Current Market Situation

Oct 17, 2013 | Europe, Interest Rates, Market Commentary, Real Estate, Video Updates

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.

 

 

 

Baby Ostriches Dancing in Circles

Sep 20, 2013 | Funny / Interesting, Video Updates

So, you’re wondering what the connection to a video of Dancing Baby Ostriches have in common with a financial newsletter.

Absolutely nothing.

I figure, a newsletter that starts off with a discussion of equity and bond direction, followed up with emerging markets, GDP numbers, and ending with 5% mortgage rates, it’s just not complete without something completely irrelevant.

Therefore, Dancing Baby Ostriches.

The Quarter in Review

Jul 10, 2013 | Europe, GWM Firm Announcements, Market Commentary, Video Updates

The second quarter was a tough quarter, particularly at the end. Continued emphasis on government fiscal and monetary policies, both here and abroad, played havoc with bond, stock, and precious metal investors. It’s enough to make my hair turn white!

Click on my video to get my thoughts on the past quarter (over-reaction) and the upcoming one. The year is not over!

Hello, Mike Brady here with Generosity Wealth Management, a comprehensive full service wealth management firm headquartered right here in Boulder, Colorado. I’m here for my second quarter review and my third quarter preview.

I wish I could sit here in July 2013 and say that my analysis and the reason for markets going up or going down is because of the profitability of this company or that company or this sector or that sector, but really the big news both this quarter and even as we go back to the beginning of the year with the fiscal cliff and other big topics at the time, has been the intervention and the discussion of the fiscal and monetary policy of the government. In this past quarter it has also been some news out of China that really rattled things, and then of course the continuation there in Europe.

In the middle to kind of late June, Ben Bernanke, the chairman of the Federal Reserve, gave an indication that the quantitative easing would start to drop because the Fed believed that the economy is doing much better, so therefore it’s not needed the easy money that we’ve seen in the last four to five years. What happened is, the bond market really reacted, in my opinion, overreacted, and so the prices went down on bonds, which means that the yields go up. I believe that’s going to settle… there was a lot of outflows from bond funds and bond ETF or the selling of it. I think that once people kind of step back and realize that wow – I’m not going to get any yield in a money market or a CD, etc., they’re going to reengage those particular funds and ETF. So I think that it’s really an overreaction.

At the same time, the kind of equivalent to the Fed over in China, their central bank, also there was a perception that they might have policies that would lead to a credit crunch. The Chinese market went way down as well and I think that was an overreaction. While it’s painful when that stuff happened, I’m not overly concerned as we’re going forward into the third quarter.

Europe continues to be a mess. Look at my videos going back for two years. I’m just going to sound like I’m saying the same thing over and over every quarter. Europe I think is going to continue to be a real problem. This past quarter, those areas that had problems were dividend paying stocks, bonds as I already talked about, and gold. Gold and silver has lost its luster. I think that it’s overreacted on a down side, but hopefully, if you’ve been watching my videos and listening to me, you really shouldn’t have more than, if at all, each client is different – you really shouldn’t have more than 4% or 5% anyway. If it goes down a significant amount, I think it was 23% down just in this last quarter after a huge run up for a number of years, that’s going to majorly impact what you’re doing. I think that the best thing to do is to keep the big picture in mind.

I’m going to throw up on the chart there inflection points for the last 15 years. You’re going to see that where we are, the little arrow that’s pointing there. I don’t believe that we’re at the top of a crevasse waiting to go all the way and straight down. If I were to show you a graph on back all the way to 1900, you would see that these things are normal, these variations like what you’ve seen and a tough quarter that we had, the second quarter, which really took away some of the gain from the first quarter. The reason why I’m not showing you that chart is most people’s time horizon is not another 112 years, so I’m really kind of showing the last 15 years, and hopefully your time horizon is long, even if you’ve just retired, I hope you’re going to live a very long time. I think that some of the overreaction is because the concern about the Fed, but I think the Fed, they have a rosier picture than what I’ve really seen. I think some of their inflation numbers are wrong as well.

I’m going to throw another chart up there. We’re going to see historical returns by holding period. What this shows is going back to 1950, 62 years, that the longer you hold historically, the range of your return in the various sector has a tendency to start to normalize out. Diversification, I think is really key in certain quarters and years, as I talked about gold already, that really help you. This past quarter it hurt you, so therefore, hopefully you didn’t have 100% of all of your assets in gold. That’s the purpose for diversification. It’s not a panacea in that in a generally trending down market, diversified portfolio may be down as well. However, I do think that that’s a wise approach as a tactic and a technique in order to reach your particular strategy. I keep stressing that you have to know where you’re going and have a plan, etc.

