If there’s any way for you to pay less attention to it, DO IT! The more frequently you look at the stock market and/or your investment accounts, the more likely you are to see losses, and when you see those, your brain spurts out cortisol, the stress hormone. When that happens, the flight/fright part of your brain kicks in. It’s not the thinking part of your brain and doesn’t care about your retirement; it wants relief now.

According to the research firm, Bespoke Investment Group, over the last 30 years, if you had looked at your account every minute, 51.2% of the time, you would have seen a loss. Look at it every four hours, and you would have seen a loss 46.9% of the time. If, however, you had only looked every six months, you would have only seen a negative sign 28.9% of the time. Had you looked at your account an unreasonable once-every-five-years, you would have seen a negative return just 10.9% of the time.

Here is a look at the Standard & Poor’s 500 (S&P 500) over the last 12 months. It’s been choppy and there’s been plenty to worry about.

Here’s the same chart with a 200-day (one-year of trading days) moving average (in orange) overlaid. It shows, at any point, what the S&P 500 has done over the last year. That’s a lot more soothing line and, other than the flattening of it, recently, has little to concern an investor.

Here is the S&P 500 over the last ten years. From end-to-end, it looks good, but there were some jaw-dropping declines along the way—plenty of reasons to sell.

Now, here is the last ten years with a five-year moving average overlaid (in orange.) If you’re tracking it, you might think, like Alfred E. Neuman, from Mad Magazine, “what, me worry?”

As another way to think about this, consider your home. It’s not reappraised every day, week, month or year, and chances are you aren’t fretting about whether it’s more valuable today than it was yesterday or last week.  Any price movements only show up when it’s time to put your home on the market. If your home were part of the stock market, it would be like a guy who drives by every day and yells a different price for your home. Would you care?

So do yourself a favor: don’t log on to your account to look at your account’s value today. Instead, spend some time on the Good News Network site or go listen to some birds or download the Seek app and go identify some wildlife.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The post Really, You Don’t Need to Look appeared first on Strategence Capital.

What is the purpose of property taxes?

Property taxes are a primary source of funding for local government units, including counties, cities and towns, townships, libraries, and other special districts including fire districts and solid waste districts. These funds are used to pay for a variety of services including welfare; police and fire; new construction and maintenance of buildings; local infrastructure like highways, roads, and streets; and the operations, including salaries, of the local units of government.

Property taxes are derived from local government spending divided proportionally according to the value of the taxpayer’s property. Per a 2018 study, the statewide average revenue distribution per $1 of property tax is as follows:

•  County: $0.19
•  Township: $0.03
•  City/Town: $0.24
•  School: $0.43
•  Library: $0.04
•  Special Unit: $0.07

(Understanding Your Tax Bill)

How are local tax rates calculated?

Property taxes represent a property owner’s portion of the local government’s budgeted spending for the current year. Local spending is the reason for property tax rate increases – or decreases – depending on local fiscal management. This is why local elections matter, another topic for another day.

How is the value of my property determined?

Indiana properties are valued using mass appraisal techniques. With mass appraisal, your property is looked at in conjunction with other properties in your area. Assessors consider age, grade, and condition. Finally, in a process known as annual adjustment, each year real property sales data is used to determine if the value of properties in your area should change to match the market value found in the sales of recent properties.

How is my tax bill calculated?

Property taxes are simple to calculate – take the assessed value of your property after deductions and multiply it by your local tax rate and that is your gross tax liability. However, there are many other steps that can make this calculation more complicated.

Summary

As you can see, there are several factors that go into the property tax calculation but to simplify your tax bill, if property values and/or local government spending has increased in your area, that could mean you may be seeing an increase in your local property taxes in the near future. With the recent boom in housing prices and fiscal stimulus, many homeowners may be getting an unpleasant surprise with their next property tax bill.

We live in Wells County and our property taxes increased by 17% from 2020 to 2021. However, I cannot complain as our district tax rate was 1.7341% in 2021, which is the 1,445th highest district out of 2,070 districts in the state. If you live in Indiana, you can check this website out to see where your district ranks.

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2017 wasn’t a year to have a home-country bias, as is common in the U.S. and most countries.  Investors tend to think that their domestic companies are safer, that they can somehow know them better. However, in 2017, going overseas served investors well, as emerging foreign stocks and developed foreign stocks lead the way, the former by a wide margin. This was probably a combination of lower valuations and conditions overseas becoming less bad, or maybe it was just a matter of every dog having its day.

The chart below shows the performance of seven asset classes, including this year’s two winners, over the last ten years. For seven of those years, developed foreign and emerging markets stocks held one of the two lowest spots in the chart (best performing asset classes are at the top; worst, at the bottom.)

via Morningstar Direct

One reason for investors not to be nervous in 2018 is that there is almost no correlation between yearly returns, as this chart from Bespoke Investment Group shows.

