Keeping Up With Fiat

Market Update June 2017

June was generally a month of continued asset gains, although some investors were made a little nervous by some comments from the European Central Bank.  In the U.S., tweets continue to be plentiful and new legislation remains scarce.  Despite the worry areas, the economy continues to grow and continues to add jobs.

 

Stocks & Bonds

 

The U.S. stock market continued its upward trajectory in June.  Markets were reminded of the importance of global central banks when the ECB talked about winding down purchases.  That immediately put a damper on bond prices, not just in the EU, but around the world.  It also hurt European stocks somewhat, are corporate earnings are boosted by low interest rates and hurt by higher ones.  Here are the numbers:

 

S&P 500 Total Return MSCI EAFE BarclaysAggregateBond Adjusted CPI
June 0.62% -0.18% -0.10% 0.0%
May 1.41% 3.67% 0.77% -0.1%
YTD 2017 9.34% 13.81% 2.27% 0.5%

 

Commodities & Currencies

 

Oil continued to slide in June, losing almost 5% to close down almost 15% year-to-date.  OPEC is continuing to engage in saber-rattling to try to boost prices.  However, global inventories remain near record highs, and price speculators remain wary of American shale producers adding more supply to an already over-supplied market.  Gold drifted slightly lower, but is still up almost 8% for the year.

The U.S. dollar declined again, and is now down almost 6.5% year-to-date.  The currency market is apparently more bearish on the U.S. economic recovery than the stock market, and is essentially saying that the Fed is just about done with hiking rates for a while.

 

Economy

 

The ISM Manufacturing PMI in June came in at 57.8%, the 97th straight month of economic expansion.  The non-manufacturing, or services, index came in at 57.4%, also showing continued expansion.  The Commerce Department released its third estimate of first quarter growth, with yet another increase to 1.4%  (up from the first and second estimates of 0.7% and 1.2% respectively).  According to the Bureau of Labor & Statistics, the unemployment rate ticked up slightly to 4.4% in June, as a result of more individuals entering the work force than jobs were created.

 

The National Association of Realtors reports that existing-home sales in May 2017 were 2.7% higher than in May 2016.  In addition, the median price increased 5.8% to $252,800.  Median home prices have now been rising for the past 63 months.  Distressed sales (foreclosures and short-sales) were just 5% of total sales in May, down from 6% a year ago.

Commentary

The S&P continues to post new highs, earnings projections continue to rise, and everything looks rosy for equity bulls.  Here is a chart that is full of contrarian cold-water:

 

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Margin debt is not something most individuals will use – borrowing money to buy stocks involves too much risk.  However, there are hedge funds and other institutional investors who utilize margin debt in aggressive investment funds.  They are true market-timers, and because of the debt in their strategies they can carry tremendous leverage.  A 5% gain the S&P 500 for a retail investor might look like a 25% gain for a leveraged investor – and the inverse is also true.

 

So the amount of margin debt outstanding is an important piece of information in the overall conversation about the stock market.  Current levels look awfully high.  Indeed, peak levels of debt in 2000 and 2008 both presaged large market downturns.  This is because the more leverage there is in the market, the more stock market gains are dependent on day-traders, and the more shares have to be sold quickly if the market dips.  A 5% sell-off could spark much bigger selling not for fundamental reasons, but simply to cover margin calls.

 

This chart is certainly a little scary, and almost seems to predict a stock market crash.  Let me be clear – I am not predicting a stock market crash.  There are many differences between 2000 and 2008 and today.  For one, prevailing interest rates in 2000 were about 6%, rates in 2008 were 4.5%, and today they are just 2.5%.  So although the ‘mortgage’ is bigger than ever, the monthly payments are actually a bit smaller than they were in 2000 and 2008 because of the lower interest rate.  So the market could continue to move higher, of course.  Personally, I would not put much money on that thesis.

 

I think any prudent, long-term investor would continue to be somewhat skeptical of the gains in the S&P 500, and would continue to keep a balanced portfolio that holds bonds in the event of a stock market downturn.  In addition, I think it behooves investors to look for stocks outside the S&P 500 that might be less exposed to any downturn.

 

Please feel free to forward this to friends and family.

