One leading candidate for the "most under-reported story" of 2014 is the remarkable drop in the U.S. government's budget shortfall. The final numbers announced by the U.S. Treasury for fiscal 2014 (ending September 30) shows a $483 billion deficit. That's about $1 trillion lower than the record $1.4 trillion deficit recorded in 2009. As a percentage of the U.S. Gross Domestic Product, the deficit came in at 2.8%--below the average of the last 40 years.
Digging into the numbers a bit, the government collected just over $3 trillion in the past 12 months, which comes to 17.5% of America's total GDP. That's up from $2.8 trillion last year, largely the result of a stronger economy, but also reflecting higher tax rates on higher-income Americans. Meanwhile, spending was essentially flat; rising from $3.45 trillion to $3.50 trillion, reflecting decreased defense spending and cuts in the unemployment insurance program, flood insurance and disaster relief, crop insurance, the Supplemental Nutrition Assistance Program and a variety of housing programs.
If there is bad news in this picture, it's that Social Security, Medicare and Medicaid are taking over an ever-larger share of the budget, and these costs have been rising much faster than inflation. "Entitlement" expenses are not discretionary; they are basically written contracts with the American people. Medicaid in particular is worrisome; while discretionary expenditures are down almost totally across the board, Medicaid spending growth came in at 10.2% in 2014, and is projected to rise 14.3% next fiscal year.
How does all this affect you? Notice that the partisan budget bickering has quietly faded away. Congress has extended government funding several times without fanfare, and is expected to do so again during the lame duck session after the elections. This might induce the rating agencies to give American bonds back their A+ credit rating.
We may see a tax reform bill sometime next year, which will certainly lower the U.S. corporate tax rate, and may address America's tangled individual tax code. Earlier this year, a House bill proposed to repeal dozens of tax credits, deductions and tax preferences, including the mortgage interest exemption and deductions for charitable contributions. The legislation would create two individual income tax brackets at 10% and 25%. Another proposal would replace most current federal taxes with a 23% national retail sales tax.
And you may hear more about reforming Social Security, Medicare and Medicaid. The Social Security fix is relatively straightforward; for persons under the age of 50 today, full benefits would be deferred a year or two, to reflect the fact that people are living (and capable of working) longer. Medicare proposals have ranged from giving total discretionary control to states, to creating a voucher system that would cap benefits for each participant.
Finally, all of us who are recommending Roth conversions have to pause when we see proposals that would replace income taxes with a sales tax. The premise of a Roth conversion is that you are paying, today, equal or lower taxes on the converted retirement dollars than you would be paying in the future. If future marginal tax rates go down to zero, and all government revenues are shifted to a sales tax, that dramatically changes the Roth equation. Yes, this is unlikely, but even the unlikely contingencies have to be factored into today's financial decisions. After all, who thought the budget deficits would fall below 3% of GDP so quickly?
Sources:
http://www.treasury.gov/press-center/press-releases/Pages/jl2664.aspx
http://www.forbes.com/sites/stancollender/2014/10/16/stop-and-smell-the-roses-final-2014-federal-deficit-fell-big-time/
http://kff.org/medicaid/issue-brief/implementing-the-aca-medicaid-spending-enrollment-growth-for-fy-2014-and-fy-2015/
https://www.scribd.com/fullscreen/63596104?access_key=key-16dzhu6py6idfkjml8it&allow_share=true&escape=false&view_mode=scroll
http://fas.org/sgp/crs/misc/R43060.pdf
Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
info@soundfinancialplanning.net
Secondary Office
650 Mullis St., Ste 101
Friday Harbor, WA 98250
(360) 378-3022
www.soundfinancialplanning.net
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.
Monday, November 3, 2014
Wednesday, October 29, 2014
WHY LOSSES REALLY DO MATTER
Everybody who told us that the steep market drops earlier this month wouldn't last can rightly claim they're right. When the S&P 500 was down 7.4% during a two-week selloff, there was no way to know whether we'd have to endure more of the same. Staying the course turned out to be exactly the right strategy, but that doesn't mean that we shouldn't be concerned about downside risk. In fact, during the downturn, all of us should have been working hard to keep our portfolios from falling as far and as fast as the American indices.
