Dear Climber,
Imagine having your beliefs and safe comforts destroyed. You relied on truth and security, and you put your full faith into a system that was supposed to compensate you for your commitment and hard work. You believed in something with your full heart. You made yourself vulnerable and weak, but with a strong foundation backing you, you didn’t really care, and you didn’t have a reason to care. And then it tricked you and made your life almost impossible to live. You had to adapt. To make the bare minimum just to survive. Taking up odd jobs that humiliated you, but you didn’t have a choice. It was either that or work for free. Starvation, homelessness, and poverty might be incomparable to this, but who knows. Maybe these are the unknown byproducts of this shutdown. Day 35… the end is here. “I am very proud to announce today that we have reached a deal to end the shutdown and reopen the federal government.” President Trump finally agreed to reopen the government for about three weeks until February 15th after a crazy day of airport closures due to a shortage of air traffic controllers. For the past 35 days, 800,000 government employees had their paychecks halted. These furloughed workers and their families would line up in lines as long as a couple city blocks just to collect donated groceries. This president-engineered shutdown ended today when President Trump and Congress reached an agreement. The Market. Was the US stock market a bubble in 2018? Should you own as little US equity as possible? Speculators dominated the market in 2018. They chased fads and fashion, and they tended to follow the herd. Cannabis and cryptocurrency. The top feared global risks for 2019 are extreme weather events and natural disasters, cyber-attacks, data fraud and theft, weapons of mass destruction and a water crisis. China reported its slowest growth rate (6.6%) in nearly 30 years. Venezuela cut diplomatic relations with the US after President Trump recognized the interim president Juan Guaido as the official president. Without more babies and immigrants, the US won’t be able to support its aging population. Two new economic theories: the longer the expansion, the larger the pool of “at-risk” relationships and the size of the downturn predicts the size of the subsequent expansion, but the size of the expansion does not necessarily predict the subsequent recession. China’s slowdown. China released its GDP numbers this week, and it’s a little concerning. China recognized the economic growth of 6.6% in 2018. For most countries, this would be a great growth figure to hit. For China, however, it represents its slowest growth in almost 30 years. A few possible reasons exist. Obviously, there is the other side of the trade war that we've been witnessing for the past year. However, while the impact was felt, Chinese officials said it was "manageable". Perhaps the slowing of economic growth is due to the Chinese government trying to manage debt-levels. Less reliance on debt, in the long run, is healthy for the economy. Right now, however, it would mean that the chances of China sustaining superb growth is slim. Interestingly enough, at the World Economic Forum in Davos, China has told the world that its growth is healthy and focused on the long run. If China, one of the world's largest economies, were to significantly slow down, it could trigger global ramifications on the scale of 2008. The Innovator’s Dilemma. There are two types of technologies, “sustaining” and “disrupting”. The way a company handles these technologies is what sets companies such as Apple apart from companies like Xerox. Clayton Christensen writes in The Innovators Dilemma that the best way to handle disruptive technologies is to, “find or acquire a subsidiary company with the right values and processes, equip it with the necessary resources, and let it do its thing.” During the 1980s, Xerox was well on its way in establishing itself as the world leader in printing solutions, and one of the most valuable companies in the world. Xerox was known to have the strongest sales force in the world, and near full market domination to the point where people even today still refer to printing as “Xeroxing”. So, what happened? During this same time period, some of the world’s leading computer scientists and engineers were working at Xerox PARC on a few groundbreaking technologies. Just one of the many innovations they came across was a GUI (Graphical User Interface), which is what every personal computer in the world uses today! Before the GUI, computers had that bland green text with the black background you see in old movies. So why do Apple and Microsoft have market caps approaching $1 Trillion dollars while Xerox barely maintains a market cap of $5 billion? Back in the 80s, the brass at Xerox headquarters didn’t see a market for the disruptive technology and instead allowed Apple, and later Microsoft, to have some rights to the disruptive technology that would go on to revolutionize the home computer. In the following years, Xerox would try to release their own personal computer, but would ultimately fail miserably. Xerox had a chance to be what Apple or Microsoft are today, but instead, they focused on their sustaining tech and gave away their edge on one of the most disruptive technologies in history. Xerox is not alone; Kodak, IBM, Yahoo!, Sears, Polaroid, AOL, are just a few examples of companies that held a vast market share, developed innovative technologies first, and still failed to innovate. These companies failed because they chose to focus on their sustaining technologies that offered higher profit margins and satisfied current consumers while leaving disruptive technologies with little or no developmental or marketing resources. Make sure to keep an eye out for companies developing disruptive start-ups, because that is how you beat The Innovator’s Dilemma. Keep Climbing, The Alchanati Campbell and Associates Team What's up society? Do you not know what you're doing to the planet? Can you not realize it?1/18/2019 Dear Climber,