 

Sincerely,

Greg

 

 

This material was prepared by Greg Naylor, and all views within are expressly his.  This information should not be construed as investment, tax or legal advice and may not be relied upon for the purpose of avoiding any Federal tax liability.  This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such.  The S&P500, MSCI EAFE and Barclays Aggregate Bond Index are indexes.  It is not possible to invest directly in an index.  The information is based on sources believed to be reliable, but its accuracy is not guaranteed.

 

Investing involves risks and investors may incur a profit or a loss.  Past performance is not an indication of future results.  There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Listed entities are not affiliated.

 

 

Data Sources:

www.standardandpoors.com – S&P 500 information

www.msci.com – MSCI EAFE information

www.barcap.com – Barclays Aggregate Bond information

www.bloomberg.com – U.S. Dollar & commodities performance

www.realtor.org – Housing market data

www.bea.gov – GDP numbers

www.bls.gov – CPI and unemployment numbers

www.commerce.gov – Consumer spending data

www.napm.org – PMI numbers

www.bigcharts.com – NYMEX crude prices, gold and other commodities

https://www.advisorperspectives.com/dshort/updates/2017/06/27/a-look-at-nyse-margin-debt-and-the-market margin debt illustration

Market Update May 2017

 

 

 

 

 

 

 

 

 

 

May was a month of continued stock market growth, with a backdrop of increasing political turmoil in the U.S.  It appears less likely that a distracted President Trump will bring tax reform anytime soon, nonetheless the current drumbeat in the market is economic recovery, low unemployment, and a Fed poised for growth.  Most seem to be marching along.

 

Stocks & Bonds

 

The U.S. stock market continued its upward trajectory in May.  The Fed continues to focus on the low unemployment rate as evidence of a firm recovery, and market participants are apparently starting to believe.  The European stock market is continuing to outperform the U.S. year-to-date, after several years of under-performance.  Here are the numbers:

 

S&P 500 Total Return MSCI EAFE BarclaysAggregateBond Adjusted CPI
April 1.41% 3.67% 0.77% -0.1%
March 1.03% 2.54% 0.77% 0.2%
YTD 2017 8.66% 14.01% 2.38% 0.5%

 

Commodities & Currencies

 

Oil prices continued to lose ground in May, and for the year are now down over 10%.  Promised production cuts from OPEC have disappointed in real life, and inventories remain stuck near historic highs, keeping pressure on prices.  Gold drifted higher slightly, and is up just over 10% for the year.

 

The U.S. dollar lost over 2% for the month, and is now down over 5% year-to-date.  The currency market is apparently more bearish on the U.S. economic recovery than the stock market.

 

Economy

 

The ISM Manufacturing PMI in May came in at 54.9%, a reading nearly identical to April.  This indicates continued expansion, although somewhat softer than the growth of the first quarter.  The non-manufacturing, or services, index came in at 56.9%, down slightly from April’s reading, but still solidly in expansion territory.  The Commerce Department released its second estimate of first quarter growth, updating the partly first estimate of 0.7% growth to a still-meager 1.2%.  According to the Bureau of Labor & Statistics, the unemployment rate hit another multi-year low of 4.3% last month.  At the same time, the labor force participation rate remains stuck near a historic low of 62.7%.

 

The National Association of Realtors reports that existing-home sales in April 2017 were 1.6% higher than in April 2016.  In addition, the median price increased 6.0% to $244,800.  Median home prices have now been rising for the past 62 months.  Distressed sales (foreclosures and short-sales) were just 5% of total sales in April, down from 7% a year ago.

Commentary

One of the biggest mysteries, and perhaps the biggest complaint about, the current economic recovery is the lack of wage growth.  Official unemployment has fallen from near 10% at the height of the 2008-2009 crisis to near a historic low of 4%.  This plummeting unemployment rate has historically been matched with soaring wage gains as employers fall over each other to compete for workers.  That has not happened – and the wage gains that have accrued (at less than 2% annually since 2009) have largely been consumed by rising health care costs and higher income and payroll taxes:

 

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This is a problem.  President Trump is currently talking about repealing parts of Dodd-Frank, which could theoretically provide more access to credit for American consumers.  However, without growing incomes, there is ultimately a cap on the amount of debt that the consumer can bear.  With housing prices higher than they have ever been prior to the crisis, the relevant question is whether or not the expansion can continue.