Isn't this a contradiction? There is no contradiction between holding on during market downturns and building portfolios that are unlikely to keep pace with a bear market free-fall. You hold on because no living person knows when the stock markets will recover, but history tells us that they always do seem to recover and eventually deliver returns that are higher, on average, than the returns you get when the money is safely stored under your mattress.
But you also pay attention to downturns because the further your portfolio falls, the harder it is to recover. There's actually a rational reason why you tend to fear losses more than you enjoy your gains.
The mathematics show the asymmetrical effect of losses vs. gains. If your $1 million portfolio loses 10%, falling to $900,000, then it requires an 11.11% gain to get you back where you started. It doesn't seem fair, but that's how it is. A 20% loss requires a 25% gain, and if your portfolio were to drop 40%, you'd need a subsequent 66.67% gain to climb back to your original $1 million nest egg.
Chances are, you know how we fortify portfolios against losses: we include a variety of different types of assets--including bonds which, against every single market prediction at the start of the year, are actually delivering positive returns almost all the way across the maturity spectrum. We include foreign stocks, which haven't exactly been knocking the lights out this year, but which will, someday, offer strong gains when the U.S. markets are weakening. All of these different movements tend to have a calming effect on the portfolio's returns, not always in every circumstance, but fairly reliably over time.
The result? A smoother ride puts more money in your pocket. If an investor experienced returns of +20% and -10% in alternate years over the next 20 years, a $100,000 portfolio would grow to just under $216,000. If a more diversified investor experienced a smoother ride of 10% a year, her portfolio would grow to just under $673,000. The power of steady compounding is a marvelous thing to see. The drag of losses can be debilitating to a portfolio's growth.
You won't experience either of those trajectories, of course. But if you can somehow avoid the worst of the market's falls, even if it means never beating the market during the up-cycles, you raise your chances of long-term success. If you can do this and remain invested through a lot of uncertainty, like we experienced earlier this month, chances are you'll enjoy better long-term returns than a lot of the "experts" you see screaming at you to buy or sell on the cable finance channels.
Oh, and that 7.4% drop? The S&P 500 will have to go up 7.99% to recover the ground it lost in that two-week period.
Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
info@soundfinancialplanning.net
Secondary Office
650 Mullis St., Ste 101
Friday Harbor, WA 98250
(360) 378-3022
www.soundfinancialplanning.net
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.
Isn't this a contradiction? There is no contradiction between holding on during market downturns and building portfolios that are unlikely to keep pace with a bear market free-fall. You hold on because no living person knows when the stock markets will recover, but history tells us that they always do seem to recover and eventually deliver returns that are higher, on average, than the returns you get when the money is safely stored under your mattress.
But you also pay attention to downturns because the further your portfolio falls, the harder it is to recover. There's actually a rational reason why you tend to fear losses more than you enjoy your gains.
The mathematics show the asymmetrical effect of losses vs. gains. If your $1 million portfolio loses 10%, falling to $900,000, then it requires an 11.11% gain to get you back where you started. It doesn't seem fair, but that's how it is. A 20% loss requires a 25% gain, and if your portfolio were to drop 40%, you'd need a subsequent 66.67% gain to climb back to your original $1 million nest egg.
Chances are, you know how we fortify portfolios against losses: we include a variety of different types of assets--including bonds which, against every single market prediction at the start of the year, are actually delivering positive returns almost all the way across the maturity spectrum. We include foreign stocks, which haven't exactly been knocking the lights out this year, but which will, someday, offer strong gains when the U.S. markets are weakening. All of these different movements tend to have a calming effect on the portfolio's returns, not always in every circumstance, but fairly reliably over time.
The result? A smoother ride puts more money in your pocket. If an investor experienced returns of +20% and -10% in alternate years over the next 20 years, a $100,000 portfolio would grow to just under $216,000. If a more diversified investor experienced a smoother ride of 10% a year, her portfolio would grow to just under $673,000. The power of steady compounding is a marvelous thing to see. The drag of losses can be debilitating to a portfolio's growth.