Beauty and destruction. There is beauty in people, in nature, in food, in conversation, in the formation of family, in the words of books, in the scripts of songs, but, there is also destruction. We destroy and sometimes we cannot rebuild. How did this happen? When did we become so carried away with profit, growth, and innovation? Forget the shareholders; nature should have majority vote. Global warming is what we caused. Human activities are estimated to have caused approximately 1 degree Celsius of global warming above pre-industrial levels (1 Celsius = 33.8 Fahrenheit). What would happen if the earth’s temperature rose 1.5 degrees Celsius above pre-industrial levels? Increased levels of drought in some areas, heavy precipitation in other areas, and extreme temperatures in many other regions. Sea level rise will have a more visible impact on islands and deltas flooding towns and cities like Miami. Species loss and extinction would increase. The average person generates 4.5 pounds of trash per day equaling to 1.5 tons of solid waste per year. All of this waste ends up in landfills, the ocean or at incinerators; being burned and breaking down and producing methane gas and CO2. Heatwaves in the artic, drought in agriculture-dependent countries, sea level rises causing towns to sink below sea level, a continuance in the extinction of species, the air becoming unbreathable, waterways polluted unable to drink… what good is paper money when we can no longer breathe from the trees that it was created from. The Market. 36% of household heads between ages 24 and 32 owned a home in 2014. In 2005, the share was 45%. 20% of that decline can be directly attributed to an increase in student loan debt. California housing inventory increased 18% year over year (buyer’s market). The government shutdown is affecting 25% of the government (800,000 employees working without pay). A national emergency is most likely to happen. The shutdown is estimated to decrease GDP of the first quarter of 2019 by 0.3-0.4%. US politics are still very much uncertain. Fewer than 1 in 5 workers report they’re “very confident” their retirement income will enable them to actually live comfortably. Consumers (us, we, me and you) are feeling incredibly good about the economy but very nervous about where things are headed. “The stock market is a giant distraction to the business of investing,” (John C. Bogle).John believed that mutual funds make no claim to superiority over the market averages. Nobody can consistently beat the averages over longer time periods. He believed in passive investing, and low fees and expenses. His biggest belief was that the customers’ interest always comes first. If you want to be heard, learn how to communicate effectively. Simple beats complex. Perfect is the enemy of the good. “To repeat, while such an index-driven strategy may not be the best investment strategy ever devised, the number of investment strategies that are worse is infinite,” (Bogle). If you want a successful business, you need to understand your customers. Thinking long-term can lead to extraordinary results. Saving is one of the most important investments you can make. Money isn’t everything. Rest in peace, John C. Bogle. What life should mean to you. We experience reality always through the meaning we give it. Individual psychology has found no problems in life which cannot be grouped under these three main problems- occupational, social and sexual. Life means- to contribute to the whole. The meaning of life is to be interested in the whole of mankind and try to develop social interest and love. Only the individual who understands that life means contribution will be able to meet his difficulties with courage and with a good chance of success. The only individuals who can really meet and master the problems of life are those who show in their tendency to enrich all others. A full solution of the cooperation of two, each partner must be more interested in the other than in himself. This is the only basis on which love and marriage can be successful. Brexit, in its simplest sense, is the UK’s efforts to leave the EU. It got its name from Britain and exit, making Brexit. In the most recent news regarding Brexit, we saw the British sterling lose 2.3% of its value against the USD on January 15th, leading up to the Brexit vote, before recovering its losses, and creating a new monthly high after the plan was turned down. The current state of matters in Britain is worrisome, with little to no resolution occurring between differing parties. Theresa May, Britain's prime minister, seems to be unwilling in changing demands, with her main points being on creating a border between Northern and Southern Ireland, a right for the UK to withdraw unilaterally, and a trade deal. After this deal failed to pass, they will have to go back to the drawing board and hopefully reach a consensus before the UK officials leave the EU on March 29, 2019, at 11 pm. The shutdown. Despite concerns that the longest government shutdown in US history would delay the producer price index this month, the Bureau of Labor Statistics published the numbers on time. January’s numbers are currently set to be published February 14th. The producer price index or PPI measures the selling prices that producers receive for goods at all levels of output. While the PPI doesn’t cover all industries, it is the most accurate indicator of future CPI, has a long history of data, offers good breakdowns of commodities for investors and shows inflation which in turn can move the markets. The PPI for December showed the largest decline in prices in five months, likely a sign that the 13% price drop in gas has lessened the inflationary pressures on the economy. The largest gain in prices was seen in wholesale food which rose 2.6% while the overall cost of goods decreased 0.4%. Some economists argue that the PPI is too easily skewed by energy and trade margins and believe that the core rate is a far more accurate measure of inflation. For December, the core rate was flat, again showing that for the time being inflation has slowed down. Either way, the Feds are taking a "wait and see" approach before increasing rates again. Keep Climbing, The Alchanati Campbell and Associates Team Dear Climber,
