Market and Portfolio Update

Here comes the Fed AGAIN !

It is hard to believe that we are about to discuss the possibility that the Fed may cut rates in their next meeting at the end of this month.  Keep in mind that the reason that the Federal Open Market Committee (FOMC) reduces the Fed Funds rate is to stimulate economic growth, lower financing costs and encourage borrowing and investing.  Is that really what we need?  The Fed is supposed to cut rates when the economy needs a boost.  Unemployment is at a record low, the stock market is at a record high and the economy is still fundamentally strong.  Our economic system does not appear to be in need of help.  I think something that James Foote, 40-year railroad industry veteran and CEO of CSX since 2017, recently stated on an earnings conference call summed things up quite nicely.  He said, "the present economic backdrop is one of the most puzzling I have experienced in my career".

Here’s what FOMC Chairman, Jay Powell, himself delivered in written testimony to Congress earlier this month: “The labor market remains healthy ...the unemployment rate moved down...to 3.7% in June, close to its lowest level in 50 years. Gross domestic product (GDP) increased at an annual rate of 3.1% in the first quarter of 2019, similar to last year's pace.” Powell went on to call this a “strong reading”. 

Before we move on, let me repeat something...Unemployment at 3.7% and GDP growth at 3.1%.  In the span of my 23 years in the financial services world,I have never been able to utter those two percentages in the same sentence.  So, how can Fed Chair Powell possibly think the best course of action is a rate cut?  Great question, Right?

Well, the answer seems to be something like this...

Chairman Powell cited what he called "crosscurrents" in his recent testimony.  That's his term for the global trade tensions that Trump is creating with China, Europe, Canada, Mexico, and now maybe even India.  Let's not forget that Mr. Trump seems to think he can control the Fed.  He has been very vocal about his displeasure with Fed decisions to increase interest rates last year and unwillingness to lower rates yet this year.  Last month, President Trump actually said in an interview on the Fox Business Network that he “made” Powell but now would like to trade him in for Mario Draghi, the head of the European Central Bank; apparently because Draghi said that he was prepared to provide more stimulus if necessary to support the lagging European economy.  Therefore, because President Trump is so unpredictable, Powell seems to think that lowering rates now might mitigate some of that uncertainty.  Although the stock appears to be pricing in the rat cut, the jury is still out.  We will see what happens next week.

Now, let's catch back up with our friend, Mr. Market.  We have said it before and we will say it over and over again...Mr. Market does not like uncertainty...that is a fact.  Then why the heck does the market continue to rally when we clearly have an unpredictable and uncertain outlook?  One possible thesis is that the economy is indeed still cranking along which should lead to good corporate earnings which is what truly should drive stock performance.  Another thought is that stocks are still more attractive than low yielding bonds or cash.  For the time being, we are maintaining our current portfolios with a watchful eye.  In our opinion, there are just way too many unanswered questions to boldly venture a guess about what the near future holds.

Will the Fed cut rates?

Will we ever have a trade deal with China?

Is the recent inversion in the yield curve a warning of an imminent recession?

Why is gold continuing to rise?

Will the debt ceiling be raised?

Is the OASI (social security) trust fund on a path to insolvency?

How will the impending Brexit affect the rest of the world?

Will Bitcoin soar back to $20,000?.

The point we are trying to make is that we still believe there is reason for caution.  We do not take the responsibility of overseeing our client's hard-earned money lightly.  Therefore, we intend to remain diversified and tactical as we look for opportunities for growth while keeping a short leash on risk.  

If you would like to discuss anything further or have any questions or concerns, give us a call or send us an email.

Spotlight on Gold

A critical part of our investment philosophy is looking for ways to tactically reduce risk while adding opportunity for growth and income through diversification.  Currently at RAA, we are a proponent of investing in Gold and Gold Mining stocks.  We have been for quite some time.  As with any of our investments, the premise was well thought out and has been regularly monitored over time.  After doing our research and analysis and several conversations with representatives of a couple of investment management firms, we made our initial investments almost a year ago (Aug 21, 2018) when gold was trading around $1,200.  About a month later, we were excited to read the cover story article in Barron’s September 21st issue that argued that gold, then trading near a low for 2018 at around $1,200, looked appealing, as did depressed gold stocks.  After seeing a peak at $1,340 in February and subsequent drop back below $1,300, we added to our positions across most accounts in late April.  Today, gold sits at approximately $1,430. 