A little summary here. For the second quarter gold and dividend paying stocks, the Chinese market in general, and bonds were down, but I think that it was an overreaction. I am optimistic in that regard for the third quarter. I don’t believe, as I see things right now, that the third quarter will bring forth some huge decline and we all run for the door. I do think that we’re going to continue to be in a trading range, both this year and next year. That’s why having good managers that can take advantage of that is important. I’m a little disappointed that in June, some of those managers might not have foreseen that quick or abruptly as they could, but I think it’s an overreaction. It think it’s just a blip at this particular point.

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

By the way, I’m having a seminar on the 16th. Give Cassidy a call at my office if you would like to attend. It’s one hour. I’m a straight to the point, this is what I think and why I think it… My attention span is not greater than an hour so I certainly can’t expect anybody else listening to me to have an attention span greater than an hour. I’ll be very sensitive to the time. (303) 747-6455. You have a wonderful day. Thanks. Bye bye.

 

 

Thoughts on Current Market News

Jun 24, 2013 | Market Commentary, Video Updates

I think of today’s video as my “mid-newsletter” thoughts, as I want to be timely in my communication with you.

The stock and bond markets have been more prominent in the news lately, and I want to share with you my analysis.

So, is it jumping off the ledge time, or is this just a part of the cyclical nature of the markets?

Watch my video to find out my opinion.

 

Hi there. Mike Brady with Generosity Wealth Management, a comprehensive, full service, wealth management firm headquartered right here in Boulder, Colorado and I wanted to send out this video because there’s been a lot of news recently about the global sell off and yields and bonds and China, et cetera, and I wanted to bring you up to speed with where it is and also, just to make sure that we’re all on the same page.

The very first thing is — step away from the ledge. Everything in my opinion is going to be all right and this is a normal thing that happens. The markets are cyclical, which means they go up and they go down. Nobody really worries about things and everyone goes on with their daily lives when things are going up. When it starts to go down a little bit, people really start to freak out but it is part of the natural cycle of the market but this most recent one, I think, has been started by a number of different factors.

The first one is just some concerns about a tightening monetary policy, both in China and in the United States. Over in China, there’s a concern that they’re having a credit crunch and that money will not be loaned out in order to continue their great growth. That has really been harming a lot of the Asian markets, leading over to Europe, which is already sick and then leading to the United States and then Bernanke last week said that he is also putting out a blueprint – an outline for a tightening monetary policy or maybe not so much of a tightening one, but not as loose as it has been, which of course, leads to from that point of view, a tightening, so I’m going to put up on the screen here, if you could look at it, it is normal for there to be a intra-year decline in the unmanaged stock market indexes. That is normal and as you can see, I’ve just focused in there a little bit, and sometimes they’re double digit returns. It does not mean that the end of the year ends negative, okay, so that’s just real important that in an up and down market, things do go down at various points and I do think that this is an overreaction. That’s my opinion.

The next chart that I’ve thrown up there are historical returns by holding period and you’ll notice that in the left hand side is the one year, the range of going back many, many years, going back to 1950 that the range for one year is very high but then as we go up five year, 10 year, 20 year, the ranges have a tendency to get smaller, so the longer a time horizon, historically at least, the smaller those ranges are and it has a tendency to work itself out.

This next chart here are the stock markets since 1900 and you’ll notice that keeping the big picture in mind, there are some times great movement on the upside, sometimes on the downside as well, but you’ll also notice that those little tiny blips, et cetera, are what they are, just blips right there. I think that having a well diversified portfolio, while it does not guarantee any kind of an outcome or an absolute return one way or the other and many times, it has a tendency to go down in a generally trending market. It is appropriate for most people and if you’re my client, we of course, have talked about what portfolio and what managers might best meet you with your goals and your risk levels, et cetera.