The economy should expect a slowdown in 2019. Interest rates are high, real estate prices are slowly declining, inflation is rising and the 10-year T-bond and 90-day T-bond are getting closer to an inversion. Based on history and fundamentals, we are in the last stage of the economic cycle: the tightening stage. But why does the economy look so strong? The market moves on information. With the current political climate and transformation in information technology, tweets and informal speeches have been moving the market in swings. It wouldn’t be improbable that market manipulation is occurring, but that just makes finance more interesting. The Market. Rising interest rates have caused listings to sit longer on the market. The average 30-year fixed rate mortgage rate was 4.74% in November 2018 (November 2017 rate equaling 3.82%). With higher interest rates, people have to lower their home price target to be able to afford a new home. The bond market offers predictive information about future economic growth and inflation. The Treasury Bond rate has stayed low at around 2.69% while the Fed has been raising the Fed Funds rate. The bond market’s fundamentals are indicating that the nominal growth in the US economy (GDP) will drop from its 2018 levels. Home sales are expected to continue on a downward trend in the next 12-months with the increase in mortgage interest rates. Why do we care so much about having the “best”? Some people are after the best, and some are satisfied with good enough. But looking for the best can be extremely counterproductive. Choices are about making us feel good, about getting us to some other thing that we want, or it’s to help us make statements to the world about who we are. What you choose is saying something about who you are. Large choice sets induce people to regard the choices they make as statements about the self. People who are out to get the best do much more social comparison than other people. The solution: sometimes ‘good enough’ is indeed good enough. What I’ve learned from attending one of the best Yeshivas in Israel. One of the greatest challenges of this world is to appreciate and enjoy what we ourselves have- even though there are others who have more. It is not so much death that is good, but our awareness of death’s certainty that is good. Not knowing when we’ll die creates, if we allow it to, a very real and healthy sense of urgency to get on with life. The purpose of this world is choice- to give us the incredible opportunity to be independent things, to live our own lives, to be ourselves. What truly has the potential to shape us is our free will, who we decide we want to be. Relationships are built upon commonality. We do best when we see beyond our own pain to something more. All pain passes. While the experience itself was not in your hands, your response to it was. According to the difficulty is the reward. Greatness is much more often found among those who face adversity head on and overcome it. Everything has the potential to be good and everything has the potential to be bad. Our reaction to what happens is the deciding factor. There is nothing that happens to us in this world that is good or bad. All is completely neutral. Quantitative easing. After the 2008 crisis, the Federal Reserve engaged in quantitative easing. What exactly is quantitative easing? Basically, the central banks purchase bonds and securities. This increases the money supply in the economy, lowering the cost of money and the cost of borrowing as well. A lower cost of borrowing, or a lower interest rate… increases economic stimulation. Now, Jerome Powell, Chairman of the Federal Reserve, said that the Fed's balance sheet will be "substantially smaller" going forward. This "quantitative tightening" began in 2017 and has now reached $50 billion per month and has reduced the balance sheet by $400 billion. Many analysts on Wall Street believe the Fed should not seek to reduce the balance sheet and hike the interest rates, as doing so could lead to increased volatility. ETFs vs Mutual Funds vs Index Funds.One of the many trends that changed over the year was the large investments that were made in ETFs. For investors looking to invest in dozens of stocks or even industries, mutual funds, index funds and exchange-traded funds have been the way to do that. Mutual funds allow you to invest into a basket of assets like stocks and bonds that are professionally managed while charging the investor a fee that usually makes it the most expensive of the three options. An index fund is a fund that will track many of the stocks that make up a certain category, like the S&P 500. Index funds generally charge the lowest fees since they are not actively managed and simply track a benchmark. The newest platform to the mix is the exchange-traded fund or ETF, which due to its convenience is becoming more popular. Unlike other funds, an ETF can be traded as easily as the average stock. There are currently 9,356 mutual funds registered in the US that manage nearly $19 trillion. Over the course of 2018, billions of dollars were transferred from actively managed mutual funds into passively managed mutual funds and ETFs. Currently, index funds account for 29% of the U.S stock market, but based on the current trend, Moody’s estimates that by 2024 passive funds will surpass actively traded funds. By the end of 2018, ETFs held nearly $4 trillion and continue to grow as they become increasingly popular. ETFs that tracked the market as a whole performed the least poorly while ETFs that tracked the oil industry lost as much as 75% of their value. Overall, I believe the best approach for the average investor is to invest in low-cost passive mutual funds or ETFs that index the market, but don’t take my word for it back in 2013 Warren Buffet offered this advice, “Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.” What you should know about the Fed’s last speech.