You won't experience either of those trajectories, of course. But if you can somehow avoid the worst of the market's falls, even if it means never beating the market during the up-cycles, you raise your chances of long-term success. If you can do this and remain invested through a lot of uncertainty, like we experienced earlier this month, chances are you'll enjoy better long-term returns than a lot of the "experts" you see screaming at you to buy or sell on the cable finance channels.
Oh, and that 7.4% drop? The S&P 500 will have to go up 7.99% to recover the ground it lost in that two-week period.
Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
info@soundfinancialplanning.net
Secondary Office
650 Mullis St., Ste 101
Friday Harbor, WA 98250
(360) 378-3022
www.soundfinancialplanning.net
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.
Tuesday, October 21, 2014
HOW IS HEALTH CARE REFORM AFFECTING THE FEDERAL DEFICIT?
Some analysts think it is helping reduce the deficit; but others wholeheartedly disagree.
Has the Affordable Care Act actually cut Medicare spending? The numbers from the Congressional Budget Office make a pretty good argument for that, and suggest that the ACA has had a distinct hand in the recent drop in the federal deficit. Detractors of the ACA say that statistical argument doesn't tell the whole story.
Medicare has been a major factor in the deficit's expansion. Its cumulative cash flow deficits came to $1.5 trillion in the first decade of this century, according to the Congressional Budget Office; across the current decade, those cumulative cash flow deficits are projected to hit $6.2 trillion as more and more baby boomers become eligible.1
Admirers of the ACA contend that its technical changes (reductions in payments to some providers, simplified payment systems geared to holistic care, discouragement of hospital readmissions and greater use of generic drugs) are holding Medicare costs in check. These changes have led the CBO to hack 12% off its estimate for Medicare spending across 2011-20. In 2014 dollars, the federal government spent about $12,700 on Medicare per recipient in 2010; the CBO sees that declining to about $11,300 in 2019.2
In the big picture, the savings projects to $95 billion in Medicare's 2019 budget. That is more than the projected 2019 federal outlay for welfare, unemployment insurance and Amtrak combined. It also means Medicare's trust fund will now last until at least 2030 according to the Medicare Trustees.1,3
Does the ACA deserve all the credit? Not really, say its detractors. They argue that while health care spending and Medicare spending have slowed in the past few years, it isn't because of the ACA's changes. The counterargument posits that Medicare spending lessened as a consequence of the recession (and the shallow recovery that followed) and higher-deductible health plans that meant greater out-of-pocket costs for consumers.1
Another contention: lawmakers could have done much more to reduce Medicare spending all along, but backed off of that opportunity. When Congress passed the Balanced Budget Agreement in 1997, it authorized cuts in federal payments to doctors who treat Medicare patients. These cuts (which would have significantly reduced Medicare spending) were supposed to occur in 2003, but Congress has postponed them 17 times since that date.1
Hasn't the federal deficit declined anyway? It has, and it is also about to grow again. By the CBO's estimate, the federal deficit for the current fiscal year will be $506 billion, equivalent to 2.9% of U.S. gross domestic product. At the turn of the decade, the deficit was above $1 trillion, corresponding to 9.8% of GDP. The CBO thinks that the deficit will rise again in two years, however, as an effect of increasing federal spending. As for the federal debt held by the public, it has risen 103% during the current administration.4
The deficit aside, the self-insured may pay cheaper premiums in 2015. Preliminary research from the non-profit Kaiser Family Foundation estimates that the mean premium on "silver" plans (the popular and second-cheapest choice among standard plans) will decline 0.8% next year. The KFF's per-city projections vary greatly, though. For example, it forecasts "silver" plan premiums dropping 15.6% in Denver next year and rising 8.7% in Nashville.4
Bottom line, the CBO sees less Medicare spending ahead. That will contribute to a reduction in the federal deficit, and whether the projected decline is attributable to economic or demographic factors or the changes stemming from the ACA, that is a good thing.
Citations.
