Week in Review

Good afternoon everyone. In case you missed it, here’s what happened in the markets this week. This week it seems that no news is good news. So, in the absence of any breaking news I’m going to change the format up a bit and hit on articles related to Investing, Retirement, Personal Finance, and a Random Read that I want to share.

Investing

The Rise of Amazon from The Irrelevant Investor - There’s a hard truth behind if only I’d invested in…and this article does a great job of using Amazon as an example. In a nutshell if you’d invested $10,000 in Amazon in 1998 your investment would be worth over $3,000,000 today. Seems perfect. So why am I not going out trying to find the next Amazon for my clients? The reason is that almost immediately after purchasing your stock, from 1999 to 2001, you would’ve had to watch the value of your stock plummet by a whopping -93%. How many people out there could actually stomach that much of a dip? My guess is not a lot. So there’s no sense beating yourself up over a lost opportunity. There’s a lesson here somewhere….For me it’s whenever you’re presented with an opportunity that could be the next Amazon or Apple ask yourself if you’re willing to watch the value of your investment decrease by -93% AND have the conviction not to sell—and if so, how much of your savings are you willing to risk on such a gamble?

Retirement

The Ten Commandments of Retirement from Marketwatch - Such a great article on what you need to know heading in to retirement. Here are some of the highlights:

2. “Remember that Social Security is designed to replace no more than 40% of pre-retirement income—and for many, that 40% is an overestimate, because the benefit calculation is skewed toward lower income Americans. In retirement, you’ll want some steady sources of income, and Social Security is probably the most secure. But recognize that it’s intended to be a minor part of your total income.”

7. “Save as much as possible as soon as possible. You can always reduce your savings rate later. Investment compounding really is powerful. Load up on savings early in your career and let the money work for you in the decades that follow. When money gets tight, such as when paying for the kids’ college, you may need to trim savings for a few years. But if you over-saved during the first 10 years or so of your career, you will likely still reach retirement in good shape”.

8. “Recognize that your taxes may not be lower during retirement. All the signs point to higher taxes in the future for everyone.”

Personal Finance

Teaching Finances to Your Future College Student from Capstone Wealth Partners - When should you start discussing finances with your children? It’s a tough question to answer. But as it turns out, during the college admissions process might be the perfect time. This article shows you how going over what a post-grad budget will look like with your kid might actually be the best way to help them decide on a college too. Budget spreadsheet included.

Random Reads

Can You Tell Sports Commentary From Political Commentary from FiveThirtyEight - If you do one thing this weekend watch this video and see how well you do.

Have a great week everyone! And as always, thanks for reading.

*These are the general views of Stanton Burns and they should not be construed as investment or financial advice for any individual. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Stanton Burns does not maintain positions in any securities mentioned as of the writing of this article. Past performance is historical and does not guarantee future results.

Week in Review

Good morning everyone. In case you missed it, here’s what happened this week…Trade is in the spotlight yet again as China announced retaliatory tariffs ahead of the markets open on Friday. Targets include agricultural products, crude oil, small aircraft, and cars. I’ve chosen to include this story at the bottom for those who are as tired of reading about trade as I am sometimes of writing about it. That means we’ll kick things off this week with Pumpkin Spice Lattes and career opportunities as snake bounty hunters in the Everglades.

Markets got you down? Cool off with a piping hot cup of Pumpkin Spice Latte. Howard Schultz, the former CEO of Starbucks, was once quoted as saying, "we are in a collision course with time," regarding global warming. Perhaps to highlight the effects of global warming, the company he founded has begun offering their signature Pumpkin Spice beverage earlier and earlier every year. This year the drink is scheduled to hit stores August 27th—a month most of us still consider summer. Unbelievably, competitor Dunkin Donuts has already released their own Pumpkin Spice latte. Nevertheless, there is obviously demand for this sort of behavior. Starbucks stock has had an incredible run under the helm of CEO Kevin Johnson—up over +85% in the last 12 months.

