COULD THE BULLS STILL RUN WITHOUT THE FED?

If the central bank ceased easing, could stocks continue their ascent?

Could this bull market last with less help from the Federal Reserve? Is it propped up by the Fed's stimulus, or strong enough to sustain itself if the central bank reduces its efforts? Some factors hint that the economy and the market may have a bit more strength than assumed, even with Q2 GDP projections being tempered.

The real estate comeback is real. Housing is a catalyst in the recovery and demand for new and existing homes is not waning. According to the National Association of Realtors, listings remained on the market for an average of only 46 days in April; the norm is between 90-120 days. New home sales were up 2.3% in April, which also brought a 0.6% improvement in residential resales. The year-over-year numbers speak loudly: new home sales, +29.0%; existing home sales, +9.7%. Another nice note: the market share of foreclosures fell from 25% to 18% between April 2012 and April 2013.1,2,3

Many S&P 500 firms met EPS expectations. Q1 earnings season showed two-thirds of companies surpassing earnings per share forecasts; slightly better than the historical average of 63%. The downside, as cited by Thomson Reuters, is that less than 50% of these firms met revenue forecasts. So belt-tightening turned out to be a bigger factor than growth. Still, increased profits generate interest in and confidence in stocks.4

Hiring, buying & spending are holding up. In the past year, the economy has generated an average of 169,000 new jobs per month. (The jobless rate did fall from 8.1% to 7.5% in that 12-month interval.) We know that consumer spending increased by 0.7% in February and 0.2% in March - some of that was attributable to higher fuel and energy costs, but the increases still topped economists' expectations. Overall retail sales ticked up 0.1% in April (and core retail sales 0.6%) following a 0.5% March setback, but the usual spring buying patterns don't seem to have been hampered - April saw a 1.0% jump in auto sales, a 1.2% rise in clothing and accessory sales, and a 1.5% sales gain for home and garden products. Gasoline sales dropped 4.7% last month, and further price descents could free up disposable income for other consumer wants.5,6,7

Wall Street withstood a global hiccup last week. On May 23, the Nikkei 225 dropped 7.3% and the key flash purchasing manager indices for China and the Eurozone came in under 50 (announcing factory activity contraction). What did the S&P 500 do on this unnerving day for global markets? It only retreated 0.29%, with good news on new home sales and initial jobless claims reversing losses. Stocks have proven resilient again and again, and here was another example; it would seem to take something really momentous to shake Wall Street's core confidence.8,9

Regardless of what happens, the Fed should remain accommodative. That factor alone might reassure bulls in case of a pullback, and encourage the belief that we will see further gains for the U.S. benchmarks as the rest of 2013 proceeds.

Citations.
1 - cnbc.com/id/100758136 [5/22/13]
2 - csmonitor.com/Business/new-economy/2013/0523/New-home-sales-rise-but-market-still-a-long-way-from-normal [5/23/13]
3 - mortgagenewsdaily.com/05222013_existing_home_sales.asp [5/22/13]
4 - fool.ca/2013/05/time-to-buy-mining-stocks/ [5/21/13]
5 - ncsl.org/issues-research/labor/national-employment-monthly-update.aspx [5/3/13]
6 - takingnote.blogs.nytimes.com/2013/04/30/consumer-spending-without-consumer-confidence/ [4/30/13]
7 - latimes.com/business/money/la-fi-mo-april-retail-sales-20130513,0,3299874.story [4/30/13]
8 - forbes.com/sites/steveschaefer/2013/05/23/feds-tapering-talk-chinese-factory-slowdown-smack-stocks/ [4/30/13]
9 - cnbc.com/id/100761216 [5/23/13]

Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO PETER MONTOYA.

REAL BANKING REFORM

Banks seem to be hogging the lion's share of the profits in the American economy--the banking sector rakes in almost a third of the total profits earned by all corporations, and the four biggest banks have nearly 40% of all deposits. The total assets of the six largest U.S. banks have grown from about 16% of U.S. GDP to 65% today.