 

Even if wage growth is weak, it still counts as growth, and by most measures the real economy certainly looks healthy.  But that does not mean the financial markets are also healthy.  The two are inextricably linked, but the real economy is the responsible, steady sibling, while the financial markets are certainly the more emotional and irresponsible of the two.  For example, in 2008 the S&P 500 fell 37.17%.  That same year GDP, the real economy, declined by only 0.3%.  The following year GDP declined a further 2.8%, while the S&P 500 came roaring back and gained 26.46%.

 

The questions in the financial markets are whether or not the consumer can keep borrowing, whether or not tax stimulus is coming, and whether or not there might be a new financial shock from outside the U.S.  Disappointing answers to any of those questions might only cause GDP to dip slightly into negative territory, but that could still mean painful days for the financial markets.

 

These remain challenging days for investors – stocks are at all-time highs, and sometimes the path of least resistance is upwards.  We remain long-term bullish, but also diversified to weather out the next rainy day, whenever that might be.

 

Please feel free to forward this to friends and family.

 

Sincerely,

Greg

 

 

This material was prepared by Greg Naylor, and all views within are expressly his.  This information should not be construed as investment, tax or legal advice and may not be relied upon for the purpose of avoiding any Federal tax liability.  This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such.  The S&P500, MSCI EAFE and Barclays Aggregate Bond Index are indexes.  It is not possible to invest directly in an index.  The information is based on sources believed to be reliable, but its accuracy is not guaranteed.

 

Investing involves risks and investors may incur a profit or a loss.  Past performance is not an indication of future results.  There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Listed entities are not affiliated.

 

 

Data Sources:

www.standardandpoors.com – S&P 500 information

www.msci.com – MSCI EAFE information

www.barcap.com – Barclays Aggregate Bond information

www.bloomberg.com – U.S. Dollar & commodities performance

www.realtor.org – Housing market data

www.bea.gov – GDP numbers

www.bls.gov – CPI and unemployment numbers

www.commerce.gov – Consumer spending data

www.napm.org – PMI numbers

www.bigcharts.com – NYMEX crude prices, gold and other commodities

https://www.bloomberg.com/news/articles/2017-05-19/unemployment-in-the-u-s-is-falling-so-why-isn-t-pay-rising – graphic illustrating wage growth and the unemployment rate

10 Years in the Books

My wife, Katie, and I are heading out for a week to celebrate our 10 year wedding anniversary, hooray! We are going to spend some time in the San Francisco area and make a visit to wine country while there.

Our wonderful support staff will be handling all requests while we enjoy our time out West.

It dawned on me the other day just how much time Katie and I have spent together. While this is our 10 year wedding anniversary, we spent a lot of time together before getting married. In fact, we have nearly spent half of our lives together. We started dating around the age of 20 when we met at the University of Iowa.

We both graduated as industrial engineers and shared many classes together our first year of school. After much persistence on my part, she finally agreed to give me a chance and it has all been a fairly tale from there (or close to it anyway)!

Color vs Black & White

Are you sure?

This is a question that I have chosen to ask myself on a regular basis lately. This idea comes from Thich Nhat Hanh – as a way to encourage us to get unstuck from rigid perceptions. Thich Nhat Hanh is a Vietnamese Buddhist monk, poet, scholar, and peace activist. He was nominated for the Nobel Peace Prize in 1967 by Martin Luther King Jr. for his efforts in generating peace and reconciliation in his native country.

A lot of us have likely heard the phrase “your perception is your reality”. I have recently been having a conversation with a common theme, with people from different areas of my life. Without even noticing, it seems that I have adopted a certain ‘operating system ‘the past handful of months relating to my perception of the world. This way of approaching the world has had a profoundly positive effect on my life and the experience of each day.

I have chosen to approach each situation with an open mind and decided to ‘try something on’ for a few days before I make a snap judgment. Rather than automatically discounting an idea or method because it doesn’t currently fit into ‘my reality’, why not try that idea on for a few days and take it for a test drive to see the true effects?

Let’s apply this to a real world situation that we all experience….food. We all eat at sometime or another, right? If you have spent any significant time in the health and nutrition world in the past five years, you will notice common themes across any eating approach (vegetarian, vegan, paleo, etc.). One theme that almost all camps agree with is the need for fat in our food. I remember growing up learning how ‘unhealthy’ fat was and how this stuff ‘can clog our arteries’. That position has changed in a big way. That is a great example of a shift of perception that affects all of us on a daily basis.

