Tag Archives: Culture

Don’t believe the doom and gloom about the economy.

The invaluable Brian Wesbury, Chief Economist of First Trust, recently made some interesting comments about the economy.

First, there are the employment statistics:

The best news for the consumer is that the labor market continues to heal. At 4.4%, the unemployment rate is the lowest since 2007. Some watch what they call the “true” unemployment rate, which includes discouraged workers as well as part-timers who claim they’d prefer full-time jobs – that’s 8.6%, also the lowest since 2007. Meanwhile, wages and salaries are up 5.5% in the past year, outstripping inflation.

Meanwhile the average American has reduced his debt burden to levels not seen since the early 1980s.  While student loans have reached record levels and auto loans delinquencies have grown, consumer debt has dropped by 50% since the end of 2009.

Finally, consumers have changed their buying patterns.  They are shifting their buying to the Internet and away from brick-and-mortar stores.  Some of the old-line retailers are experiencing sales and profitability problems even as a company like Amazon is building physical stores.

We remain in the midst of a technological revolution.  Stay alert and very nimble.

If you want to learn how to navigate your way through the shoals and rapids of the investment river, give us a call and we’ll be happy to help.

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Consolidating your assets

In 1945, two brothers, Jacob and Samuel, were rescued from the Nazi extermination camp of Buchenwald. The rest of their family had been killed. The brothers joined other refugees that left Europe after World War II. Jacob came to the United States, became an engineer, and worked many years for a major corporation. Samuel immigrated to Australia and became an accountant.

Several years ago, Jacob died. He had never married. Samuel — by now quite elderly —came to the United States to settle Jacob’s affairs. What he found was financial chaos. Jacob had always lived frugally and invested widely. Unfortunately, he kept very poor records. Samuel spent several weeks rummaging through files, boxes, drawers, and even under couch pillows trying to gather together all the certificates, statements, and even uncashed dividend checks that Jacob had left behind. We will never be certain that all of Jacobs’s assets have been located.

Few people leave behind as chaotic a financial tangle as Jacob did, but I find that more than half of the people I advise after a death are not certain that they can identify all of a deceased’s investment assets.

The first lesson from this example is this: DO NOT KEEP STOCK OR BOND CERTIFICATES AT HOME OR IN A SAFE DEPOSIT BOX. KEEP ALL FINANCIAL ASSETS IN BROKERAGE ACCOUNTS.

Modern brokerage accounts now allow access via checkbook, electronic funds transfer (EFT) and charge cards. Have all dividends and interest payments deposited in your account; and, if you need cash, you may write a check. There is no reason for your heirs to search through your papers to find uncashed dividend checks.

As people get older, financial advisors and estate planning attorneys often advise clients to consolidate their assets. This is sound advice and greatly simplifies the job of managing an estate at death.

It is often possible to consolidate assets — even mutual funds that you have bought outside of a brokerage account — with a single financial advisor or team of advisors. This has the advantage of giving your financial advisor a better view of your assets and thus providing more comprehensive plans and advice. It also makes it easier for the surviving spouse or heirs to identify your investment assets.

Investment accounts with brokerage firms, money managers, and mutual funds typically make up the bulk of the assets of most families. It is not unusual for a family to have multiple accounts.

Be sure to make a list of your investment accounts. You may use that investment section of the workbook to do so.

From BEFORE I GO by Arie Korving.  Available at Amazon.

 

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Aunt Jennie’s Talents

Image result for image of older woman giving money

The Parable of the Talents is known to everyone who ever attended Sunday school.  A man prepares for a long journey by entrusting three servants with heavy bags of silver (talents) while he is gone.  In those days coins were weighed and a “talent” was about 75 pounds.  He gave 10 talents to one, five to the second and one talent to the third.  The first two servants invested the silver.  The third, being fearful. dug a hole and hid the money for safekeeping.  When the man returned, the first two gave the man twice what had been entrusted to them.  But the third just gave the man his money back.  For this poor stewardship the third servant was cast out.

I was reminded of this story when a lady came to us after receiving an inheritance from her Aunt Jennie.  After being grateful for her good fortune she wondered what to do.  Banks today are paying a pittance on deposits, so putting it in the bank was not all that much different from digging a hole to hide the money from thieves.  She wanted to be a good steward of her inheritance.