1 - forbes.com/sites/gracemarieturner/2014/10/07/its-time-to-end-the-doc-fix-dance-and-move-on-to-real-reform/ [10/7/14]
2 - nytimes.com/2014/08/28/upshot/medicare-not-such-a-budget-buster-anymore.html [8/28/14]
3 - washingtonpost.com/blogs/plum-line/wp/2014/08/27/yes-obamacare-is-cutting-the-deficit/ [8/27/14]
4 - msn.com/en-us/news/politics/obama%E2%80%99s-numbers-october-2014-update/ar-BB7PQFw [10/6/14]
Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
info@soundfinancialplanning.net
Secondary Office
650 Mullis St., Ste 101
Friday Harbor, WA 98250
(360) 378-3022
www.soundfinancialplanning.net
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 MARKETING PRO INC.
Monday, October 13, 2014
THE MARKET'S WILD SWINGS
A hugely volatile week concludes. What's next as earnings season gets underway?
During this past trading week, volatility ruled Wall Street. In fact, stocks either fell or rose 1.5% or more on three consecutive trading days. That had happened only 54 times since 1928.1
What prompted these ups & downs? Several factors. The International Monetary Fund just cut its global and Asia growth forecasts for 2015 and stated that the eurozone could soon slide into another recession. European Central Bank president Mario Draghi wants easing to stimulate the eurozone economy, yet German finance minister Wolfgang Schäuble doesn't. The DAX and CAC 40 (the benchmark indices of Germany and France) have both corrected since spring.2
So has the Russell 2000, which wrapped up last week down 13% from its peak in early March. Oil entered a bear market Thursday. Finally, the end of the month will presumably see the end of the Federal Reserve's quantitative easing effort - which has played a big role in the market's bull run. The S&P 500 ended Friday down more than 5% from its September 18 record close, and Friday actually saw a rare 100-point drop for the Nasdaq Composite (102.10, to be precise).2,3
Where might things go from here? Stocks could fall further - keep in mind that the S&P has gone more than two years without a correction, definitely an abnormality. On the other hand, fall earnings seasons have tended to give stocks a lift throughout history, so let's hope history repeats. Bespoke Investments cites some encouraging data: in instances where the market sees 1.5% or greater swings on three straight trading days, the S&P has averaged a gain of 0.55% on the next trading day and 1.13% during the following trading week.1
How big a drag will Europe continue to exert on the market? Agreement between EU finance ministers would give domestic and foreign stocks a lift. If that isn't there, perhaps earnings - the "mother's milk" of stocks - will help guide the market back to equilibrium and gains.2
Perhaps the wisest words came from Cornerstone Wealth Management CIO Alan Skrainka, who told USA TODAY Friday: "The market was overdue for a correction. Not every correction develops into a bear market. Every economic slowdown is not a recession. Look for opportunities and maintain a long-term perspective."3
Citations.
1 - tinyurl.com/k9nfbxc [10/10/14]
2 - bloomberg.com/news/2014-10-09/index-futures-slip-as-stocks-slump-while-oil-extends-drop.html [10/10/14]
3 - usatoday.com/story/money/markets/2014/10/10/stocks-friday/17022819/ [10/10/14]
Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
info@soundfinancialplanning.net
www.soundfinancialplanning.net
Secondary Office
650 Mullis St., Ste 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 MARKETING PRO INC.
Thursday, October 9, 2014
THE NEWEST LARGEST IPO IN HISTORY
Last fall it was Twitter. Before that, it was Facebook. Now it's Alibaba, the huge Chinese e-commerce company that just became the largest tech IPO in history, after raising $21.8 billion in its initial public offering on September 18.
As it turns out, Facebook and Twitter turned out to be decent investments at their IPO price. Post-IPO buyers purchased Twitter shares at roughly $45 a share, and over the nearly 12 months since, the stock has climbed to around $50--an 11% return that is below what the market as a whole has delivered, but above the negative returns most investors experience in the first year after a public offering. Facebook has done better, starting life at $38 a share in May of 2012, following a very bumpy path that saw investors deeply under water for months, and then recovering so that shares are now trading around $75.
