Week in Review

Being aware of the environment we’re in is helpful. Being honest about the present risks and dangers is rational. Training ourselves to remember that risk is the only reason there is any reward to begin with is critical. And then building portfolios that account for all of the various risks that may arise is logical.
— Josh Brown

Josh Brown, CEO of Ritholtz Wealth Management, made headlines on CNBC last week. By the closing bell on October 2nd, the Dow had dropped close to 2%. This marked the 7th straight quarter of zero progress since the trade war started in January 2018. CNBC Closing Bell anchor Wilfred Frost asked Josh the question, "what's your advice for investors on a day like today?" Josh Brown's response was, "my advice never changes. Diversified portfolios are the key." I loved this response because it mirrors my own beliefs about investing. In 2018 every time you turned on the TV another market commentator was telling you interest rates are going to rise, and it’s a bad time for bonds. Had you listened to them and sold your bonds you would’ve missed out on the +17% increase long-term treasuries have seen since January 2018—a return that’s even beaten the stock market over the same time period. You can watch the full clip below.

Thanks for reading. 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 afternoon everyone. In case you missed it here's what happened in the markets this week…

Saudi Aramco. Drone attacks over the weekend severely disrupted output for the world's largest oil producer. Why does this matter? Less supply creates higher demand-a cycle that often leads to higher prices. Naturally, this spooked the markets, leading to a drop at the start of the week. Bottom line: Money spent on energy in the U.S. has decreased dramatically since the 1970s. And the U.S. oil industry has matured, largely protecting it from random price spikes. Saudi Aramco restored 1/3 of their lost output on Monday, and President Trump put the U.S. Petroleum Reserve on standby. Just in case.

Streaming Wars. Apple announced it will debut its Apple TV+ streaming service in November for $4.99/month. The service is priced distribute original monthly content cheaper than Netflix, Hulu, and Disney+. Oh, and if you buy an Apple laptop, desktop, iPhone, or iPad you get a one-year subscription free. Why does this matter? Apple moved 280 million units last year. Not accounting for customers who bought multiple products, that's up to 280 million people who will automatically become Apple TV+ customers for 12 months. Bottom line: As the battle for intergalactic domination continues Apple has a potential advantage when it comes to adding subscribers to its streaming service.

Random Reads for the Weekend

Halloween Travel Bucket List (POPSUGAR). Halloween is just around the corner (and my favorite Holiday). In the spirit of Halloween…If you’ve ever thought, hey, I’d love to plan a spooky road trip across the country, then let this article be your guide.

Rocket Scientist Invents New Way to Pay Down Debt (Huffington Post). This is an older article but still a great one on how to pay down debt quickly, safely, and in a way that helps you live wealthier now. I love referring back to it from time to time. Enjoy!

Thanks for reading. 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 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.