She wanted to honor Aunt Jennie by taking care of her money wisely and not squander it.  Aunt Jennie worked hard for her company, spent a lifetime being frugal and made wise investments.  My future client knew her own limitations. She was not an experienced investor.  She had to decide if she wanted to spend her time learning investing from the ground up.  With all the information out there, which expert or school of thought do you listen to?  Did she want to spend her time reading fine print, studying balance sheets or did she want to continue doing those things she enjoyed by finding an experienced professional she could trust to shepherd the money for her.

She chose us because of our caring professionalism.  We listened carefully to her objectives.  We explained the risks and rewards involved in the investing process.  We explained our investment process with the key focus on risk control and wide diversification.  We believe in wise investing, steady growth, and the assurance that your money will keep working for you. With over 30 years’ experience we have weathered all kinds of markets successfully.  Our knowledge and experience allows our clients to focus on those things they enjoy.  They know that their investments will be there for as long as they need them and beyond to help their children and grandchildren.

Aunt Jennie’s talents have grown and our client is happy.  Aunt Jennie would be proud.

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Economic Growth Does Not Kill People – The Opposite is the Case

Brian Wesbury, Chief Economist at First Trust, noted that members of the elite press are telling the people that they had better get used to slow growth.  That economic growth actually kills people.

Two weekend articles, in major US newspapers, left us shaking our heads. The Washington Post wrote that “economic growth actually kills people,” while The Wall Street Journal published a piece saying, ironically, we should get used to slow growth – it’s normal.

Both are ridiculous.

First, The Washington Post cited statistical studies that blame premature death on economic growth (more pollution, more work and more risk).

The statisticians found that pollution and alcohol were the #1 and #2 causes of death as economic growth accelerated. We couldn’t help but think about the Soviet Union, where pollution and alcoholism were rampant in the 1970s and 1980s, but economic growth was non-existent. Economic growth does not cause pollution; to say it does is a red herring. The air in Boston was much worse in the 1800s when wood-burning fireplaces were used to heat homes. Public health was a serious problem before sewage systems and water purification.

 

 The articles in the Post and the Wall Street Journal try to make the case that Americans need to forget about growth.  Rather, the government should focus on making the social safety net bigger, on rule-making, and making everyone more “equal.”  In fact, we are told that growth is a killer.

Evidence of the opposite exists.  Stagnating wages and loss of jobs in this country has been followed by alcoholism and rampant use of heavy-duty drugs like heroin, leading to an increase in premature deaths in America’s heartland.

There is no reason why the American economic engine cannot be revved up to the benefit of all.

Roughly 70% of the US economy depends on consumer spending.  The return of good paying jobs to communities thoroughly the country would result in a significant surge of economic growth.  And by good paying jobs we are not referring to the jobs created by the internet economy on the East or West Coasts.  The jobs produced by companies like Google, Facebook, Twitter and other Internet based “infotainment” companies produce great wealth for their creators but no actual consumer product.  What has surprised many economists – but should not have – is that they have not produced nearly the number of jobs that were predicted.  Meanwhile, industries that produce actual goods that people need to live – food, clothing, housing, fuel, medicine, cars – industries that once produced good paying jobs – are being outsourced or automated.

The country needs to focus on this issue or face increasing unrest among people who feel disrespected and marginalized.  Reviving American industries – in America – can be the spark that leads to a better future for everyone.

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Getting Financial Help

When people have financial questions, what do they look for?  According to a recent survey most people are looking for someone with experience.  We want to take advice from people who are familiar with the issues we face and know what to do about them.  We all know people with experience, but financial problems, like medical problems, are personal.  Most people we know would rather not go into detail about their personal finances with family or friends.  They are more comfortable sitting down with a financial professional to discuss their finances, their debts, their financial concerns, and their financial goals in both the short and long term. Professionals will provide advice without being judgmental and are required by their code of ethics to keep your information confidential.

Once people find someone who has a track record of giving good, professional advice, they want personalized advice and “holistic” planning.

No two people have exactly the same problems.  A good financial advisor listens attentively to learn the goals, the concerns and personal history of the people who come to him for advice.

