike Brady here with Generosity Wealth Management, a comprehensive, full-service wealth management firm headquartered right here in Boulder, Colorado.

Today is going to be a little bit longer video than is normal. This is a third quarter review and fourth quarter preview.

We’ve got about two and a half months left. You’re hearing all kinds of news—on TV, radio and print. I want to kind of debunk some of the things that you’re going to be hearing about. Because this session is going to be long and a little more technical and I might go a little bit faster just because I have so much to cover. I’m going to give you all of my conclusions right up front.

If you want to turn my video off in the next 30 to 60 seconds, you can.

Right off the bat, I’m not freaked out as in one of those just about to go off to this huge cliff in a week or even two or three weeks due to anything that the Congress is doing.

There is a momentum that is being built up on the private sector with available cash that we are going to I believe from an investment point of view come through this fine. It is not unusual for us to have various conflicts—whether or not it’s an international conflict or whether or not it’s our own Congress and the President having a dispute. I am not freaked out.

I’m going to debunk here in today’s video something that you might hear from an investment point of view and then we’re going to try to prove that and that seems a lot but here’s my summary is that a rising yield could not necessarily mean that the market’s going to go down and the bond markets in particular.

The economy—if the economy goes down or slows due to anything that the Federal Government might do, that does not mean that our markets are going to go down. The economy does not equate to the market. You felt that the last three or four or five years, the unmanaged stock market indexes have done very well, but yet the economy has muddled through and that’s just one proof. I’m going to give a few other proofs of that as well.

P. E. ratios are not everything. Consumer confidence is pretty much meaningless I my opinion. Warren Buffet is not infallible. He’s out there talking about certain things and sometimes I disagree with him. I think he’s a brilliant individual, but it doesn’t mean that he’s God and that everything that he says we have to take as God’s word.

I do believe that the increase in the U. S. debt as it relates to as a percentage of our national GDP over the long term does provide a headwind that will dampen some of the opportunities that we have in the investing community.

That is something that I think long-term, but it doesn’t mean that it happens next week. Doesn’t mean it happens next month.

Time is your friend and that declines are normal. If you have been watching my videos and if you are one of my clients, hopefully that you have a portfolio of stocks, bonds and cash. Sometimes the stocks do well. Sometimes the bonds do well. They kind of mesh together. You might have some satellite holdings as well.

Stick true to what is the investment strategy for you so that you can sleep well at night. Understand that everything that you hear on TV and the news is not necessarily the truths and that in my opinion, the sky is not falling no matter what they want you all to believe.

If you want to turn off the video, that’s fine; but now we’re going to talk about it a little bit more in-depth with lots of facts to prove—I don’t know about prove—but to give some analysis to you about why I’ve come to the conclusion that I have. My clients expect me to give them straight answers. If I don’t know I tell them I don’t know.

The market has a tendency to go up, sometimes it goes down and sometimes it consolidates. Up, down, sideways. Those are the only three ways that it can go.

Up on the screen right now, you’re going to see it for the last 112 years. You’re going to see times when it has consolidated. You can see times when it has advanced and at times it has declined, but it has recovered.

Time is definitely in your favor as an investor. One thing you have to ask yourself is are you an investor or are you a speculator? Time is something that hopefully we all have, even if you’re going to retire next year. Even if you just retired or are in the middle of retirement. Hopefully, you’ve got a long life expectancy. So, not outliving your money is one of your goals; but also possibly grabbing income from it.

One thing as you look at that graph right there is you’re going to see the last 12 or 13 years. The question is that a consolidation or are we about to take off into one of those advances? Nobody knows 100% for sure, but I am more in the optimistic mode than I am in the “let’s jump off the ledge” and everything is going to be horrible.

Here it is over the last 13 years or so. You’re going to see up, down, up, down, etc. That last little bit is about March of 2009. I think we all know that friend, perhaps you were it and said oh my gosh, the market can’t continue to go up as it goes through the Dow went through 10,000, 11,000, 12,000, 13,000, 14,000, etc.

Sometimes it would go back down and that person would say, see I told you. I told you it was going to go down. Well, you know what, this is the same person who might have been in cash the entire time and this is the up and the down. Declines are a part of the market. As I mentioned, it goes up, down and sideways. You’ve got to be willing to take all three of those and you can’t expect for it always at all times to go just straight up.

The economy does not necessarily mean that the market will do the same thing and that they correlate and go in the same movement. If what happens with the debt ceiling slows down the economy in some way, which I don’t know that’s going to happen. There is certainly a lot of pundants out there who seem to know exactly what’s going to happen, either on the left hand or the right hand, what’s going to happen.

I don’t know. I just admit that, but here up on the sheet there, you’re going to see as an example of what I’ve just said, unmanaged stock market returns from various countries, Europe, Pacific, France and Germany and Brazil and Russia and you’re going to see that a lot of them are double digits. I’m going to tell you that Europe is very sick from an economy point of view.

This graph right there and that which I’ve circled, you’re going to see that in the last two or three years or so, we’ve had a declining year-over-year percentage return on the GDP for Europe as just one example. You’re going to see that on the right hand side that unemployment is in the double digits for Europe.

The economy does not necessarily mean that the market is going to go down if the economy goes down. It is definitely a headwind and I’d rather have it as a tailwind, something to help. If all other things—the amount of cash that’s in the economy—if other factors are pushing things so that the investments are going up, then the economy might be holding it down a little bit, but it doesn’t mean that perhaps there’s so much momentum on the investing side that it overcomes any other factors might have on it. It’s not just that oh, this is the negative. Wait a second. There are some positives as well.

The question is how does it net out? Some people might say the headwind from a bad economy or something that the government might do is going to negate all of the amount of cash that we’ve built up and all the balance sheets that are in corporations. The holding invasion is going on right now. I’m just not in that particular camp.