How does all of this apply to wealth management and investments? Well, if I only consider myself a specific style investor (value vs. growth) or only invest in certain asset classes (stocks, bonds, real estate, privately held companies) I am likely missing out on opportunities outside of my narrow scope, and possibly missing out on opportunities for clients. If I am not open to learning more about creative tax and estate strategies for clients, they are missing out on even more opportunities. So it is in my best interest, (along with my clients) to stay open minded, curious and always continue learning.

This doesn’t mean that everything will always stick, but at least ‘try the idea on’ for a few days (or months) and see the true effects. It almost feels like seeing the world in vivid color vs. black and white.
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc. Member FINRA/SIPC, and Registered Investment Adviser, P.O. Box 64284, St. Paul,  MN 55164, 800-800-2638. Fiat Wealth Management is unaffiliated with Woodbury Financial Services, Inc.
Fiat Wealth Management, 539 Bielenberg Drive Suite 100, Woodbury, MN 55125, Ph 952-426-9116

 

Photo credit: James Bandit Photography

Market Update April 2017

 

 

 

 

 

 

 

 

 

 

We are fortunate to have our esteemed friend Greg share his Market Updates with us. Please take a moment to review this important information.

Dear Client,

April was a month of corporate earnings announcements in the U.S., and a slow-down in the political arena. Earnings were largely positive, but with the stock market at historically high levels, apparently something bigger than earnings growth is needed to hit new highs. Markets are hoping for tax cuts from the Trump administration, but for now that hope seems to be sidelined as Obamacare and Russia-gate are proving to be unexpectedly difficult for the Republican administration to overcome. Nevertheless, with employment continuing to improve in the U.S., the path of least resistance for the stock market seems to be higher, at least for the time being.

Stocks & Bonds

The U.S. stock market continued its upward trajectory in April. However, the oil market and the bond market have diverged from the stock market in the last month, with oil prices falling and bond prices rising (bonds often sell-off when stocks are marching up). The European stock market is continuing to outperform the U.S. year-to-date, a reversal of last year’s performance. Here are the numbers:

Commodities & Currencies

Oil prices continued to lose ground in April, and for the year are now down over 8%. Gold drifted higher slightly, and is up just over 10% for the year.

The U.S. dollar lost over 1% for the month, and is now down over 3% year-to-date. The market had priced in a more aggressive Fed schedule for 2017, and is now backing off of those expectations somewhat.

Economy

The ISM Manufacturing PMI in April came in at 54.8%, showing continued expansion, although somewhat slower than the previous few months. The non-manufacturing, or services, index came in at 57.5%, showing expansion at an even better pace than the preceding month. The Commerce Department released its final estimate of fourth quarter GDP growth, calculating an annual rate of 2.1%. The Commerce Department also released its preliminary estimate of growth in the first quarter of 2017. The economy grew at an annual rate of 0.7%, according to this estimate. According to the Bureau of Labor & Statistics, the unemployment rate hit a multi-year low of 4.4% last month.

The National Association of Realtors reports that existing-home sales in March 2017 were 4.4%

S&P 500 Total Return

MSCI EAFE

BarclaysAggreg ateBond

Adjusted CPI

April

1.03%

2.54%

0.77%

0.2%

March

0.12%

2.75%

-0.05%

-0.3%

YTD 2017

7.16%

9.97%

1.59%

0.6%

higher than in March 2016. In addition, the median price increased 6.8% to $236,400. Median home prices have now been rising for the past 5 years. Distressed sales (foreclosures and short- sales) were 6% of total sales in March, slightly lower than in the previous month.

Commentary

There is nothing more boring than a money market. Or rather, the best case scenario is that there is nothing more boring. In 2008, one of the scariest parts of the American financial crisis was that supposedly-boring money markets were perhaps no longer safe. A money market is a cash account which is not FDIC insured, but is designed to be a safe store of value. It holds only short-term loans (30 days or less) of the highest quality. In other words, it is boring, because everyone wants it to be boring.

So when money market rates spiked in China in the last few days, it is a reminder that despite the continued economic recovery in the U.S., there remain abundant risks.