People have specific issues and questions.  For example: a couple, aged 39, is seeking advice about their path to retirement.  They give their financial advisor a laundry list of their assets, their investments, their savings rate, their debts, and the ages of their children and ask if they should be doing something different or are they on the right path.  That’s a very specific question and the advisor’s response is going to be personalized for them.

The plan that the advisor comes up with is going to involve much more than money.  It’s going to take their personal characteristics into account.  This includes personal experience with investing, their risk tolerance, and their closely held beliefs and ethical values.  This is what is referred to as “holistic” planning; taking personal characteristics into consideration.

There is a fairly big difference in the advice sought by

  • “Millennials” (those born after 1980 and the first generation to come of age in the current century),
  • “Generation X” (the children of the Baby Boomers) and the
  • “Baby Boomers” (children of the soldiers returning from World War 2)

“Millenials” say that among their top three concerns are saving for a large expense such as a car or a wedding.  Too many are saddled by debt acquired to pay for higher education and are finding that their degrees are not necessarily an entry into high paying professional jobs.  Their next largest concerns are saving for their kids’ education and putting money aside for retirement.

“Generation X” is primarily focused on saving for retirement.  They are married, own their own home and may have children in college.  Concerns two and three are tax reduction and paying for their children’s education.

“Baby Boomers” have finally reached retirement age.  More than a quarter million turn 65 each month.  As a group they are a large and wealthy generation, but a vast number have not saved enough for a comfortable retirement.  Many are forced to continue to work to supplement Social Security income.  Their number one concern is the cost of health care.  Concerns two and three are protecting their assets and having enough income for retirement.  The three concerns for Baby Boomers are inter-connected.  For many Boomers, Medicare helps them with the costs associated with most medical issues.  However, as people live longer, there comes a time when they are unable to care for themselves and live independently.  Long-term-care insurance was once believed to be the answer but insurance companies found that costs were much greater than anticipated.  The result is that many insurers have stopped offering the policies and those remaining have hiked premiums beyond the ability of many to pay.  The cost of long term care is so high that many Boomers are afraid that their savings will soon be exhausted if they are forced into assisted living facilities or nursing homes.

Each generation has its own problems and at a time when the world has gotten much more complicated.  Getting experienced, personalized and holistic financial advice is more important than ever.

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Is bigger really better?

Korving -1016 RET web

Everyone wants to see their business grow.  That’s true whether you own a small restaurant or an investment firm.  Some investors look at the size of the firm as an indication of the quality of the advice they will get, assuming that bigger is better.

But that is often the opposite of what they will experience.  Most people are aware that some of the best restaurants are small, with just a few tables, catering to a select clientele.  For the same reason, small investment firms are often better for their clients than large firms.

Large firms are the training ground for smaller firms.  Large firms recruit people who have no experience as investment managers and train them in selling their company’s products.  Once a financial advisor gains experience, he sees ways that his clients can be served better.  That’s the point at which he forms his own small firm where clients get the benefit of his knowledge and experience.

Clients who do business with small firms typically deal directly with the owners, who work for them, rather than employees who work for a paycheck.  As everyone knows, it makes a lot of difference when you’re dealing with the owner of a business rather than an employee.

Small firms are more flexible in meeting the needs of individuals.  Everyone is not the same.  Everyone has a different set of experiences, a different array of needs, and seeks a different level of service.  Large firms create policies and procedures that stack people in silos and try to impose uniform rules on everyone.  The larger the organization, the greater the need for uniformity and the less the business cares about any one individual.

If you have an investment portfolio worth a million dollars, an investment firm with assets-under-management (AUM) of $100 million will care about you and do its best to address your needs.  A firm with  AUM of $1 billion dollars will not care about you as an individual, you’re a statistic.

Korving & Company is growing Registered Investment Firm (RIA), but doing so in a way that makes sure that we always know our clients, care about them as individuals, and go out of our way to meet their individual needs.

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BREXIT is a political crisis, not a financial crisis

We have a tendency to take a dispassionate view of world affairs.  It helps us avoid getting caught up in the hype that the media sells when things happen.  When the unexpected happens, as it so often does, the initial reports and the initial reactions are often the opposite of the truth and have little relationship to reality.