Will Alibaba continue the streak? Amid all the hype, one voice to listen to is veteran emerging markets analyst/manager Mark Mobius, of Franklin Templeton Investments. Mobius acknowledges that Alibaba has some interesting fundamentals--including a return on equity of 24%, operating margins of 26% and revenue of $1.02 billion, making it by far the biggest e-commerce engine in China.
But he also notes that the company has an unusual corporate structure that could lead to problems for investors down the road. He warns that the company's ownership team controls the board of directors, which means that if shareholders are concerned about the direction of the company, or if the owners decide to loot the assets and put the money in their own pockets, well, there isn't much shareholders could do about it.
What, exactly, did investors buy in this IPO? In most cases, IPO investors are purchasing direct ownership shares of the company. But Alibaba is listed as a variable interest entity, which creates a somewhat more complicated ownership structure. The bottom line is that shareholders, in this public offering, are actually buying a stake in a company registered in the Cayman Islands, which has a contract to share in Alibaba's profits. If shareholders ever became concerned about Alibaba's management decisions, they would have to go to a Chinese court to get redress. It is hard to imagine a positive outcome for American investors.
Along this line, it is interesting to note that the original plan was for Alibaba to go public on the Hong Kong stock exchange, but the Hong Kong regulators declined to allow it, citing concerns about (you guessed it!) the ownership structure and fairness to Hong Kong investors. The New York Stock Exchange may have been more focused on a big payday than on consumer protection when it allowed the company to list in the U.S.
Sources:
http://money.cnn.com/2014/09/17/investing/mark-mobius-alibaba-ipo/index.html?iid=SF_INV_River
http://www.marketwatch.com/story/alibabas-structure-is-dangerous-mark-mobius-2014-09-18
http://www.macroaxis.com/invest/market/1688.HK--fundamentals--Alibabacom_Limited
Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
info@soundfinancialplanning.net
www.soundfinancialplanning.net
Secondary Office
650 Mullis St., Ste 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.
As it turns out, Facebook and Twitter turned out to be decent investments at their IPO price. Post-IPO buyers purchased Twitter shares at roughly $45 a share, and over the nearly 12 months since, the stock has climbed to around $50--an 11% return that is below what the market as a whole has delivered, but above the negative returns most investors experience in the first year after a public offering. Facebook has done better, starting life at $38 a share in May of 2012, following a very bumpy path that saw investors deeply under water for months, and then recovering so that shares are now trading around $75.
Will Alibaba continue the streak? Amid all the hype, one voice to listen to is veteran emerging markets analyst/manager Mark Mobius, of Franklin Templeton Investments. Mobius acknowledges that Alibaba has some interesting fundamentals--including a return on equity of 24%, operating margins of 26% and revenue of $1.02 billion, making it by far the biggest e-commerce engine in China.
But he also notes that the company has an unusual corporate structure that could lead to problems for investors down the road. He warns that the company's ownership team controls the board of directors, which means that if shareholders are concerned about the direction of the company, or if the owners decide to loot the assets and put the money in their own pockets, well, there isn't much shareholders could do about it.
What, exactly, did investors buy in this IPO? In most cases, IPO investors are purchasing direct ownership shares of the company. But Alibaba is listed as a variable interest entity, which creates a somewhat more complicated ownership structure. The bottom line is that shareholders, in this public offering, are actually buying a stake in a company registered in the Cayman Islands, which has a contract to share in Alibaba's profits. If shareholders ever became concerned about Alibaba's management decisions, they would have to go to a Chinese court to get redress. It is hard to imagine a positive outcome for American investors.
Along this line, it is interesting to note that the original plan was for Alibaba to go public on the Hong Kong stock exchange, but the Hong Kong regulators declined to allow it, citing concerns about (you guessed it!) the ownership structure and fairness to Hong Kong investors. The New York Stock Exchange may have been more focused on a big payday than on consumer protection when it allowed the company to list in the U.S.