In China, the leaders are worried that debt-fuelled growth has gone too far, and too fast. At different times, they have tried to ‘let the air out of the balloon’ slowly, but this is a difficult task. They recently announced new regulations designed to clamp-down on the most risky types of new loans – and money market rates spiked. That is worrisome not because the new regulations affected interest rates – they were intended to affect interest rates. But they were intended to affect only the most high-risk type of financial instruments – why would boring old money markets react so strongly? The clues, unfortunately, point to a financial system that is simply over-extended.

This might be less noteworthy if it were happening in Slovenia – but China is one of the world’s largest economies, and arguably its biggest engine for growth. While the U.S. and Europe struggle with aging populations, historic debt, and low-single-digit economic growth, China’s economy is roaring along at 6-7% annual growth. Most economists estimate that up to a third of the globe’s economic growth is due to China. So the old saying that ‘if the U.S. sneezes, the rest of the world catches cold,’ could easily and accurately be transferred to China.

To be clear, the increased money market rates in China are not a crisis – but they are an interesting data point and something to watch.

As always, feel free to share this newsletter with friends and family.

Sincerely, Greg

 

This material was prepared by Greg Naylor, and all views within are expressly his. This information should not be construed as investment, tax or legal advice and may not be relied upon for the purpose of avoiding any Federal tax liability. This is not a solicitation or

recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The S&P500, MSCI EAFE and Barclays Aggregate Bond Index are indexes. It is not possible to invest directly in an index. The information is based on sources believed to be reliable, but its accuracy is not guaranteed.

Investing involves risks and investors may incur a profit or a loss. Past performance is not an indication of future results. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Listed entities are not affiliated.

Data Sources:

www.standardandpoors.com – S&P 500 information www.msci.com – MSCI EAFE information
www.barcap.com – Barclays Aggregate Bond information www.bloomberg.com – U.S. Dollar & commodities performance www.realtor.org – Housing market data

www.bea.gov – GDP numbers
www.bls.gov – CPI and unemployment numbers
www.commerce.gov – Consumer spending data
www.napm.org – PMI numbers
www.bigcharts.com – NYMEX crude prices, gold and other commodities https://www.ft.com/content/2e513fbe-2b23-11e7-bc4b-5528796fe35c – chart on Shanghai money market rates

Diversification

Ur Kungl. bibliotekets samlingar – [librisid: 8401659]
DIVERSIFICATION, it’s one of those words that some of us may hear in passing and don’t give much thought.  It is one of those buzzwords, one of those ‘should do’ items on our list.  Over the series of the next three posts, we are going to talk through the three different types of diversification that I discuss with clients with regards to finical planning.  Most of the time when I refer to diversification in client meetings, the first thing that comes to mind is investment diversification.  This is the run of the mill stuff you will read in finance magazines and hear on the morning show of your local cable channel.  This is the easy part.  Well, not that easy, but this is our expertise and where a majority of wealth managers will focus.  If you think about this, it makes sense.  If you recall one of our first visits together as a client you may recall this masterpiece:

elevator-pic

 

You will recall that I ask you to imagine you are in the North Loop area of downtown Minneapolis in one of those beautiful brick and timber, renovated warehouses.  However, the elevators have not been updated as a nod to the vintage character. You are on the 14th floor and you have the choice between two elevators as illustrated above (by a talented artist ;)). The elevator on the left has one thick cable. The elevator on the right has 6 cables, not quite as thick but very sturdy and thick enough. Which do you choose?

I would hope you choose the elevator with 6 cables, unless you really enjoy living on the edge. If the one cable snaps on the elevator on the left, you are in for a ride to the bottom. If the cable on the right elevator snaps, the 5 other cables hold us up long enough to fix the broken cable.

This same concept applies to investment diversification. If we have all our money invested in ONE company, that is in ONE industry, in ONE location, in ONE sector with ONE management team, we are choosing the ONE cable elevator. If that ONE company has an unforeseen event (compromise of identity of customers, security breach, fraud, etc.), then we are at the risk of riding that ONE elevator down to the ground. By now, I am sure the word ‘Enron’ has popped in your head.  There are, unfortunately, more examples of this scenario as well.

