The Fed stands tall

Sometimes it takes a while, but financial markets almost always test a new incoming Federal Reserve Bank Chairman. On Wednesday, Jerome Powell faced his test and passed with flying colors. Of course, a glance at the stock market averages at the end of the day on Wednesday, would have the casual observers scratching their heads. As most readers know, the stock market has been declining since October. One of the reasons for the sell-off is the fear that the Federal Reserve Bank’s gradual tightening policies have gone too far. Their continuous interest rate hikes coupled with the selling of $50 billion of U.S. Treasury bonds every month had started to reduce the excess liquidity from the financial markets. Investors fear that these actions will slow the growth of the economy and tip the country into a recession as early as next year. No one is sure that this will happen, although most economists are already ratcheting down our forecasted growth rate to somewhere around 2-2.5% for 2019. That is by no means a recession, simply a slowing of growth, but nonetheless, investors have decided to sell first and see what happens as events unfold. The continued losses in the stock market, after so many years of gains, have driven the level of angst to a point where the markets (and the president) have demanded that the Fed stop tightening—now. The media and Wall Street, coming into Wednesday’s FOMC meeting, were convinced that the Fed would cave-in to their demands and announce a cessation of their tightening policies. Investors wanted him to say no more rate hikes and possibly a...

Sustainability investing and the millennials

The demand for sustainability investments is growing. Companies that offer measurable social and environmental impacts that address issues like world hunger, climate risk, poverty and access to health care, seem like a good investment for those socially-minded. Finding companies that also provide a good financial return at the same time is not so easy. Sustainability investing is different from the decades-old trend called “social investing.” Generally, social investments are those that bet on solar power, clean water, or the avoidance of “sin stocks” such as tobacco, guns or liquor companies. Most of these areas were not viable investments without a great deal of government help. The idea of sustainability goes far beyond that concept. In this modern-day make-over, the idea is to use your money to solve some of these enormous global environmental, social and governance (ESG) issues and also make a profit over the long-term. Of all social groups measured, it is the Millennials who profess the most interest (80%) in social-impact investing. An increasing number of younger investors (28%) are putting their money where their mouth is. They want to select investments that reflect their own values and personal priorities. After all, when you think about it, they are inheriting a world that we, the Baby Boomers, have totally messed up. Just look around you. Our fossil fuels are burning the planet alive. The air in China, or in Mexico City among many other locales, is so bad citizens routinely where masks. Millions are starving. Water is fast disappearing from much of the earth. I know, I know, I can already see yours eyes glaze over. By...

Are you ready for a down market?

It has been some time since we have had even a tiny decline in the stock market. Human behavior is such that we expect what has come before to continue into the future. When it doesn’t, a whole host of emotions arise and most of them will be detrimental to your financial health. A new survey by E-trade Financial, a discount broker dealer, reveals that well-heeled investors (those with $1 million or more in equity investments) are as bullish as they have been all year. Almost 75% of million dollar players are now bullish as we enter this final quarter of the year. Most of these investors are 55 or older and are significantly more optimistic than younger investors. Some of that bullishness is understandable given the fundamentals of the economy. Gross domestic product continues to grow slowly and some estimates (such as the most recent survey from the Atlanta Fed) indicate that we could see a greater than 4% growth rate in the fourth quarter. Couple that with a fairly consistent improvement in corporate earnings and we have an almost Goldilocks environment for stocks. This is especially telling since many of the upside earnings surprises are coming from cyclical companies, which really do measure the pulse of the overall economy. The same sort of economic results can be found overseas to a varying degree, which works to improve the outlook for the world’s economy in general. The fact that we are entering the historically best period for the stock market all year has also fueled bullish sentiment. This rosy scenario has resulted in fewer and fewer investors (only...

Bitcoin

  Chances are you have heard the name. Some may have even considered investing in it. But for most of us buying into this new “cryptocurrency” called Bitcoin (BTC) is still a problem. Bitcoin is the name of a new payment system. Think of it as digital money or cash for the internet, powered by millions of users with no central authority or middlemen. At times this year, Bitcoin has been the best performing asset in the world. The market capitalization has increased to $73.93 billion and the price recently hit fresh record highs. It now trades at $4,476/Bitcoin, up 348% since the beginning of the year. So how can someone create money out of internet air? Well actually, that is how all currencies are created. The U.S. dollar, for example, is backed by a promise to pay, as is the Euro, and every other currency in the world. If you think country A’s promise to redeem your paper (or electronic) dollar for a dollar’s worth of something is better than country B’s promise, than you will pay more for “A” than “B.” If you believe a Bitcoin is worth more than a dollar (or less) its value is determined by what people are willing to pay for it. The concept of an alternative currency first surfaced back in 1998 on a cypherpunks mailing list. The central idea was to establish a new form of money, one that uses cryptography to control its creation and transactions, rather than a bank or other central authority. So what is cryptography? It is an indispensable tool for protecting information in computer systems....

The more you look, the more you lose

How many times a day, week, month or year do you check your tax-deferred savings account? Did you know that the more you look, the higher your chances of losing money? For most of us, once a year is more than enough. There are clients of mine that check their retirement accounts several times a day. To say they are addicted to doing so would not be an understatement. Some of them are retired and have nothing else to do each day but sit in front of the television watching financial channels. They are usually male, have control issues and have substituted watching TV and their investment accounts for their old job. The sad facts are that the more you look, the higher the probability that you will see losses in your portfolio. That’s because the markets do little or nothing the vast majority of time each year. And overtime, you can expect the markets to be up or down at least 50% of the time. That means that if you check your accounts every single day, you will be disappointed with your returns at least half the time. Do you really want to live like that? In addition, a loss will always impact you psychologically worse than a gain. For some people, it can ruin their entire day. What’s more, those feelings of loss are cumulative. The anxiety builds and builds until you just can’t stand another day of losses. So what do you do? Sell, usually at the bottom or close to it. But it gets worse. You see the largest annual gains in the markets over...

Let’s have a jewelry party

  Contrary to all the present and future trends in retailing, multi-level marketing (MLM) is still alive and well in this country. Exactly what is MLM and why are so many Americans enamored with hitting up their friends and relatives in an effort to succeed at personal retailing? MLM is a marketing strategy in which the sales force is compensated not only for what they sell but for the sales of other people they recruit. These new recruits in the chain are referred to as the participant’s “downline” and, if done right, can provide multiple streams of compensation. Most readers are familiar with these companies. Amway, Avon and Mary Kay come to mind, as does Herbalife, a company most recently accused of being nothing more than a pyramid scheme. Many of these companies have been around since the late sixties and have never accounted for more than 1% of retail sales in the United States. And yet, every day hundreds, if not thousands, of new recruits are happy to shell out money, time and effort in order to win the golden ring of promise so aptly portrayed in MLM advertising. A look at just one jewelry website gives one a flavor of the sales pitch. Not only will you create lasting friendships, make your own hours and get rewarded every step of the way, promises the company, but “a consultant holding just 1 average party a week, earns $850/month,” while “a leader holding two parties a week with a team of three consultants will earn about $3000/month,” For someone sitting at home as a house spouse or looking to...