We have some insight into European affairs for personal reasons and have always felt that the EU was an artificial construct in a continent that is home to so many disparate cultures.  So we are not surprised that the whole rickety structure is showing signs of coming apart.  But Europe has been the home of little countries and big countries for millennia and has thrived over that time.  There’s no reason to think that the EU is either critical or even necessary.  It has its uses but it also has its failures and it’s the failures that have grown larger over time.  So finally, when put to a vote, the people on an island off the coast of Europe has decided it was time to declare its independence from the EU and reclaim their heritage.

We also found the commentary from  Jenna Barnard of Henderson Global Investors compelling and wanted to share it.

While the result of the referendum “Brexit” last week may be the biggest political crisis in the United Kingdom since the Second World War, this is not a financial crisis in our view.  Credit markets are not suggesting systemic risk at present as the banks are in a relatively healthy place due to rigorous regulation and stress testing over the last few years.

Clearly the result is a significant blow to confidence / “animal spirits” in the short term and will put a least a temporary break on growth in the UK and perhaps Europe. Bank share prices have also been hammered and their willingness to lend remains muted. European companies are therefore likely to remain relatively conservative – more about dividends and conservative balance sheets than share buybacks /M&A.

The Bank of England is planning to cut rates to 0% from 0.5% but the central bank doesn’t want to take them negative.  We expect further credit easing – free money to the banks for mortgage lending (“funding for lending”), more QE possibly.  We believe another central bank heading to the zero lower band fuels the global grab for yield.

The issue at stake as of today is HOW the UK exits. There are soft and hard version of exit with soft (maintaining access to the free trade area) being the preferable version for the economy. Today the leading “leave” politician in the UK (and likely the next Prime Minister), former Mayor of London Boris Johnson, has written his weekly column for a national newspaper that suggests a very soft form of exit; along the lines of Norway and Switzerland i.e. retain access to the free trade area. To do this the UK would have to agree to free movement of labor (to be clear, not people, but the labor market; new migrants would need a job to come to the UK).

We will continue to watch and advise you to events as they unfold.  As we write these comments on Tuesday morning the US stock markets are up over 1% and the European markets are up over 3%.  Reality is overtaking panic.  If you have questions, don’t hesitate to contact us.

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Living like the Earls of Downton Abbey

Want to live in grand country house in the English country side?

Some of these homes have been divided in apartments.  Here’s Apley Park.

 

 

Mr. Wentworth’s six-bedroom apartment, set over three south-facing floors, is one of 17 units on the property and located in the main building, called Library House.

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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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Keeping Your Eye on the Ball

Investors face a fire-hose torrent of information every day.  Determining what’s important and what’s irrelevant is critical.  Projections of doom and gloom are interspersed with promises of fabulous wealth if only we invest in a certain way.  99% of it is useless or even counter-productive, meant to entice the unwary investor to chase after chimeras that are simply not real.

Today’s issue of First Trust’s Monday Morning Outlook:

Honest question: How much time does the Apple Inc. Board of Directors spend debating whether the Federal Reserve will hike rates once or twice more in 2016?  We don’t really know the answer, but we would guess the best answer is zero.

Now, how much time does CNBC spend debating this question, along with potential actions of the Japanese and European Central Bank?  Answer: Way, way too much.

Business news should cover business, not government, but somehow, over the years, people have been led astray and many now think actions by the government are more important than actions of businesses and entrepreneurs.  Nothing could be further from the truth…

So, while the TV debates between day traders rage on, it doesn’t really matter whether the Fed lifts rates in June, or not.  The difference between a 0.5% and 0.75% federal funds rate matters little to corporate America and entrepreneurs.  In fact, higher rates will most likely make money more available, not less.  If the Fed really wanted to tighten policy, it would get rid of all excess reserves, but it won’t.  So, we suspect a symbolic rate hike in June, no matter what the talking heads’ endless debates about the matter suggest.

As investors we want to follow the lead of Boards of Directors, not the lead of what passes for business journalism these days.  No matter what they say, it is the entrepreneurial class that drives economic activity, not the government.

After all, Greenspan, Bernanke and Yellen have never pulled all-nighters drinking Red Bull and writing Apps for the iPhone.  That’s what changes lives, not quarter point rate hikes.

Professional investors have learned the difference between meaningful information that has a real impact on portfolios and simple distractions.  If you are interested in seeing how this process works, contact us.

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