Keep Climbing, The Alchanati Campbell and Associates Team Dear Climber,
“I wanted the whole world or nothing.” Can your heart be mine? Sadly, this will be the last newsletter for 2018. We started in March with the simple idea of sharing what we learned each week with close friends and family. Market data, current events, economic indicators, personal inspiration… and we turned it into a passion and a love with a subscription base of 5,000+. The best things in life always happen unexpectedly. We hope you’ve enjoyed this as much as we have. People say that what we’re all seeking is a meaning for life. I don’t think that’s what we’re really seeking. I think that what we’re seeking is an experience of being alive. So let’s get to it: The Market. Some call it a “clean rally”, I call it utter chaos and complete volatility. We should get used to these large swings in the market. Banks are getting crushed. Small cap stocks are getting crushed. Bitcoin was a bubble that popped. From September until now, $4 trillion has been wiped out from the US stock market. China’s growth is slowing. Debt worldwide hit $184 trillion ($86,000 per person). US debt is now totaling $21.9 trillion. The 2019 forecast. The past is a great teacher, but a terrible master. From my opinion and current knowledge, this is what I’ve concluded: we will have an economic slowdown in 2019 and be in a bear market, but we will most likely not have a recession (a 20%+ drop in the market). We are currently at the end of the business cycle which is the expansion phase. To indicate that it is “the end” of the business cycle, the unemployment rate drops, consumer spending increases (debt increases), and the Federal funds rate increases (tightening). Now, what will cause the end of this expansion? We would have to see long-term rates drop below short-term rates, a decrease in real estate investments, a decrease in business investments and lastly, a decrease in consumer spending. Portfolio construction and management for personal investing. I believe the first step in creating your own portfolio begins with defining the goals that you would like to achieve with your investments, setting a risk tolerance in line with these goals, and defining the time horizon this portfolio will have. The next step would be doing a bit of research on our current economic situation and deciding what strategies you will use inside of your portfolio. A portfolio is all about layering different strategies on top of each other, each with their own risk tolerances and investment criteria, which provides an easy way to completely diversify your portfolio amongst industries and potentially regions, reducing your overall risk. I’ve talked about a few strategies in previous sections, such as one that looks at equities with above average financials, and one that looks at equities with a good dividend yield, with little risk of being cut. After you construct your portfolio, you can use a site like portfoliovisualizer to backtest and find the metrics of your portfolio, such as the Sharpe ratio, correlation to the market, and the beta. After this, you need to define a benchmark you will use against your portfolio to gauge returns (the DowJ and S&P500 aren’t always the best benchmark to use). “The difference between who you are and who you want to be is what you do” -Charles Duhigg. At Alchanati Campbell & Associates, we believe in being movers, people who get things done. We all have things we want to do, and we all need to start somewhere. The single best place to start is by turning your large daunting goals into simple daily habits. You don’t live off of inspiration, you live off of habits. If you want to write a book, then make sure you devote time to your book every day. Once you have a clearly defined daily habit, it’s only a matter of time before you reach your goals. A recent study from the University College London shows that it takes 66 days to turn a repeated task into a habit that you won’t think twice about doing. 66 days might seem like a lot, but it is easier than you think. Start by setting a daily reminder like an alarm on your phone. Now every time you get the reminder, you preform that task and stick to your routine. Our brains are naturally hardwired to keep routines, so the more you stick to your routine in the beginning, the easier it will be in the end. The reward for work well done is the opportunity to do more. Love. I tore myself away from the safe comfort of certainties through my love for truth- and truth rewarded me. The only way to get people to do great work is if they love what they do. Most people would rather want love than have love. You have to love yourself in order to be loved. The way to love anything is for you to realize that it might be lost. Love: the appreciation of the virtues of a person’s beliefs and purpose. If you don’t love yourself, you will not love others. To the extent you give, you will love. Keep Climbing, The Alchanati Campbell and Associates Team Dear Climber,