Another thing you can hear an awful lot about is the Fed. We have a new nominee. Her name is Yellen. They’re going to call her the dove because she will very likely keep a very loose monetary policy, meaning that there’s going to be lots of cash available for loaning and she’s very accommodating towards that. If the economy does have a tendency to slow down and muddle through, my guess would be that she’s going to maintain that low interest rate and maybe even increase some of those bond purchases. We’ll have to see, but I think our loose monetary policy is going to continue.

Interest rate yields have been increasing significantly in the last month. Here’s a graph here showing over the last 20 or 30 years or so, even longer than that, you can see that they’ve really gone down during that timeframe. Yet in the last two, three, four or five months, it has increased. However, just because the yield on the 10-year right now is around 2.64% or 2.65%, it’s not until it gets around 5% historically that has really caused a negative impact to the degree that while if it is continuing to increase, the market is going down.

You’ll see that on this graph right here. There’s a lot of number there. Essentially what you are seeing there is that dotted line right there in the middle is the 5% mark. As the interest rates continue to go up, the yield, the unmanaged stock market indexes went up as well.

Only once when it hit over 5% did it cause such a drag on the available capital for investment and for improvement that it started to hurt the U. S. stock market. We’re still far from that at 2.64, give or take. That’s what it is as of Thursday when I’m doing this video.

Another thing that I want to talk about is you’re going to hear about consumer confidence and that consumer confidence is up or is falling, etc.

I put no credence on consumer confidence. I’m putting that chart up there. You’re going to see that sometimes with consumer confidence that is low is when you would have liked to have invested 100%. Sometimes when it’s high, it’s a lagging indicator and people feel really good about things.

By the way, the University of Michigan only surveys 300 to 500 people on one day over the month. So it’s not a very big sample in my opinion and I put no…I don’t care. I don’t care about the consumer confidence and hopefully, you don’t care as well.

You’re going to see right here on this map graphically people are feeling good right now and it’s because we’ve had a little bit of a housing bump up in the last two or three years or so. That is one more proof that interest rates are probably going to remain very low because we have a housing recovery. People are feeling really good and they have a hard time seeing how they’re going to increase the rate from the Fed in a very short timeframe.

That and the fact that we have so much federal debt out there that we have to finance, we have to keep the rate at a very low rate. I do believe that’s probably going to stay low.

I do think that it’s very reasonable for companies to have accumulated corporate cash over the last two, three or four years. Right here on this next graph, you’re going to see deploying corporate cash at that very high level. Companies have been very rational in keeping their cash ready to invest when they sense. This is a good thing.

In cash return, the shareholders are also at a very high level. The amount of dividends that are paid out. There’s a lot of cash out there for those investors on the sidelines ready to jump in.

You’re going to hear a little bit about P. E. ratios and other things. Right now, I’m not concerned that it’s too low or too high.

I think it’s going to be just fine. This graph right up there. You’re going to see that when that dotted line from top to bottom there. Many times when it’s at this level, the returns for the stock market indexes have been positive. Sometimes they’ve been negative. You can see that. A large preponderance of them have been up on the top side. Only when it gets up to a 20 and 30 time does it really, really get way out of whack.

The next thing I want to talk about is that I do believe that Warren Buffet has been talking about the U. S. debt as a percentage of our GDP which is really our national income for the country not concerning to him.

Right now, it’s at about 102% or 104% and I do think that long-term, it provides a headwind against the investing and the ability of that particular country in order to move forward because it is, of course, sucking out the available capital to finance that particular tax.

You’re going to see here on this graph that I’ve just put up there that the U. S. is kind of on the right-hand side of that 100 mark. You’ll see that as you go down, Greece and Portugal and some other countries that are really an absolute mess as their debt got bigger and bigger and bigger. It’s not by the size, by the way. That’s what the yield is. The yield comes after some of the problems.

For right now, just really look at how the U. S. is on the right hand side of that vertical line, which is not the side that we really, really want to be on.

At this point, I do want to start summarizing which is time is your friend. On this graph right up there, you’re going to see is a depiction. The green is the range over the last 52 or 53 years of the unmanaged stock market index. It’s very high and very low.

Bonds, high and low.

Then we have a 50/50 mash of the two.

What you’ve seen is on an annualized basis, when you get out to five years, ten years and even twenty years, you have a normalizing return. You’re also seeing that they have a tendency and historically have been and that’s the only thing we have to go on. The future could be different, but historically what has happened is that those returns those people have been patient for five years, ten years and twenty years have had positive returns or even break even. There are not that may opportunities over a very long timeframe for there to be a decline.

One of the frustrating things is with this low interest rate environment, the options are very few I should say.

CDs and your money markets are hardly paying anything.

Bonds have a very low yield at this point. Unfortunately, many of us have been moved towards higher risks that we might not otherwise have taken.

Coming to a conclusion here, the last chart I want to show is right up there on the screen. It is the annual return. It is normal for there to be declines throughout the year. This year, believe it or not, has had from a top to a bottom, an unusually low top-to-bottom draw down. It has either been more up or sideways this year. Not a lot of huge decline on the down side.

It does not mean that when there’s a draw-down throughout the year that the year was all negative or that everything is just going to heck.

This graph is very important because we as investors who are in it for the long term who have hopefully created a portfolio that’s consistent with our risk levels and our objectives, etc. We have to understand that there will be some volatility in the market.

If you can’t handle that, we have to really seriously evaluate the strategy that you have. That is what I have here today.

Please give me a call if there are any concerns whatsoever. I can talk your ear off about some of my thoughts as we go forward and strategies that we should have or could have.

Mike Brady, Generosity Wealth Management, 303-747-6455.

You have a wonderful day.

Thanks.