There is a caveat to this example. I personally work with many entrepreneurs and love the experience in helping these individuals. As an entrepreneur, it often requires that they ‘bet the farm’ to succeed – not always, but often enough. The big difference is that they are essentially betting on themselves rather than another management team. If the idea or company fails, then they shoulder the responsibility and the opposite is true if they succeed.  While this may seem counter-intuitive to the concept above, this is all more the reason for entrepreneurs to diversify their assets outside of their business.

The next post will discuss the next diversification concept with a fun, real world example that may ring a bell for many of us.

 There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment.  No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values.

Market Update January 2016

JANUARY 2016

January was an eventful month, as stocks around the world had one of their worst starts in history. Many market commentators believe that the bad news from China is currently the strongest influence on markets. Worries about China are for the moment drowning out the good news in the U.S., as preliminary estimates show the U.S. chinaeconomy grew 2.4% last year, and unemployment has reached a multi-year low of 4.9%. As is usually the case, markets are much more volatile than the real economy. Although the Chinese government is using all of its available tools to keep their economy growing, the capital flight from China is enormous and it seems their currency concerns will get worse before they get better.

Stocks & Bonds

stock market 2The S&P 500 dropped in January, as did most global stock indexes. Even bonds, normally a safe haven, weren’t immune, although highly-rated U.S. treasuries performed well. By the numbers:

S&P 500 Total Return MSCI EAFE BarclaysAggregateBond  Unadjusted CPI
January -4.96% -7.27% -0.32% Pending
December -1.58% -1.83% 1.08% -.3%
YTD 2016 1.20% 0.44% 3.04% Pending

 

Commodities & Currencies

NYMEX crude continued its slide in January, dropping almost 12% to start the year. Dollar moved in line with its traditional safe-haven status, gaining almost 1% against a trade-weighted basket of foreign currencies. After some rough months and years, gold finally gains of just over 5%, as global financial worries led to its re-emergence, at least for now, as a safe-haven instrument.

Economy

ISM Manufacturing PMI in January came in at 48.2, marking the 4th consecutive month of contraction. The non-manufacturing, or services index, is still in expansionary territory at 53.5. American business with other Americans, which represents the majority of the services index, is quite strong as our domestic economy seems resilient. American manufacturing depends much more on exports, and so is more impacted by recent dollar strength and global economic weakness, hence its relatively weaker reading.   The Commerce Department released its first estimate of GDP for 2015, indicating that our economy grew 2.4% last year. This would match exactly the pace of growth in 2014. The number of sales of existing homes in 2015 was 7.7% higher than in 2014. Also, the median price in December 2015 was $224,100, a 7.6% increase from December 2014. Distressed sales (foreclosures and short-sales) continue to shrink as a percentage of the overall market, down to 8% of the total. A year ago that number was 11%.

Summary

More than one person has asked me whether oil is an attractive buying opportunity. After all, we experienced a price collapse of oil in 2008, and subsequently saw the price almost triple in just a few years. For the record, I was buying oil majors on behalf of many clients in 2008, as I also believed that the price collapse represented a compelling opportunity. I believe there is one fundamental difference between then and now. In 2008, there was a oil 3financial crisis – a credit crisis which led to a collapse in stock markets, debt markets, oil markets etc. Basically panic ruled the day. The underlying demand for oil remained quite strong, and government stimulus was yet to be applied to ignite global growth. So the panic sell off of oil was more about financial markets than it was about underlying supply and demand in the oil markets.

Last year’s oil selloff was not predicated on a financial crisis, at least not an obvious one. The revolution in U.S. oil production really is a revolution. The U.S. has surpassed Saudi Arabia as the world’s largest producer of oil. This massive and unexpected supply glut is finally pushing prices lower. Many market observers believed that these low oil prices would be unsustainable for very long, and that less efficient oil producers would declare bankruptcy, bringing balance back to the force. And by ‘the force,’ I mean ‘the oil market.’

That has not happened. U.S. production has barely budged. Saudi production has actually increased as they defend their market share. On the demand side, a large part of global oil demand growth has come from… you guessed it… China. As China continues to devalue the yuan, it is likely that their oil purchases will ultimately fall as well. A large amount of their oil purchases are not for consumption; rather China has been building one of the largest strategic petroleum reserves in the world, taking advantage of falling oil prices to buy extra oil.