If pumpkin spice in August isn’t hot enough for you look no further than a career as an Everglades python hunter. This has absolutely nothing to do with the markets but is too fascinating not to talk about. Tallahassee is expanding career opportunities in this field as tens of thousands of this non-native species roam the Everglades. Bounty hunters can earn $8.46/hour for a 10-hour maximum daily, must be a registered snake hunter, and receive $50 for up to 4-feet long pythons and $25 for every additional foot. With a $200 bonus for nesting females. Florida is hoping this will help stop a snake population that is currently robbing the local panther, raptor, alligator, and bobcat populations of their food. Personally, I think the only thing scarier than hunting pythons is hunting pythons in an area with panthers, raptors, alligators, and bobcats who haven’t had a good meal in years. But that’s just me.

Most Dangerous Game. On to the markets…Let’s talk about trade. The previous two rounds of tariffs cost American taxpayers an estimated $600 annually. After this latest round set to begin in September, it's estimated that the average American household will lose $1,000 annually. That’s an additional $400 less you’ll have to spend on food, gas, and tickets to Saint Louis’ new XFL team the BattleHawks. The threat to the U.S. economy as a result of the trade dispute with China is now considered severe enough that the Federal Reserve has begun to step in and lower interest rates—rates which are already historically low—to preserve economic expansion in the U.S.

This is a dangerous game for everyone. And China has a trump card that President Trump does not. There's a chance, as with every election, that the incumbent President will not win reelection. And China appears content to wait out the trade war until 2020 in the hopes a more accommodative Democratic candidate wins. To this end their latest round of retaliatory tariffs appear to be targeting Trump's voter base where it hurts the most—the Midwest. Tariffs on Soybeans will hit Iowa's economy. And tariffs on American automobiles will hit Michigan and Ohio's economies.

It’s unclear what the long-term effects of this trade dispute will be. In the short term the U.S. manufacturing sector, which is largely export-driven, is now showing signs of slowing. This is an important reminder that a trade dispute between the U.S. and China does not just affect the U.S. and China. It hurts growth in other countries as well. It should come as no surprise then that slowing global growth means fewer countries can afford to import goods from the United States.

What will the outcome be if China’s wait-and-see approach works? There are too many what-ifs in this scenario to even begin to speculate how all of this will end. But it does make you wonder if the potential upside outweighs the potential downside to a prolonged trade dispute.

To this end, the market drop on Friday seems to be more of a reflection of the fact that there is no clear end in sight to to this trade battle than the new tariffs themselves.

CNBC has more on the trade war impact here: Here’s what new tariffs will cost an average American household.

Concentrated. Tech companies now make up more than 25% of the value of the U.S. stock market. Five of these companies (Facebook, Amazon, Apple, Google, and Microsoft) make up close to 15%. The last time this happened was 2000. Technology has come a long way since then. During the dotcom bubble the concern was that tech firms were unable to justify their high valuations. Today is a different story. Those same five tech companies generate 12% of all pre-tax profits from non-finance firms in the U.S. Leading many to ask, have these tech firms accumulated too much power?

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Have a great week everyone! And as always, thanks for reading.

*These are the general views of Stanton Burns and they should not be construed as investment or financial advice for any individual. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Stanton Burns does not maintain positions in any securities mentioned as of the writing of this article. Past performance is historical and does not guarantee future results.

Week in Review

On Monday, the yield curve briefly inverted. By inverted, I mean that for a short amount of time on Monday you could make more money owning a 2-Year Treasury Bond than a 10-Year Treasury bond. And this is seen by many as a reliable indicator of a coming recession. This is why the market selloff happened. If you dig a little deeper you'll find the actual significance of this event is debatable—for several reasons.

The first is that historically the yield curve needs to stay inverted for more than a few hours—more like a few weeks or months—for the indicator to be reliable. The second is that even when the curve does stay inverted it could take anywhere from 10 to 36 months for a recession to occur. And last but not least, a recession does not necessarily mean that a bear market is coming. The two are correlated. But unlike a high school romance, the two aren’t codependent on each other.

The big question is what is the actual culprit of this inversion? It isn't GDP—that's still growing. Unemployment is still low. Retail Sales and Consumer Confidence continue to increase. So what gives? All signs point to a market worried about a prolonged trade war with China (which is slowing global growth) and a global economy looking for yield—and finding it in US Treasury Bonds—which in turn is causing the curve to invert.

Here are two of my favorite quotes from financial analysts commenting on what happened.

“The contradictions in the shape of the US yield curve versus the economic data and credit conditions have been reinforced by two other variables – risk aversion and the carry trade. The former has been caused by the grinding US-China trade dispute and the latter by the interest rate differential between the US and other developed markets. In turn, this has underpinned the US dollar and money markets with last week’s inflows running at the same rate as last December. Moreover, August historically produces the worst monthly returns.”