One reason for investors to be nervous in 2018 is valuations. Valuations in securities markets refer to determining the cheapness or richness of an asset class, and they’re almost always done with some reference to another measure, so a stock market can be valued as a multiple of sales (price-to-sales) or earnings (price-to-earnings; P/E) or cashflow (price-to-cashflow.) Apparently, Warren Buffett’s favorite valuation measure compares stock market capitalization, or its total price as determined by all stock prices, compared to GDP. That chart is on display, below, and like many valuation indicators, this one was only higher during the internet bubble.

Valuation, however, makes a poor timing tool, which the late ‘90s internet bubble showed. There is no financial law of gravity that dictates how high stocks can go. Had an investor sold at about the time Alan Greenspan made his famous “irrational exuberance” speech (1996), when valuations were at or near an all-time high, said investor would have missed out on much higher returns.

The math for stock market total returns is this:

Total return = dividend yield(%) + earnings growth(%) + change in valuation multiple (%)

This equation shows how high valuations can increase risk (and low valuations, decrease risk), as the change in valuation multiple can swamp the positive dividend and [hopefully] positive earnings growth; a 10% decrease in valuations can completely offset 7% earnings growth and a 3% dividend.

Still, even though valuations are high, they don’t have to be rectified by a sharp correction. Instead, earnings could grow in such a way as to lower the valuation multiple (in a price-to-earnings ratio, for example, earnings are in the denominator, and as the denominator grows, the overall multiple falls.) What the great returns of 2017 have at least done is pull forward part to 2018’s return, as the market anticipates pro-growth tax cuts, and the like, and that means we need to anticipate lower returns going forward.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth may not develop as predicted. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.

The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.

The S&P Midcap 400 Stock Index is an unmanaged index generally representative of the market for the stocks of mid-sized US companies.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

The post Recap & Outlook appeared first on Strategence Capital.

Market watchers who tend to think and say, “this can’t go on,” would probably do well to heed the advice of economist, Gordon Popper, who said, “When you see something unsustainable, calculate the maximum period of time that you think it can persist. Then double it.” One should indeed be aware that this is the second longest bull market in U.S. stock market history and that valuations are high, but bull markets do not die of old age, and while there are some signs—margin debt on the New York Stock Exchange is at an all-time high, for example—there aren’t many of the signs that accompany—as they’re called—tops.

So here is the look at performance for the quarter for four common benchmarks. Each ended the quarter higher than where it began. Bonds played their historic role of offering a relatively smooth ride, while small-cap stocks, as measured by the Russell 2000 index, played their historic role of rollercoaster ride.

While this chart makes bonds, as measured by the Bloomberg Barclays Aggregate index, look like a contending asset class for much of the quarter, the 12-month view, below, paints a different picture, one of bonds getting left in the dust. Performance like that, along with low yields, leaves us fielding the question of “why bonds?” The answer to why is in the relative shape of the blue line below, relatively flat, which is to say that we think bonds still deserve a spot in asset allocations as a shock absorber, if not a huge contributor to potential returns.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth may not develop as predicted. Bonds are subject to market and interest rate risk if sold prior to maturity.

The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.

The Bloomberg Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy.

The post Q4 2017 Market Commentary appeared first on Strategence Capital.

Foreign stocks, as measured by the Morgan Stanley Capital International Europe Australasia and Far East index—EAFE—pronounced ee’-fuh by those in the business, continued to lead the way in the second quarter, making that asset class the best performing asset class of those shown here.

click to enlarge

On a year-over-year basis, small-cap U.S. stocks, as measured by the Russell 2000, here, have a slight edge over foreign stocks.

click to enlarge

While it’s rarely a good idea to chase short-term performance, the trend of foreign stock outperformance that could continue—but this does not constitute investment advice—as foreign stocks remain relatively undervalued versus U.S. stocks using price-to-earnings and other valuation measures.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The post Q2 2017 Markets Performance appeared first on Strategence Capital.

The Wall Street Journal of July 6 featured an article by respected columnist Greg Ip, titled, “Why Soaring Assets and Low Unemployment Mean It’s Time to Start Worrying.” In it, he suggests that the current economic environment is exhibiting the preconditions for recession: “a labor market at full strength, frothy asset prices, tightening central banks, and a pervasive sense of calm.” He goes on to say that none of these things mean that a recession is imminent, that, in previous periods, some of these conditions were present several years before a recession came. Still, at just two years shy of a record, one wonders if this expansion deserves to be in the record books.