Sources:
http://money.cnn.com/2014/09/17/investing/mark-mobius-alibaba-ipo/index.html?iid=SF_INV_River
http://www.marketwatch.com/story/alibabas-structure-is-dangerous-mark-mobius-2014-09-18
http://www.macroaxis.com/invest/market/1688.HK--fundamentals--Alibabacom_Limited
Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
info@soundfinancialplanning.net
www.soundfinancialplanning.net
Secondary Office
650 Mullis St., Ste 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.
Monday, September 29, 2014
BOND KING'S MESSY EXIT
Financial advisors and the investment community were shocked this past Friday when Bill Gross, sometimes referred to as "the bond king" resigned from Pimco, a firm he founded in 1971 that rose to become one of the largest mutual fund management firms in the world. Gross also served as fund manager for the $221.6 billion Pimco Total Return fund, and made frequent television appearances.
Although the move was surprising, it was not hard to find reasons for the departure. The Total Return Fund had seen investor redemptions totaling $68 billion in the past 16 months, and more recently, Gross has been under investigation by the Securities and Exchange Commission on a charge that an exchange-traded fund he was managing had illegally inflated its performance numbers. Prior to that, Gross publicly feuded with the man regarded as his successor, Mohammed El Erian, who had become a public face of Pimco with his book outlining a "New Normal" in the investment landscape.
Gross has taken a new position at Janus Capital Group, where he will manage a new fund called Janus Global Unconstrained Bond Fund in a new Janus office to be opened near his home in Newport Beach, CA. Some have speculated that investors will pull more money out of the Total Return Fund and follow Gross over to the new fund, where Gross will have the total control that he sought, and was denied, in his later years at Pimco.
Meanwhile, Pimco seems to be in good hands, with Gross succeeded by Daniel J. Ivascyn, formerly deputy chief investment officer. The Total Return Fund will be managed by longtime Gross associates Mark Kiesel, Scott Mather and Mihir Worah.
What are we to make of all this? Today's mutual funds are typically managed under a team approach. Gross was a throwback to an era when one manager would call all the shots and be rewarded (or not) according to whether his performance exceeded the market. Over time, it became obvious that he was impatient with consensus decision-making, which simply means he was out of step with modern fund management styles. It will be interesting to see if he is able to reproduce his (generally excellent) long-term track record in a more competitive market, particularly during this time period when the bond market has been dependent on Federal Reserve stimulus, which is winding down going into next year. Many advisors benefited from Gross's investment talents, but some are also undoubtedly happy to see Pimco Total Return managed in a more collaborative atmosphere.
Sources:
http://www.investmentnews.com/article/20140926/FREE/140929923/little-known-insider-ivascyn-takes-investment-helm-at-challenged?utm_source=BreakingNews-20140926&utm_medium=in-newsletter&utm_campaign=investmentnews&utm_term=text
http://dealbook.nytimes.com/2014/09/26/william-gross-leaves-pimco-to-join-janus/?_php=true&_type=blogs&_r=0
Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
info@soundfinancialplanning.net
soundfinancialplanning.net
Secondary Office
650 Mullis St., Ste 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.
Although the move was surprising, it was not hard to find reasons for the departure. The Total Return Fund had seen investor redemptions totaling $68 billion in the past 16 months, and more recently, Gross has been under investigation by the Securities and Exchange Commission on a charge that an exchange-traded fund he was managing had illegally inflated its performance numbers. Prior to that, Gross publicly feuded with the man regarded as his successor, Mohammed El Erian, who had become a public face of Pimco with his book outlining a "New Normal" in the investment landscape.
Gross has taken a new position at Janus Capital Group, where he will manage a new fund called Janus Global Unconstrained Bond Fund in a new Janus office to be opened near his home in Newport Beach, CA. Some have speculated that investors will pull more money out of the Total Return Fund and follow Gross over to the new fund, where Gross will have the total control that he sought, and was denied, in his later years at Pimco.
Meanwhile, Pimco seems to be in good hands, with Gross succeeded by Daniel J. Ivascyn, formerly deputy chief investment officer. The Total Return Fund will be managed by longtime Gross associates Mark Kiesel, Scott Mather and Mihir Worah.