These largest lending institutions have grown so large using an unfair advantage in the marketplace. Because it is widely perceived that the government will bail them out no matter what incredibly stupid thing their leaders might do, lenders are willing to let them borrow at lower rates than you or I could. (What are the chances that the government will bail either of us out if we encounter financial hardship?)

The Bloomberg organization has calculated that the "too big to fail" doctrine effectively gives $83 billion a year of taxpayer subsidies to the ten largest U.S. banks; $64 billion to the five largest.

Even politicians seem to agree that this is unfair. In a rare display of bipartisanship in Congress, Ohio Democratic Senator Sherrod Brown and David Vitter, a Republican Senator from Louisiana, have introduced a bill that would eliminate these government subsidies that put taxpayers at risk for large bank defaults. What are its chances for passage? When the duo crafted a resolution calling for essentially the same provisions that are written into the bill, it passed 99-0 in the Senate.

The bill calls for measures that are so simple, you wonder why nobody has proposed them before. First, every lending institution with more than $500 billion in assets would have to hold at least 15% of its assets in liquid capital. This would end the highly-leveraged bets that institutions made leading up to 2008, that were orders of magnitude more than the money they actually had on hand. Banks would still be able to create tricky off-balance-sheet assets and liabilities, but under the new proposal, those would be treated as if they were on the balance sheet for purposes of the capital requirements.

Finally, and perhaps most importantly, derivative positions--complex bets on everything from the solvency of individual investments to directions in interest rates--would be treated as if they are on the balance sheet, and would have to be disclosed and counted toward that net capital requirement.

Of course, the largest U.S. banks--JPMorgan, Chase, Citigroup, Goldman Sachs, Morgan Stanley, Bank of America and Wells Fargo--are all vehemently opposed to these new provisions, and are denouncing the bipartisan bill through their hired lobbyists and legal firms. One pundit has cynically suggested that the volume of their lamentations will most likely be in direct proportion to the hourly rate they bill their clients. But these will be lonely voices in a debate whose conclusion seems kind of obvious. Vitter has remarked on the Senate floor that "Just about the only people who will not benefit from reining in the megabanks are a few Wall Street executives."

Sources:
http://www.washingtonpost.com/business/can-two-senators-end-too-big-to-fail/2013/05/09/aa01cc70-b5dc-11e2-b94c-b684dda07add_story.html
http://www.huffingtonpost.com/2013/02/28/sherrod-brown-banks-david-vitter_n_2782665.html
http://dealbook.nytimes.com/2013/05/01/in-brown-vitter-bill-a-banking-overhaul-with-possible-teeth/
http://statspotting.com/banking-statistics-banks-make-one-third-of total-corporate-profits/

Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.

FRONTLIFE FOR FIDUCIARY

Millions of Americans--and a lot of professional advisors--are talking about the hard-hitting Frontline exposé on retirement plans. The PBS special, entitled "Retirement Gamble," tells you a lot of things you already know: that corporations have offloaded the decision-making for retirement portfolios on their (not always financially sophisticated) employees, but provided virtually no guidance. The 2008 market crash wiped out investors who had naively put their entire retirement savings in stocks and then sold out at the bottom in a panic. Just 14% of Americans are confident that they have saved enough to live comfortably in retirement.


The special report includes a few details that are likely to be shocking to many non-experts, including the fact that 401(k) plans are not provided for free, as many participants believe, and some plans were set up by the mutual fund and brokerage companies who (no surprise here) populate it with their own funds and triple-dip, charging fees for managing the account, and more fees for managing the funds, plus commissions for selling the funds to those naive plan participants. We learn what many professionals already know: that some people pay ten times more in fees drained out of their retirement plan than others. Vanguard founder Jack Bogle, who is charming, telegenic, and a big believer in index funds, is interviewed extensively.