One thing notably absent from the list of things to worry about is an inverted Treasury yield curve. The yield curve is a graphic depiction of the yield available across the maturity spectrum. Imagine your local bank’s certificate of deposits (CD), where the yield is listed fora 6-month CD; a 1-year CD; and so forth. Typically, one expects to see higher yields for longer maturities (green line, below). This is, in part, a compensation for inflation, and this relationship (higher – longer) is considered normal. When the bank starts paying less for longer CDs than it does for shorter CDs (red line, below), you know something is not right. This latter condition is known as an inverted yield curve.

click to enlarge

Just as an inverted yield curve at your bank would be a red flag, so it is with the economy. When yields on bonds issued by the U.S. Treasury are lower on longer-dated securities, then one knows that something is rotten in the state of Denmark.

• An inverted yield curve might indicate a Federal Reserve that is hiking rates aggressively; or
• Since higher yields for longer securities include compensation for inflation, and since inflation is associated with a growing economy, well…you get it.

As can be seen below, an inverted yield curve (2-year Treasury yield > 10-year yield) has preceded each of the last five recessions. Importantly, while the trend is from upper left to lower right, the relationship is still decidedly positive.

click to enlarge

While there is always someone who says this time is different, with the yield curve batting 1,000, it deserves a place on the list of things to watch.  And, right now, it’s saying recession is not imminent.

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through ADVISORS PRIDE, a registered investment advisor. ADVISORS PRIDE and Strategence Capital are separate entities from LPL Financial.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing involves risk including loss of principal.

The post Q3 2017 Economic Update appeared first on Strategence Capital.

GDPNow is a product of the Atlanta Federal Reserve Bank, and it uses timely data to approximate GDP growth. Importantly, it doesn’t reflect any election optimism other than what might be backed by actual economic activity, such as retailers buying more inventory. We won’t see the first official release of Q4 GDP until January 31, but GDPNow gives us a good idea of what it might look like. Here is the latest version of that indicator.

In the fourth quarter, markets performed about in line with measures of volatility, such as Beta. That is, the historically more-volatile small-cap stock segment outperformed large-cap stocks, which would be expected in a rally. Perhaps in response to fears of a seemingly-accepted step back from globalization that many think might be part of a Trump presidency, foreign markets, as measured by the Europe Australasia and Far East (EAFE) index, managed to finish the quarter slightly down.

Many, however, had to be pleasantly surprised with full-year results after the disastrous first quarter and ominous forecast from the so-called January Effect, which says, lyrically, “as goes January, so goes the year.” A chart showing 2016 performance is shown below.

Naturally, the only thing that matters is what next? Everyone and his or her brother has their own opinion, and virtually none of them will be right on all of their calls. Barron’s magazine is out with its latest Roundtable issue with pontifications from really smart and successful people, but many of their views are mutually exclusive; they can’t both be right. So, take forecasts with a grain of salt.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth may not develop as predicted.

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada.

The Bloomberg Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.

The post Q4 Markets and Economic Update appeared first on Strategence Capital.

Its latest reading was 2.1%, which is, at least until a few weeks ago, below the lowest estimate of the so-called Blue Chip economists. Blue Chip is misleading, as it suggests high quality. While I’m sure the men and women of that surveyed group are high-quality folks, their estimates are anything but, having no more accuracy when forecasting, than would a group of elementary school kids. Regardless, this marks a considerable slow down in GDP growth, which those are addicted to low interest rates should appreciate, as it’s hard to argue the economy is overheating, when its trajectory looks like a Colorado black diamond ski run.

Harvard husband and wife economist team Reinhard and Rogoff said that this—sluggish growth—is what follows financial crises paired with recessions. Indeed, as Gene Epstein points out in the October 10, 2006, issue of Barron’s, at a 5% Unemployment Rate, it’s hard to argue that the U.S. is at anything but full employment. Even with full employment, though, the economy still plods along. As he puts it, the “economy’s sluggish state of growth can no longer be blamed on the underemployment of its available workers.” The labor picture is bright. The Labor Departments JOLTS (Job Openings & Labor Turnover Survey) reports that Job Opening are at an all-time high, while the voluntary Quit Rate continues to improve. Average Hourly Earnings are growing at about the fastest clip since the start of the recovery, but we’re still like an airplane that can’t hardly get off the runway.

In the Fort Wayne area, I drive by at least three major greenfield industrial developments, and existing homes that go up for sale routinely are on the market for only a couple of days before—in many cases—a submit-your-best-offer arises, and the house sells. Meanwhile, a friend who represents a major steel tubing producer says this has been has worst year ever. Something smells rotten in Denmark.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth may not develop as predicted.

The post Q3 Economic Update appeared first on Strategence Capital.

While the first release of Q1 2016 Gross Domestic Product won’t be released until April 28, the economy appears to have continued to trudge along, although the last three quarters of 2015 looked like a roller coaster cresting a rise, with each quarter slower than the first.

Recession fears are beginning to pop up, and the Atlanta Federal Reserve’s GDPNow forecaster has, since late March begun to post sub-1% forecasts of annual GDP. The latest reading for GDPNow was 0.3%, although the nadir was reached on April 8, when it projected 0.1%. These and other forecasts can be found here on the Atlanta Fed’s website.