What are we to make of all this? Today's mutual funds are typically managed under a team approach. Gross was a throwback to an era when one manager would call all the shots and be rewarded (or not) according to whether his performance exceeded the market. Over time, it became obvious that he was impatient with consensus decision-making, which simply means he was out of step with modern fund management styles. It will be interesting to see if he is able to reproduce his (generally excellent) long-term track record in a more competitive market, particularly during this time period when the bond market has been dependent on Federal Reserve stimulus, which is winding down going into next year. Many advisors benefited from Gross's investment talents, but some are also undoubtedly happy to see Pimco Total Return managed in a more collaborative atmosphere.
Sources:
http://www.investmentnews.com/article/20140926/FREE/140929923/little-known-insider-ivascyn-takes-investment-helm-at-challenged?utm_source=BreakingNews-20140926&utm_medium=in-newsletter&utm_campaign=investmentnews&utm_term=text
http://dealbook.nytimes.com/2014/09/26/william-gross-leaves-pimco-to-join-janus/?_php=true&_type=blogs&_r=0
Sincerely,
Bill Morrissey, CFP® and Tammy Prouty, CFP®
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
info@soundfinancialplanning.net
soundfinancialplanning.net
Secondary Office
650 Mullis St., Ste 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.
Thursday, September 25, 2014
SECESSION OUT OF THE BOTTLE?
Scotland has voted--for now--to remain a part of the United Kingdom, a move which avoids such huge and thorny decisions as: how much of Britain's national debt would belong to the newly-independent Scottish nation? Would Scotland have to create its own army and navy, or enter into a contract with the UK for mutual defense? What currency would Scottish citizens use--the euro, the pound or some new currency that hasn't been created yet? Would other countries have to set up embassies in the new nation, and would the country have to create its own embassies around the world? And the most interesting question of all: if Scotland leaves the UK, would Ireland follow? And Wales? And Cornwall?
The vote has put the spotlight on a lot of other separatist initiatives around the world. Prominent among these are the French-speaking citizens of Quebec in Canada, the citizens of Spain's Catalonia (who speak a different language, and whose capitol would be Barcelona), Uighurs and Tibetans in China, the Flemish in Belgium, the Istrian Italians in Croatia, the Moravians in the Czech Republic (which is itself a breakaway part of the former Czechoslovakia), the Savoyans in France, the Bavarians and Frisians in Germany, the Punjabi, Tamils and Manipuri in India, the South Moluccans in Indonesia, the Sardinians and Venetians in Italy, the Sami and Kven in Norway, the Kurds and Armenians in Turkey, Upper Silesians in Poland, and at least twenty different ethnic regions of Russia, famously including the Chechnyans. Myanmar/Burma has 12 ongoing separatist movements. The war in the Ukraine, a long-term history of violence in Northern Ireland, the Chechnyan terrorist attacks and the rise of an islamic state in Syria and Iraq illustrate some of the trauma associated with separatist efforts.
Nor is the concept totally foreign to the U.S. Texas Governor Rick Perry started his own separatist movement by publicly talked about the possibility that his state could exit the U.S., and a Texas secession petition garnered 125,000 signatures in 2012. Its backers hope to make Texas what it was for ten years in the 1800s--a sovereign nation.
In case you were wondering, the Scottish nation would have been the world's 42nd largest, behind Finland and ahead of Israel, and secession would have knocked the UK's GDP down a rung from 6th to 7th in the world, behind Brazil. An independent Quebec's GDP would rank 33rd among the world's nations, behind Colombia, comfortably ahead of Denmark. The sovereign nation of Texas would instantly become the world's 12th largest economy, larger than Mexico or Spain. The states 27 million people would qualify Texas as the world's 44th most populous, behind Venezuela and ahead of Ghana.
Constitutional experts note that, unlike Quebec and Scotland, Texas doesn't actually have the right to vote itself out of its national affiliation. Polls show that 80% of Texas voters prefer to remain American, just as Scottish voters have preferred to remain English and, so far, the Quebecois and Catalonians have voted to stay in their respective countries. But as these votes become increasingly common, it's possible that the world is entering a new era where secession initiatives are becoming more thinkable. Thirty or 50 years from now, the global map--and perhaps the American one as well--might look very different than it does today.