Interestingly, the PBS report doesn't mention that help may be on the way. The U.S. Department of Labor, which sets the regulations for corporate retirement plans, has mandated that all retirement plans disclose, in writing, the various costs and fees that are being charged to plan participants. These disclosures are now starting to show up in performance statements, and some believe that these rays of sunlight will eventually eliminate the self-dealing and high fees that were exposed in prime time.

The DOL is working on proposals that would require those who give investment advice to plan participants to act in the best interests of the future retirees, and the proposal is expected to ban sales commissions. The requirement--known as a fiduciary standard, or putting the client's interest first--would extend to the IRA accounts that receive the rollover funds from 401(k) and other retirement plans.

Nobody should be surprised that the brokerage industry is lobbying furiously against these proposals, which has caused several delays and at least one incident where the Department of Labor shelved a proposal for "further study" to explore the economic impact on brokerage firms and consumers.

Will the new rules ever be enacted? Sales agents failed to stop the disclosure rules from passage, so their lobbying power is not unlimited. And few unbiased parties would argue with the idea that people receiving advice should be given unconflicted advice, and that sales people should openly disclose the fact that they're selling rather than advising. The Frontline special, showing millions of people how much money has been siphoned out of their retirement accounts into the pockets of larger financial services firms, should help the Department of Labor resist the big moneyed opposition to its efforts to do the right thing for retirees.

Sources:
http://www.lifehealthpro.com/2013/01/29/industry-girds-for-dol-fiduciary-rule
http://www.thefiduciarystandard.org

Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.

GETTING THINGS DONE IN WASHINGTON

If you're among those who believe that nothing can get done within the partisan bickering on Capitol Hill, you should know that both parties came together with remarkable speed recently to pass bipartisan legislation. There was virtually no bickering, posturing or visible hostility as a new modification of the STOCK Act (Stop Trading on Congressional Knowledge) sailed through both houses of Congress.

The original STOCK Act, which became law just a year ago, was designed to discourage top government officials and members of Congress from enriching themselves by buying and selling stocks based on non-public information that they--but not the rest of us--had access to. The law required that Congressional staffers and 28,000 employees of the executive branch of government disclose their portfolios and trades. These financial disclosures were to be posted in an online database open to the public, so researchers could look over the shoulders of our elected officials and their key staffers, and notice any suspicious trades that resulted in mysterious financial windfalls.

The new law eliminated the disclosure laws for Congressional staffers and government employees, leaving them in place only for members of Congress, Congressional candidates and the President and Vice President. Insider trading instantly became much easier in Washington--which appears to be about the only thing Congressional Democrats and Republicans can agree on these days.

Source:
http://finance.yahoo.com/news/insider-trading-nations-capital-just-123453723.html

Sincerely,
William T. Morrissey and Tammy Prouty
Sound Financial Planning Inc.
wtmorrissey@soundfinancialplanning.net
Primary Office
425 Commercial Street, Suite 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Suite 101
Friday Harbor, WA 98250
(360) 378-3022

PLEASE READ THIS WARNING: All e-mail sent to or from this address will be received or otherwise recorded by the Sound Financial Planning, Inc. corporate e-mail system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. This message is intended only for the use of the person(s) ("intended recipient") to whom it is addressed. It may contain information that is privileged and confidential. If you are not the intended recipient, please contact the sender as soon as possible and delete the message without reading it or making a copy. Any dissemination, distribution, copying, or other use of this message or any of its content by any person other than the intended recipient is strictly prohibited. Sound Financial Planning, Inc. has taken precautions to screen this message for viruses, but we cannot guarantee that it is virus free nor are we responsible for any damage that may be caused by this message. Sound Financial Planning, Inc. only transacts business in states where it is properly registered or notice filed, or excluded or exempted from registration requirements. Follow-up and individualized responses that involve either the effecting or attempting to effect transactions in securities or the rendering of personalized investment advice for compensation, as the case may be, will not be made absent compliance with state investment adviser and investment adviser representative registration requirements, or an applicable exemption or exclusion. This information should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. WE WOULD LIKE TO CREDIT THIS ARTICLE'S CONTENT TO BOB VERES.