Despite low energy prices and a backdrop of apparent continued improvements in the job market, the consumer is in a funk. In an April 14 story on the web, CNBC reported that “most Americans think the economy is getting worse.” The article cites a Gallup survey that showed that “59 percent [of Americans] say the economy is getting worse,” while just 37% think it’s getting better. For some folks, spending money makes one feel better, but with retail sales (excluding food) rolling over, as shown below, that’s not happening.

Improvements in the jobs market can be observed in the following data points, as well as others.

• Job Openings are at the highest level since the series started being tracked in late 2000;
• The Unemployment Rate is at 5%, the lowest we’ve seen in a long time;
• The Quit Rate (folks voluntarily leaving their jobs) is approaching all-time highs; and
• Jobs continue to be added, as reported in the monthly Nonfarm Payrolls report.

And have I mentioned that the two major U.S. stock indexes, the Standard & Poor’s 500 and the Dow Jones Industrial Average, are near all-time highs? The stock market, by these measures, apparently, isn’t worried, although a market technician might say both could be registering potentially-troubling triple tops. Both are on display below.

Plenty of other markets don’t appear quite as sanguine, especially the non-U.S. indexes. What’s more, stocks aren’t exactly cheap in the U.S. The trailing 12-months price to earnings ratio (P/E) on the S & P 500 is 24.18[i]. Other than during the tech bubble years and in the wake of a plummeting denominator after the 2007/8 financial crisis, such valuations have never been higher. Only investment shops in the business of keeping investors invested would argue that stocks are reasonably priced. By this measure, alone, the index appears priced for perfection.

Volatility was the theme for the first quarter, with virtually all equity indexes—certainly those on display below—suffering jaw-dropping declines before recovering in February. Meanwhile, what is perhaps the most unloved asset class—interest rates just have to go up, don’t they?—bonds notched a solid 3% return for the quarter. The Barclays Capital Bond Composite is shown below as a proxy for bonds.

It’s not uncommon to hear that investors sold stocks and bought bonds in a “flight to safety,” and yet the stocks didn’t just disappear, nor were bonds created from thin air. Instead, the stocks were sold to others, and bonds were bought from others. It never hurts to ask oneself, “what does the buyer of what I’m selling know that I don’t?”

During the quarter, the CBOE’s VIX, the so-called Fear Index, derived from options traded on the Chicago Board Options Exchange, reached its highest levels of the last year, save for the August/September 2015 spike. That index has since receded to nearly the lowest levels of the last year, suggesting that investors are more sanguine about the outlook for stocks. That chart is displayed below.

While these charts can make one think that the future was once knowable—surely more than one investor was sure markets would rebound in the quarter (“I just knew it”)—this is an example of hindsight bias, the tendency to think, after an event, that it was knowable, beforehand. In fact, you didn’t know markets would rebound. The future is unknowable, or as Yogi Berra put it—and I paraphrase—it’s tough to make predictions, especially about the future.

It’s this unknowability that leads us to council you to avoid trying to time markets. Instead, stick to a long-term plan and asset allocation; rebalance when things get out of alignment; and if you’re able, whether through periodic contributions to a retirement plan or otherwise, make periodic investments, avoiding big calls on markets that the highest-paid Wall Street strategists and talking heads can’t consistently get right.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.

[i] As of April 22. Source: S&P 500 PE Ratio, www.multpl.com

The post Q1 Econ and Markets Discussion appeared first on Strategence Capital.

Markets continue to look for bottoms, with major indexes having dropped by several percentage points since the end of the year. It appears that the following factors are weighing on markets:

• Middle East tensions, especially between Saudi Arabia and Iran;
• Reports that North Korea may have detonated a nuclear device;
• Daily routs in Chinese shares; and
• Continued softness in oil prices.

Markets likely will not bottom until all market players have been able to do all the selling they wish, and so-called circuit breakers prevent this from happening, exacerbating each day’s volatility. All of the factors above are set against a backdrop of a Federal Reserve that has begun a rate-hiking campaign, although one it insists will be cautious and gradual. That is not helping.

I would strongly caution against trying to discern what, exactly, is driving markets one direction or another, despite the continued tendency of the media to do so. Certainly investor emotion, also known as sentiment, is always a major factor, but it’s not possible to divine the motives of millions of investors’ and speculators’ trades and sum them up in one, slick sound bite.

Our counsel is for you to focus on your long-term goals and portfolio allocations. Use times of heightened volatility like these to gauge your risk tolerance in real time. If you’re having a difficult time sleeping, it’s probably time to revisit your portfolio allocations, in light of your goals.

Graig P. Stettner, CFA, CMT
Financial Advisor & Partner
Strategence Capital

The post January 7, 2016, Market Update appeared first on Strategence Capital.