Do you ever sit back in a chair designed by Mies van der Rohe and ponder about life, challenge, purpose and missed opportunity? Well, I can’t say I don’t… The Market. Things are slowing down. There’s a feeling of inevitability that the latest correction will turn into something worse. Everyone knows it is coming. But a recession is nothing to fear. The down part of the business cycle is necessary. The US is now a net oil exporter (exports more oil than it imports). Trade tensions, US rate hikes and weaker global trade growth has hurt emerging markets. The #MeToo movement had a setback on Wall Street this week. Many are spooked by the movement and react by “avoiding women at all cost”. 155,000 jobs were added to the US economy in November, below estimates of 198,000. From what I know. Life consists of everything we know and everything we are capable of knowing. There are secrets and new discoveries, but what we are able to know will be known and it will leave everything else unknown. Life is but a moment. It builds upon the past, but it could never be the future because the future is unknown. Life is about discipline and what you make of yourself. The only thing important is where you’re going, not where you came from. Life is about the connections you make and the connections you keep. Don’t dwell on the past and on the ones that you’ve lost, but remember whatever happens, happens rightly and what is destined to be yours, will be yours. Life is all about your inner voice: everything it says, everything it feels and everything it moves you to do. Master it and you’ll master your world. 3- and 5-year Treasury inversion. The spread between the 3 year and 5 year Treasury yields turned negative for the first time in more than a decade. For stocks, it means risks of a bear market. For the dollar, it means a possible decrease in value. For emerging markets, it means a bullish signal for future growth. For credit, it boosts companies’ marginal cost of capital and its harder to access long-term financing. But does the yield curve really forecast recessions? The real interest rate measures the rate at which consumption is expected to grow over a given horizon. If the difference between short-term rates and long-term rates are negative, then growth is expected to decelerate. The Essential Marcus Aurelius. Yes, we are in a Roman philosophy phase (We wanna be Stoics). Rule over oneself and never to be “carried away” by anything. The struggle not to be overthrown by our emotions. Conduct oneself in a gentle and dignified way. The accomplishment of necessary duties without complaint. Nor can I be angry with my fellow man or hate him, for we have been made for cooperation. Perform every action in your life as if it were your last, putting aside all aimlessness and emotional resistance to the choices of reason. People are ignorant of what is good and what is bad, which is no less a disability than the inability to distinguish white from black. Our lives are but a series of choices. If something noble is to be done or said, do not judge yourself unworthy of doing or saying it. It is not the actions of others that trouble us but rather it is our own judgments. Wealth inequality. In order to survive, any flowing system must evolve to increase its access to flow. If movement is hierarchical, then so is wealth. For example, our highway systems operate through a few large, high-capacity freeways and many small, local streets. Today, globalization continues to create an unequal distribution of wealth over the population. As time moves on, inequality cannot be avoided even with legislation. Keep Climbing, The Alchanati Campbell and Associates Team Dear Climber,
The market is crazy, and you know it and I know, but how are you reacting to it? The Market. Traders and investors are dazed, confused, quick to cast blame… but who can condemn them, the market has been choppy. Oil is near $50 per barrel. Lower oil prices mean less pressure on inflation and less pressure on central banks to raise interest rates, and it also benefits households, businesses, and countries that import oil. Corporate bonds have fallen so hard that they’re officially in a bear market. Volatility in emerging market hedge funds spiked in recent months as regional equity market losses in both emerging and developed markets accelerated. American life expectancy falls as opioid deaths rise. Overconfidence. It causes selection bias (selecting individuals or groups in an unrandomized way), overtrading, lack of diversification, taking on more risk… But, there is a way to mitigate it: take the outside view and do not only rely on personal experiences, think in probabilities and bets, assume you are average and record and review decisions. Reflections. Breathe and relax. Do not overwhelm and take it slow. What’s yours is yours. Calm and composed. Don’t act on impulse. Think before you do or speak. Don’t try to validate and don’t try to prove yourself. Do not have regret. Patience and restraint. Stop being a bitch. Only weak people get upset, complain and give up. Don’t express weakness to others. No more distractions. You have to be willing to let go and accept that it’s over. I know everything in my life is there to test me and make me better and stronger. Be untouchable. Financial stability report. The four biggest vulnerabilities the US economy is facing are