So even though oil prices are low, they are actually artificially inflated as a result of Chinese buying oil and pumping it into the ground, after the Saudis have pumped it out of the ground and shipped it across the globe. This sequence of events makes sense from a political and military perspective, but certainly not from an efficiency, environmental, or economic perspective. I expect this pattern to dwindle, perhaps significantly, in the coming months and years, essentially in lockstep with any further yuan weakness.

 
THIS MATERIAL WAS PREPARED BY GREG NAYLOR, AND ALL VIEWS WITHIN ARE EXPRESSLY HIS. THIS INFORMATION SHOULD NOT BE CONSTRUED AS INVESTMENT, TAX OR LEGAL ADVICE AND MAY NOT BE RELIED UPON FOR THE PURPOSE OF AVOIDING ANY FEDERAL TAX LIABILITY. THIS IS NOT A SOLICITATION OR RECOMMENDATION TO PURCHASE OR SELL ANY INVESTMENT OR INSURANCE PRODUCT OR SERVICE, AND SHOULD NOT BE RELIED UPON AS SUCH. THE S&P500, MSCI EAFE AND BARCLAYS AGGREGATE BOND INDEX ARE INDEXES. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX. THE INFORMATION IS BASED ON SOURCES BELIEVED TO BE RELIABLE, BUT ITS ACCURACY IS NOT GUARANTEED.
INVESTING INVOLVES RISKS AND INVESTORS MAY INCUR A PROFIT OR A LOSS. PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS. THERE IS NO GUARANTEE THAT A DIVERSIFIED PORTFOLIO WILL OUTPERFORM A NON-DIVERSIFIED PORTFOLIO IN ANY GIVEN MARKET ENVIRONMENT. NO INVESTMENT STRATEGY CAN GUARANTEE A PROFIT OR PROTECT AGAINST LOSS IN PERIODS OF DECLINING VALUES. LISTED ENTITIES ARE NOT AFFILIATED.

 

DATA SOURCES:
WWW.STANDARDANDPOORS.COM – S&P 500 INFORMATION
WWW.MSCI.COM – MSCI EAFE INFORMATION
WWW.BARCAP.COM – BARCLAYS AGGREGATE BOND INFORMATION
WWW.BLOOMBERG.COM – U.S. DOLLAR & COMMODITIES PERFORMANCE
WWW.REALTOR.ORG – HOUSING MARKET DATA
WWW.BEA.GOV – GDP NUMBERS
WWW.BLS.GOV – CPI AND UNEMPLOYMENT NUMBERS
WWW.COMMERCE.GOV – CONSUMER SPENDING DATA
WWW.NAPM.ORG – PMI NUMBERS
WWW.BIGCHARTS.COM – NYMEX CRUDE PRICES, GOLD AND OTHER COMMODITIES
WWW.FEDERALRESERVE.ORG – HISTORICAL DATA ON 10-YEAR TREASURY NOTE

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Welcome 2015

Welcome 2015

2014 was a great year and I hope 2015 will be just as good.  Here are some updates from 2015 to our financial planning process.  In 2015 the contribution limit to employees participating in a employer sponsored plan, (401k, 403b, and TSP) has gone up to $18,000 per year.  The catchup contribution level also increased to $6,000.  Meaning if you are over 50 you can save up to $24,000 per year.  This equals out to an even $1,500 and $2,000 per month respectivealy.

However IRA and Roth IRA contribution levels remain the same $5,500 and $6,500 respectively.

The income limit to contribute to a Roth IRA has also gone up.  An individual’s adjusted gross income has to be under $116,000 per year and for a married couple $183,000 per year.

Annual gifting limits will remain unchanged in 2015 at $14,000 per year.

All of these figures have been pulled off of the IRS’ website at irs.gov

No other major changes to limits on savings and please see your tax advisor for an update on any changes to the tax code.

What does this mean to you?  Well you should talk to your financial advisor to see if you should invest more into your IRA’s and 401k’s or to see if it will make sense to use gifting strategies to pass money to some of your beneficiaries’.

I wanted to wish everyone the best in 2015 and if you have any questions about any of this please don’t hesitate to reach out to use at Fiat Wealth Management.

 

MattTrees

Merry Christmas

2014 has been a wonderful year! Thanks for all of your support this past year, and we can’t wait to make 2015 an even better one!

Wishing you and your family a very Merry Christmas! I hope this finds you enjoying some quality time with family and friends!

… and cheers to 2015!
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