Sources:
http://www.dailysabah.com/opinion/2014/09/17/the-consequences-of-scottish-dependence
http://en.wikipedia.org/wiki/List_of_active_separatist_movements_in_Europe
http://www.huffingtonpost.com/2013/11/05/texas-secede_n_4213506.html
http://theweek.com/article/index/236871/what-would-happen-if-texas-actually-seceded
http://www.star-telegram.com/2013/03/24/4724519/what-if-texas-really-did-secede.html
http://en.wikipedia.org/wiki/List_of_active_separatist_movements_in_Asia
Sincerely,
Bill Morrissey and Tammy Prouty
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Ste 101
Friday Harbor, WA 98250
(360) 378-3022
info@soundfinancialplanning.net
soundfinancialplanning.net
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.
The vote has put the spotlight on a lot of other separatist initiatives around the world. Prominent among these are the French-speaking citizens of Quebec in Canada, the citizens of Spain's Catalonia (who speak a different language, and whose capitol would be Barcelona), Uighurs and Tibetans in China, the Flemish in Belgium, the Istrian Italians in Croatia, the Moravians in the Czech Republic (which is itself a breakaway part of the former Czechoslovakia), the Savoyans in France, the Bavarians and Frisians in Germany, the Punjabi, Tamils and Manipuri in India, the South Moluccans in Indonesia, the Sardinians and Venetians in Italy, the Sami and Kven in Norway, the Kurds and Armenians in Turkey, Upper Silesians in Poland, and at least twenty different ethnic regions of Russia, famously including the Chechnyans. Myanmar/Burma has 12 ongoing separatist movements. The war in the Ukraine, a long-term history of violence in Northern Ireland, the Chechnyan terrorist attacks and the rise of an islamic state in Syria and Iraq illustrate some of the trauma associated with separatist efforts.
Nor is the concept totally foreign to the U.S. Texas Governor Rick Perry started his own separatist movement by publicly talked about the possibility that his state could exit the U.S., and a Texas secession petition garnered 125,000 signatures in 2012. Its backers hope to make Texas what it was for ten years in the 1800s--a sovereign nation.
In case you were wondering, the Scottish nation would have been the world's 42nd largest, behind Finland and ahead of Israel, and secession would have knocked the UK's GDP down a rung from 6th to 7th in the world, behind Brazil. An independent Quebec's GDP would rank 33rd among the world's nations, behind Colombia, comfortably ahead of Denmark. The sovereign nation of Texas would instantly become the world's 12th largest economy, larger than Mexico or Spain. The states 27 million people would qualify Texas as the world's 44th most populous, behind Venezuela and ahead of Ghana.
Constitutional experts note that, unlike Quebec and Scotland, Texas doesn't actually have the right to vote itself out of its national affiliation. Polls show that 80% of Texas voters prefer to remain American, just as Scottish voters have preferred to remain English and, so far, the Quebecois and Catalonians have voted to stay in their respective countries. But as these votes become increasingly common, it's possible that the world is entering a new era where secession initiatives are becoming more thinkable. Thirty or 50 years from now, the global map--and perhaps the American one as well--might look very different than it does today.
Sources:
http://www.dailysabah.com/opinion/2014/09/17/the-consequences-of-scottish-dependence
http://en.wikipedia.org/wiki/List_of_active_separatist_movements_in_Europe
http://www.huffingtonpost.com/2013/11/05/texas-secede_n_4213506.html
http://theweek.com/article/index/236871/what-would-happen-if-texas-actually-seceded
http://www.star-telegram.com/2013/03/24/4724519/what-if-texas-really-did-secede.html
http://en.wikipedia.org/wiki/List_of_active_separatist_movements_in_Asia
Sincerely,
Bill Morrissey and Tammy Prouty
Sound Financial Planning, Inc.
Primary Office
425 Commercial St., Ste 203
Mount Vernon, WA 98273
Phone: (360) 336-6527
Secondary Office
650 Mullis St., Ste 101
Friday Harbor, WA 98250
(360) 378-3022
info@soundfinancialplanning.net
soundfinancialplanning.net
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.
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