elevated valuation pressures, excessive borrowing by businesses and households, excessive leverage within the financial sector and funding risks. Asset prices are high relative to economic fundamentals. There’s an increased willingness of investors to take on risk. Borrowing by households has risen roughly in line with household incomes, but there are high amounts of debt. Debt owed by businesses relative to GDP is historically high. The net increase in total household debt has been among borrowers with prime credit scores (719+). Mortgages represent 2/3 of overall household debt outstanding. Meditations by Marcus Aurelius. Don’t be afraid of work, be sparing in your wants, attend to your own needs, mind your own business and never listen to gossip. Make decisions for yourself instead of depending on the hazards of chance, and never for a moment leave reason out of sight. Approach each action as though it were your last. Remember the doctrine that all rational beings are created for one another. Anything in any way beautiful derives its beauty from itself and asks nothing beyond itself. The man who has done one good action does not cry it aloud but passes straight on to a second. Nothing can happen to any man that nature has not fitted him to endure. Love nothing but that which comes to you woven in the pattern of your destiny. G-20. This week kicked off the G20 or Group of Twenty summit which is an annually held summit attended by 19 countries and the European Union. Political and financial leaders from the countries plus an extended list of invitees attend the summit to promote worldwide financial growth and stability. The summit represents 85% of gross world product, 80% of world trade, and two thirds of the world population. The G20 was founded in 1999 and replaced the G8 in 2009 as the main economic forum for industrialized and wealthy nations. World leaders use the summit to meet with other heads of state and discuss economic relations. This week kicked off this year's G20 and has already seen the singing of a new trade agreement, and is expected to see progress made on a US-China trade deal. Mr. Trump, Prime Minister Trudeau, and President Enrique Peña Nieto (Mexico) signed the USMCA in spite of persistent trade disputes, which updates NAFTA, the previous free trade agreement. USMCA notably resembles NAFTA except for its updated regulations on cars, crops, and labor regulations. Even though the agreement has been signed it must still receive a majority vote in the Senate and House of Representatives, which is unlikely to happen before changes are made considering both Republicans and Democrats have voiced concerns about the agreement. “I come to bury Bitcoin, not to praise it” - UBS. “Bitcoin trading below 4k, is it dead?”These were both headlines that displayed on CNBC and other major news stations over this last week. The question among everyone's mind, is bitcoin actually dead? Will we see a recovery? Well, to put this last crash into perspective, bitcoin has crashed more than 50% over 6 times, with crashing over 80% 2 previous times, with this last crash just reaching that 80% point this last week. What does this mean? Well, we have seen this type of crash at least twice before, and both times have surpassed previous levels. The longest correction took place from November 30th 2013 - January 13th 2015, lasting 411 days and declining about 87%. This current crash is at the 331-day mark, with a decline of around 80%. Personally, I think Crypto is on the cusp of something revolutionary and the next phase will be improving the ease of use on the consumer basis. Keep Climbing, The Alchanati Campbell and Associates Team Dear Climber,
The Market. Home prices in a given location are ultimately tethered to the income of the people who live there. 21% of people surveyed by Fannie Mae said it is a good time to buy real estate while 35% say it’s a good time to sell. Markets react to the plans and talks of Brexit with volatility, expecting rises in UK sovereign yields and strengthening of the pound. The tight labor market could be lifting inflation soon. Federal Reserve Chairman Jerome Powell said the US economy is strong but could face headwinds next year with raises of the interest rates. Global debt-to-GDP is at an all-time high. Oil drops most in 3 years as investors flee a market hammered by swelling supplies and a darkening outlook. More than one strategy. Last week I briefly discussed the dividend strategy that I have been working on. This will be just one of the 3 strategies that I’ll be putting on top of each other. In my personal opinion, building a portfolio is all about stacking different strategies with different risk tolerances together to form a diversified portfolio representing different equities from each sector, varying on the aspects you are holding the equities for. Like with the previous strategy, we were looking for high yield dividend stocks, with relatively safe dividend payouts. Personally, I feel this has a medium risk tolerance and will make up around 40% of the overall portfolio. My base will have a low-risk tolerance and make-up 30%. This will most likely be based on creating criteria for