Category Archives: News

Piracy risk

Image Credits: nautilusint.org

Most of us are aware of the risks we take every day, but we ran across an interesting article recently that involved a risk we had not considered: being captured by pirates.

Believe it or not, in certain parts of the world, it’s happening.

Impoverished areas dotting the coasts of Nigeria, Somalia, Malaysia, Indonesia and the Philippines have been virtual breeding grounds for partially-organized collections of criminals seeking to steal, hijack, kidnap and murder their way to fortune.

We have seen news reports of pirates attacking oil tankers and holding them for ransom.  The peak of this occurred in 2011.  Since then, shippers have improved security, hired armed escorts and received military assistance.

 This modern era of the 21st century pirate is being successfully stunted, yet maritime kidnappings for ransom are on the rise. Although the number of pirate attacks is decreasing throughout the world, the number of kidnappings taking place during those attacks is increasing. Internationally, pirates kidnapped 62 persons in 2016, all of whom were or are still being held for ransom.

Pirates realized that it’s easier to capture people and spirit them away that to deal with ships that can’t be hidden.  People are smaller and pound-for-pound a great deal more valuable.  So we now have a new growth industry: Kidnap and Ransom (K&R) Insurance. If you are planning to travel to the pirate infested waters of Southeast Asia or off the coast of Africa you may want to check out the rates for K&R insurance.  For a premium you’ll get unlimited funding for a crisis response team whose sole mission is to get you safely home.

If you plan to take your yacht through the South China Sea or the Malaccan Straights this is something you may want to consider.

Meanwhile, in this part of the world, we’ll keep an eye on the risks with which we are more familiar: market fluctuations, tax changes, interest rate increases, economic trends and even those things we can’t foresee known as Black Swans.   Stay safe.

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The View on Brexit

Britains will soon be voting on whether to stay in the EU (the European Union) or leave.   Polls are divided on exiting the EU, or “Brexit” for short.  The British establishment is all for remaining in the EU but a lot of people are for getting out.  Voters are being deluged by scare stories about what will happen if they exit the EU, everything from loss of jobs to depression.  There has even been a claim that Britain leaving the EU will cause the climate to change even faster.  Some have labeled the tactics “Project Fear.”

The issue driving Brexit is that people are fed up with an unelected European bureaucracy making important political decisions for them.  People are seeing many of the decisions that were once made through Parliamentary democracy delegated to strangers in foreign capitals.

People are also becoming wary about a massive influx of refugees what under EU rules can move freely throughout Europe.  People who do not share the cultural or political beliefs of the British and who have no wish to assimilate.  We will undoubtedly be hearing more about this as the vote nears.

Brian Wesbury of First Trust has this take:

The bottom line is that investors should ignore scare stories about what would happen if Brexit wins. Great Britain runs consistent trade deficits with the rest of Europe. Regardless of what foreign leaders say before the vote, if the British vote to leave, the rest of the EU is going to chase them to the ends of the earth. No way will they allow one of their biggest export markets to become more distant. They will beg the UK to sign a free trade deal. In addition, and this is actually great economic news, it would free the US and UK to sign a free trade deal that the EU is now holding up.

Any market volatility would be short-lived and any swing to the downside would be a buying opportunity. Brexit is not a reason to sell. In fact, freedom is a good thing.

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Before the Bell: 3/3/2016 (Wednesday’s Close)

Markets at a Glance

Major Stock Indexes

9:27 AM EST 3/3/2016

Last Change % CHG
DJIA 16899.32 34.24 0.20%
Nasdaq 4703.42 13.83 0.29%
S&P 500 1986.45 8.10 0.41%
Russell 2000 1065.67 11.18 1.06%
Global Dow 2231.74 13.04 0.59%
Japan: Nikkei 225 16960.16 213.61 1.28%
Stoxx Europe 600 339.49 -1.48 -0.43%
UK: FTSE 100 6141.54 -5.52 -0.09%

A quick market roundup – January 25, 2016 @ 10:00 AM

The U.S. eastern seaboard is still digging out from a weekend blizzard that knocked out power for several hundred thousand customers, grounded more than 13K flights, and shattered snowfall records in Washington and New York City.

Oil and stocks are heading lower this morning on oversupply concerns and profit taking after Friday’s surge in prices. Iran has made its first sale after sanctions were lifted and Iraq’s production is up while the Saudis are continuing to invest in new production.