- Jefferies

And my personal favorite...

“Damn the trade war torpedoes sowing the seeds of uncertainty, it is full speed ahead for the American consumer as they pull out all the stops to keep the economy humming as we start the second half of the year. This is not what a recession looks like. We know. We checked it. The rule of thumb for recession is three consecutive months of declining retail sales. Instead, retail sales are soaring with sales jumping 0.7% in July and non-auto retail sales up 1.0%.”

- MUFG

What's the takeaway? Go enjoy your weekend.

As always, thanks for reading!

*These are the general views of Stanton Burns and they should not be construed as investment or financial advice for any individual. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Stanton Burns does not maintain positions in any securities mentioned as of the writing of this article. Past performance is historical and does not guarantee future results.

Week in Review

Good morning everyone. In case you missed it, here’s what's happening in the markets...


Wall Street’s Roller Coaster. The last week on the market has been an absolute roller coaster. Last week, Fed Chairman Jerome Powell gave the market what it wanted; and then he didn't. He cut interest rates 0.25% to support the economies ongoing expansion and the market reacted positively. Then the post-meeting interview happened. The market had been planning a road trip with the Fed for the remainder of the year. One that included multiple rate cuts. They were hoping Powell was planning the same, and that he'd reveal his map to them. Instead, Powell revealed he had no map, and was perhaps unclear on the actual destination as well. And stocks tumbled as a result.

Not to be outdone, President Trump followed up this market selloff with his announcement of a new round of tariffs against China on Friday. A 10% tariff on some $300b of Chinese goods starting in September, to be exact. The market reacted the way you would expect it to when it looks as if a new round of tariffs will eat into company profit margins.

To make matters worse, on Monday the value of the Chinese yuan began to fall. It appeared China was devaluing its currency in retaliation to the tariff announcement (essentially nullifying the effect of any additional tariffs).

Was the markets response to these events a knee jerk reaction based on short term data? Or, is the economy finally starting to weaken?

Let's look at a few numbers from this past quarter.

GDP +2.1%. Gross domestic product grew at 2.1% last quarter, beating the consensus estimate of 1.9%. While this number is not the 3.1% growth the economy posted during the first quarter of the year. It is, however, in line with the 2%-2.5% growth the economy has averaged since 2008.

Tim Mullaney of MarketWatch had this to say on the topic: “Two conclusions jump out. First, things aren’t that bad; as I’ve said before, the slowdown is likelier a reversion to the 2% to 2.5% mean that U.S. growth has shown since the 2008 financial crisis than it is the opening act of a recession. Second, to the extent things are weaker, it’s because of softness in China’s economy, which has several causes — and the one the U.S. can do the most to make better, or worse, is trade policy.” You can read the rest of his opinion piece here.

Unemployment Rate: 3.7% (unchanged). Joel Naroff of Naroff Economic Advisors had the following to say, "Job growth is right where it was expected to be and with [consumer] confidence remaining high, the only concern remains trade wars, which look to be heating up again...We have a volatile president and an unanchored Fed and what that means for the economy is anyone's guess."

You can read more about his opinions here.

These data points seem to indicate that trade is the biggest roadblock to continued expansion. The economy is growing and unemployment remains low. But trade war issues seem to be here to stay. With little clarity on what our President's next moves will be, or how the Fed will react to them, uncertainty will likely continue to reign. And uncertainty often leads to volatility. In lieu of a crystal ball, the best antidote to volatility is often a well diversified portfolio built to withstand these "market shocks."


Independence Day

The following stocks have decided to take their destiny in to their own hands.

Since 2009, Apple CEO Tim Cook has guided the company under the belief that Apple needs to own the technology behind their products. This belief is coming to fruition as Apple is set to acquire the majority of Intel's smartphone chip unit. The deal means that some 2,200 Intel employees and 17,000 patents will now be a part of Apple. This is good news for both Intel and Apple. Intel's smartphone unit has been losing money to the tune of $1 billion a year. Divesting away from this portion of their business means Intel will now be able to focus on their core profit centers. And Apple will now have direct control over a critical component of their smartphone business.