We have made these allocations through a fund that we have researched and followed for many months called the Tocqueville Gold Fund (TGLDX).  The fund is quite unique in that it owns BOTH physical gold and the stocks of companies involved in the mining of precious metals.  We have forged a close relationship with the company and follow commentary and insights from John Hathaway, the Chairman and co-portfolio manager of the fund, very closely.  As of July 18th, TGLDX is up 27.34% YTD and 31.71% since our initial investment.  

On Wednesday (July 17th), famed money manager and founder of the largest hedge fund in the world, Ray Dalio, posted about gold on LinkedIn.  In his post, he describes what he calls a "paradigm shift" that is likely to occur in the global economy that would make gold a "top investment".

Here is an article from CNBC that covered the story...

CNBC: Ray Dalio says gold will be a top investment

On Saturday, July 20th, Barron's once again wrote about gold citing Dalio's article and adding further support for gold in the following article:

Barron's: Why Gold and Gold Mining Stocks Are Appealing

Our intent is to monitor the current Gold situation very closely and make adjustments as necessary.

If you have any questions, please contact us.

Following up on Long Term Care

 Long Term Care has quickly become one of most talked about topics in retirement planning today.  I am quite certain that we all would agree that the need for protection is as important as ever.  Remember, according to a 2017 U.S. Department of Health and Human Services study, nearly 70% of us will require some level of LTC in our life.  However, the reason for most of the chatter is less about the need for care and more about the fact that those that have taken steps to protect themselves against the financial risk of needing Long Term Care are not getting what they thought they signed up for.  Take a look at these recent headlines that we found since our last newsletter:  You can click each one to be directed to the articles.

States approving bigger rate increases for long-term care policies - Investment News, May 7,2019

MassMutual Seeks to Raise Long-Term-Care Insurance Rates

Insurer wants to raise rates by 77% on average for about 54,000 policyholders- WSJ.com, May 15, 2019

The ever-rising cost of long term care insurance CBSNews.com, May 23, 2019

Here is a simple summary of what the articles are talking about. 

Many policyholders are being faced with having to make financial decisions that they had not planned on making.  The two most common questions are as follows: 

Do I pay more for the same benefit?

Do I pay the same premium but receive a reduced benefit?

Many are having to ponder these questions when they are either approaching or in the early stages of retirement...a time in which we would rather be on autopilot.  When we create retirement income plans, we use sophisticated software to stress test plans for inflation, market volatility and rising healthcare costs.  Typically, once we insure against one of those risks, it is off the table.  For instance, to address concern over market volatility, we may consider the purchase of CD's or a fixed annuity.  To address concern about the cost of healthcare, one would often consider purchasing a solid Medicare supplement and long term care insurance.  That is supposed to pretty much check that off the list.  Today's dilemma in the long term care department is that many plans need to be re-worked because the numbers have changed.  In some cases, retirement income from social security, pension or portfolio interest, once earmarked for day to day expenses, now has to be redirected to cover increased premiums.  For others, the fact that benefits have been reduced will put more stress on retirement portfolios to cover the difference.  Those not working with a financial advisor may find themselves in an uncomfortable and stressful situation.  At RAA, we are fully licensed and ready to discuss strategies with you and your family to help you confidently take steps to create or update your plan to guard against the risks you may face.

In closing, we would like to ask you to start by having discussions about long term care with your loved ones.  After all, they are the ones that may be most affected.  Below are some common questions you might want to consider during your discussions.  We have found this to be the best place to start.  Once you have done that, please let us know how we can best assist in helping you answer your questions and addressing you concerns. 

Please let us know if you have any other feedback or questions. 

We would love to hear from you !