McDonald’s Corp reported better-than-expected quarterly same-restaurant sales as the launch of all-day breakfasts proved to be a hit with diners in the United States and demand continued to recover in China. The company plans to open more than 60 new stores in Russia 2016.

Russia’s economy contracted the most since 2009 last year as the price of oil sank and sanctions over the conflict in Ukraine curbed access to international financing. According to preliminary estimates, gross domestic product fell 3.7% after growth of 0.6% in 2014.

Johnson Controls and Tyco International are in advanced talks to merge, in a deal that could value the latter as high as $20B and signal that companies are still willing to embark on large mergers despite the recent market volatility. The combined company would be headquartered in Ireland.

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A quick market roundup – January 22, 2016 @ 10:00 AM

January 2016 has been challenging for investors. The DJIA had been down about 8% year-to-date. But even as we post this there is a major relief rally going on across the globe.

European Central Bank President Mario Draghi hinted at more stimulus at the World Economic Forum in Davos, Switzerland, saying that he had “plenty of instruments” and was willing to use them.

The price of oil has bounced around wildly, starting the year at $37.95, dropping as low as $28.35 (a 25% drop) before rebounding. It’s up to $31.57 as we write, up over 6% just today. This despite an excess of supply.

Oil is causing problems for Venezuela with a $120 billion in foreign debt. The country gets 96% of its export earnings from oil and is facing both an economic and political crisis.  This could have an impact on foreign banks that have lent them money.

All this is going on while a massive winter storm is barreling toward the Mid-Atlantic and Northeast. An inch of snow snarled traffic so badly in Washington DC yesterday that many abandoned their cars and some slept in hospitals, unable to get home.  The storm that’s in the forecast has already shut down a great deal of air traffic in the region.

Have a safe weekend.

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Retirement Plan Contribution Limits for 2016

One of the most common questions we get from clients throughout the year has to do with retirement plan contribution limits.  We put together this quick-reference chart, which shows the limits for most people:

2016 IRS Retirement Plan Contribution Limits

Not much has changed from 2015, except that the income limits for Roth IRA contributions have increased by $1,000.

For the official IRS announcement, click this link to the IRS website.

If you want more clarification on what all of the above means for you, contact us.

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Oh No They Didn’t!

The big financial news of the moment is that the Fed decided not to raise interest rates, though 13 of 17 Federal Reserve officials say that they see a rate hike by the end of the year.  In their statement, they cited “recent global economic and financial developments” as their reason not to raise rates today.  However, Chairwoman Janet Yellen cautioned that people should not “overplay the implications of these recent developments,” saying that they “have not fundamentally altered” the Fed’s outlook on the economy.  All of this leads us to believe that we are likely to see a similar media build-up around the Federal Open Market Committee’s (FOMC) December 15-16 meeting.  (There is another FOMC meeting scheduled for October 27-28, but at this point, there is no press briefing currently scheduled for that meeting.)

Whenever the Fed finally does raise rates, expect it to be a very SLOW process.  Ms. Yellen alluded to as much when she said, “the stance of monetary policy will likely remain highly accommodative for quite some time after the initial increase in the federal funds rate.”  Charles Schwab’s Liz Ann Sonders provided the following chart, which bodes well for the stock markets (unless we are all wrong and the Fed suddenly starts hiking rates quickly):

Interest Rates

As we wrote just the other day, we expect the Fed to increase rates and would have preferred to see them do it sooner rather than later.  The rate increase is widely expected to be in 0.25% increments, which should not have any significant effects on the economy.

Following the Fed’s stand-pat announcement, the stock market actually declined slightly (and futures are down as we write this morning), indicating that their position is being interpreted as an indication that the Fed does not have total confidence in the strength of the economy.

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“The Yuan is Falling! The Yuan is Falling!” – Chinese Chicken Littles

The financial trauma of 2008 was so great that many investors still can’t get over it.  The U.S. stock market has more than doubled in value since the dark days of early 2009, but ever since then there have been recurring predictions of another crash.

The latest reason given for fear is China.  Specifically, the Chinese currency – the Yuan – has lost 3.5% of its value relative to the dollar in the last year.  A recent commentary by Brian Wesbury of First Trust put this in perspective.