Remember at the beginning of the year, I talked about how I felt that this was going to be a trading range type of year to two years and I was surprised by how strong things have looked over the last five to six months. Part of that is being a correction right now. You’ll also remember that I talked about China and Europe being sick and how they might spill over into the United States and I think that we’re seeing some of that right now. What’s interesting is the sharp decline in bonds, which would mean that their yield is going up and we’re just kind of quickly show you a graph there. This is the last five years of the 10-year note and in this case, down on the yield is actually good from a price point of view. Up is actually bad, so it’s kind of a funny chart in that regards. If you’ll notice that most recently it has swung up but – so that means that the price of things going down and so you know that’s just kind of what happens, you kind of see the whole chart there. It does go up and down. I don’t think that we should necessarily freak out. These things do happen but I will keep you informed as things go on.

Mike Brady, Generosity Wealth Management.

Give me a call if there’s anything that I can do to explain a little bit further. The end of the quarter is in just a few days. I’m actually doing this Monday afternoon. The market is down today. It’s very possible that the quarter will be negative, so the year-to-date, hopefully, will be positive but it’s very possible that this quarter will be negative for both the stock and the bond market, et cetera, so we’ll have to see how things turn out. If something dramatic happens later this week, I will send another video out. Otherwise, the next video you receive from me will be my quarter end review and my quarter preview for the third quarter, so anyway. Mike Brady, 303-747-6455. You have a wonderful day. We’ll talk to you later. Bye-bye.

 

What is Generosity Wealth Management’s Dynamic Value?

Jun 19, 2013 | Estate Planning, Financial Planning, Video Updates

It’s been my experience that when people don’t reach their financial goals it’s not because they failed to buy stock A over stock B, or bought this mutual fund over another.

Most of the time, it’s the bigger questions they’ve failed to answer, like “am I spending more than I earn?” or “what happens if I lose my spouse?”.

What is the dynamic value Generosity Wealth Management brings to the table? A = helping clients answer and address these issues, and keep the big picture in mind.

For a full discussion of this, listen to my short video where I expand on these ideas.

Good morning. Mike Brady with Generosity Wealth Management, a comprehensive, full service, wealth management firm, headquartered in Boulder, Colorado.

Today I want to talk about the dynamic value that I bring as a professional to the relationship with my clients; or at least my philosophy of where I probably add the most value. Here it is:

Point A is today. Prospective clients come in and they usually have a point B; what their goals are in the future and most of the time that’s retirement. Of course there’s usually a point C as well which is not outliving your money. So there’s a point B, something that we’re striving for in the future and of course a point C which is a secondary goal which is not outlive their money. Where I add value is all the planning from point A to point B and of course to point C. All the decisions that are there.

Understanding and explaining with the client and working with them the interdependence of all the various variables of; the saving, the investing and when to retire. All the decisions around retirement, how much the particular portfolio supports with various assumptions, upon retirement or withdrawal. All those various decisions- because what my experience has led me to really understand is when someone has not reached their particular goal it’s usually not because they bought stock A instead stock B or they had mutual fund A instead of mutual fund B; it’s because they frankly, didn’t save enough money; they spent more. Here’s your income and here’s your expenses and the expenses were greater than the income. They just didn’t save enough. Or it’s because they had some kind of a catastrophic event along the way like the loss of a spouse, the loss of a job, the loss due to some kind of a disability; and so part of that planning process is to proactively identify and talk about what are the contingency plans that we should have that could derail the great plan that we’ve come up with together. Many times that’s trying to identify them and have a plan for them. So that’s where I think I add some of the best value in the relationship.

I do believe that just having the appropriate investment plan that’s consistent with the risk level and the tolerance and the goals of a client are absolutely essential. I don’t want to minimize that in any way; however, I do want to say that that’s kind of the sexy part that everybody likes to talk about but I think what people really should focus on is that planning and a contingency for all those things that could derail that particular plan. That’s where I add the dynamic value to the relationship.

Mike Brady, Generosity Wealth Management 303-747-6455. Hopefully you’re my client; if you’re not my client hopefully you’ll give me a call and we can talk about what that client/ advisor relationship would look like.

Mike Brady, 303-747-6455. Have a great day. Thanks, bye, bye.

 

 

Stay Cool Under Pressure

Jun 19, 2013 | Funny / Interesting, Video Updates

 

I love this video because it shows a young man staying cool under pressure.

The cymbal breaks during a performance of the “Star Spangled Banner”, and instead of panicking, he calmly places his remaining cymbal on the floor and salutes the flag for the remainder of the performance.

I know it’s just a small event memorialized forever in a YouTube video, but it’s a reminder to me that when the unexpected happens, stay cool, and trust your instincts to do the right thing.