Amazon has officially severed ties with FedEx. The company has been working for some time to build out its delivery infrastructure--cargo planes, delivery vehicles, and warehouses. In fact, a new warehouse just opened down the road from us in Saint Charles, MO. And as Amazon is prone to do, they have decided not to keep this new aspect of their business to themselves. Amazon has quietly begun to roll out their freight service to companies.

And last but not least, Disney. Disney plans to debut it's streaming competitor to Netflix on Nov. 21 this year. As far as pricing, the company announced that a combo package of Disney+, ESPN+, and Hulu will cost $12.99/Month. This is the same price Netflix charges for their streaming package and creates, at least for me, an awfully tough decision. 

Have a great weekend everyone!

*These are the general views of Stanton Burns and they should not be construed as investment or financial advice for any individual. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Stanton Burns does not maintain positions in any securities mentioned as of the writing of this article. Past performance is historical and does not guarantee future results.

Week in Review

Good morning everyone. In case you missed it, here is what's happening in the markets. The S&P 500 crossed the 3,000 mark this week. The index is up over 20% year to date, and up 8.5% over the past 12 months.

Interest in Interest Rates. Fed Chairman Jerome Powell spent last Wednesday and Thursday testifying before the Senate. At this hearing, Powell signaled an interest rate cut is likely later this month. Or, to be more precise, Powell said nothing to discourage this expectation. And this in and of itself has investors happy.

Why is this significant? Interest rate cuts are one way the Federal Reserve can help a weakening economy. While the U.S. economy isn't weak. It isn't exactly strong either. Record-low unemployment numbers have still not created significant increases in wages or inflation. The economy is in limbo. So, are rate cuts the answer? If you believe the main factors harming world growth are tariffs and the threat of a re-escalation in our trade dispute with China, the answer is "not likely". Lower interest rates would not lower the cost of tariffs. And a 0.25% cut is unlikely to help rate-sensitive sectors of the economy either (e.g. housing). In other words, people probably aren't going to rush out to buy a home because mortgage rates went down ~0.25%.

Where does this leave the market? Tax stimulus supported business last year, with many companies reporting record growth. But in the absence of additional tax stimulus, this year is a different story with many companies lowering or missing their revenue projections. However, the market is still doing extremely well. The S&P 500 is up over 20% year to date. One reason the market is doing so well is interest rates are still very much below normal levels. Unable to earn money in bonds or cash, investors have turned to stocks. And this has caused the price of stocks to continue rising. The question now becomes, at what point do these price increases become unsustainable?

So what's an investor to do? Ray Dalio, the founder of Bridgewater Associates, offered his thoughts this week. According to Mr. Dalio, every 10 years or so the economy goes through a "paradigm shift." Each new paradigm lasts until the majority of investors adapt. And this causes another shift to happen. As this current paradigm has lasted over 10 years (since 2008), Ray offered the following thoughts.

In a nutshell: Investors will soon experience diminishing returns as equity markets become overbought and it becomes harder and harder to justify high stock prices. He believes the next shift will be towards assets that excel when money is depreciating and domestic and international conflicts increase. The asset he’s referring to is gold.

His reasoning for this claim is the "easy money" the market has received since the financial crisis has created a system flush with cash. Case in point: Boeing. From 2009-2017 Boeing spent close to $30 billion buying back shares of its own stock. Meanwhile, it's underfunded pension received only $10 billion in contributions. Add significant government liabilities (Medicare and Social Security) on top of this and eventually, Dalio believes, central banks will run out of stimulant.

Speaking of Earning Misses…Shares of Netflix fell this week after the company reported fewer paid subscribers globally than projected. Far fewer. Netflix projected that its subscriber base would increase by 5 million last quarter. The actual total came in at 2.7 million. Netflix has blamed this miss on price increases and the platforms original content. This in and of itself is surprising given the $12 billion the company spent on content last year. To make matters worse both The Office and Friends will soon be leaving Netflix's platform, and competition is increasing from Apple, Disney, and AT&T. On the bright side, Netflix kicked off the 3rd quarter with the premier of Stranger Things season 3. The show drew in 26.4 million views in its first four days.

Have a great weekend everyone!

*These are the general views of Stanton Burns and they should not be construed as investment or financial advice for any individual. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Stanton Burns does not maintain positions in any securities mentioned as of the writing of this article. Past performance is historical and does not guarantee future results.