The Chinese pegged their currency to the dollar at a fixed rate from 1995 to 2005.  Since then the Yuan has appreciated relative to the dollar by about 33%.  That is until this year, when for the first time the Yuan was allowed to decline slightly.  Wesbury referred to it as a “minor wiggle” and he’s right.  But since it was unexpected, it hit the headlines like a bomb and provided the latest opportunity for the perma-Bears to whip up hysteria.

But let’s put this in perspective, in the last year

  • The Japanese Yen declined against the dollar by 17.6%,
  • The Euro by 16.4%,
  • The Canadian Dollar by 15.8% and
  • The Mexican Peso by 19.9%.

The U.S. imports twice the amount of goods from these countries than it does from China.  But their devaluation of 15% to 20% happened without notice or comment.

In the meantime, the appreciation of the U.S. dollar means that foreigners pay more for a new Boeing 787 and we pay less for stuff made overseas.  That’s good for U.S. consumers and helps keep inflation in check.

The other thing that’s happening in China is that growth is slowing.  That had to happen, but for people who simply extrapolate a trend to infinity, it seems to have come as a total surprise.  What this means is that Chinese demand for raw materials is slowing.  Not stopping, just not growing as fast.  That seems to have caught mining companies and other basic materials producers flat footed.  As we write this the price of a barrel of oil is threatening to go under $40, a price not seen since 2009.  The same is true of commodities like copper and lumber.  While this is not good news for workers in those industries, it’s good for consumers who buy products made with copper or wood.

In our view, the “Plow Horse” economy is continuing its slow but relatively steady growth.  Markets have always been nervous and traders pay lots of attention to the news ticker.  But long term investors who have well-balanced portfolios should not be concerned with the latest Chicken Littles telling us that the end is nigh.

If you have questions or concerns, call us and we’ll be happy to chat.

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New Scam Tricks Advisors Into Giving Up Clients’ Money

Financial fraud has always been a problem, but the Internet has enabled entirely new ways of stealing money. We recently received an alert about a new scheme to defraud advisors and their clients.

The scam begins with an email to an advisor that includes a bogus invoice. The email appears to come from a client, and it includes a request to send money directly to the business listed on the invoice. The invoice might appear to be for purchases such as antiques or art, or for such things as attorney fees or legal settlements. The advisor sends the money, and the fraud is complete.

The payee is often in a foreign country or at an overseas bank. This makes it nearly impossible to catch the thieves or reclaim the money. The FBI estimates that more than 2,000 victims lost more than $214 million to this scam between October 2013 and December 2015.

My firm has a policy of not sending clients’ money to third parties based on email communication alone. But we go beyond simply confirming client requests by phone. It is our policy to get to know our clients personally. We know if they have a pattern of sending money to third parties. In all cases, we require a written letter of authorization as well as verbal confirmation from the client before any money is sent out.

The recent news that personal information about more than 20 million government employees, contractors and others was stolen highlights the importance of the security of your financial information. It also makes dealing with a financial firm where you are an individual, not a number, increasingly important.

NOTE: We recently submitted this article to NerdWallet who posted it on their Advisor Voices board.

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On Greece & Recent Market Volatility

We’ve heard from a number of clients and friends recently, asking us about Greece and the recent market volatility.  Here is our succinct summation:

We feel awful for the people of Greece who have been caught up in the mess over there through no fault of their own.  (Those who should take the blame, well….)  It has to be a frustrating and frightening experience.  The drama unfolding in Greece has certainly added to recent market volatility.  However, it feels to us like – to borrow from Yogi Berra – “Deja vu all over again.”  The things going on today in Europe are similar to events that occurred there only a few years ago.  And, when you come right down to the real numbers, the real economic impact Greece has in the world, consider this: the entire size of Greece’s economy is roughly equivalent to the size of the GDP of the City of Philadelphia.  Which isn’t much larger than the City of Detroit.  The same Detroit that went bankrupt.  If Detroit’s bankruptcy didn’t bring down the U.S. economy, we doubt that whatever happens in Greece will have any meaningful long-term impact on it either.  So yes, the events in Greece are a tragedy of sorts (sorry, I couldn’t resist), but for the most part it’s a drama for U.S. households that is better suited for TV than for making changes in our long-term investment outlook.

On a lighter note, we want to wish all of our readers a very Happy 4th of July!  We hope you spend it safely and in good company, good health, and good cheer!

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