finding financially stable companies. The last 30% will be a medium to high-risk tolerance, that has a higher return, and will lower the overall correlation by encompassing a non-US equity market. U.S. Budget Deficit. For the month of October, the United States recorded a $105 billion budget deficit. This number is up from $63 billion from a year ago. You might be wondering why it’s so high. The answer has a bit of irony. Remember when the Trump Administration issued those corporate tax cuts way back? They're beginning to catch up with us. While the cuts may be great for the businesses and giving them more money to reinvest (which data from October shows that they haven't), they also reduce government revenue. The irony lays in the fact that Republicans, generally, are all about reducing taxes (which they did) and spending in general (small government). However, they've increased spending (notably in defense). Increasing expenses while decreasing revenues is not a good formula for success. This places the deficit to come in just shy of $1 Trillion with a T. Last time it was this high was during the years of the recovery from the last recession, except that time it was a Democrat in the White House with Republicans fighting to reduce spending in an effort to the reduce deficit. They've been a little quieter this time around. The stock-bond correlation. Correlation measures the commonality in the deviation from trend for two series of returns. A positive correlation is when two things act the same and negative correlation is when two things act differently from each other. Investors should care less about how the returns deviate from their trends and more about the trends themselves. Correlation provides little information about the relative performance of stocks and bonds. Bonds provided needed diversification to equity risk in past recessions, but correlation did not matter. Momentum investing. Betting that the stock market’s recent winners will remain winners in the near term and likewise with the recent losers remaining losers. The basic time frame for momentum investing success is three to twelve months. The strategy involves capitalizing on the continuance of an existing market trend. Momentum investors use trading signals like the 50-day and 200-day moving averages to know when to enter and exit from a position. Lessons learned from living a full life (we haven’t lived a lot, but we read a lot). Happiness isn’t about a state of constant elation. It’s about being constant. People suck. But if you’re kind, you’ll get the best out of even the worst. Perfection only exists in the mind. It’s not real. Imagine, create, improve. The better you adjust your internal expectations, the happier you’ll be. Growth is what keeps life interesting, and it comes from doing the hard stuff. Over time, the greatest risk you can take is to take no risk at all. Who you let into your life is a vital decision. Don’t leave it up to chance. Everything is approximate. Don’t aim to be right. Aim to be less wrong. Keep Climbing, The Alchanati Campbell and Associates Team Dear Climber,
The Market. “Trade war is the most stupid thing in this world,” (Jack Ma). The US has a $423 billion trade surplus with the world. The Federal Reserve left interest rates unchanged, but on course to hike in December. Officials are trying to prolong the second-longest US expansion. Household spending has continued to grow strongly. Wage growth in October was 4.6% beating inflation. Bill Gates is reinventing the toilet. 7 threats to the bull market.
FIRE. At Alchanati Campbell & Associates LLC, we believe strongly in managing your personal finances and working towards financial independence. A movement known as “FIRE” or Financial Independence, Retire Early has become increasing popular as millennials become more familiar with the ideology. Advocates of “FIRE” say that in order to retire early you should save and invest 50% of your earnings and work until you’re about 35 years old, at which point you can then retire. There is nothing wrong with this idea as long as you’re okay with living your whole life on an extremely strict budget. The “FIRE” approach is an extremely conservative way to retire early and be financially independent, but there are many other ways to approach financial independence. Everyone has a unique financial situation, but a great place to start is by getting educated on the basics of budgeting and retirement plans. Check out our website for more information. Whichever path you choose to follow, always remember that the key principles to maintaining good financial health are managing a budget, saving your income, keeping a diverse portfolio and steering clear of large amounts of bad debt. Dividend stocks. Dividend stocks are equities that pay a portion of their earnings back to their shareholders as an added benefit to holding the shares. When looking at dividend stocks, we first look at the dividend yield, which is calculated as the yearly dividend payout divided by current share price. I personally consider anything above 2.5% a decent and lucrative yield. Shares that offer a consistently growing dividend, over at least the past 5 years, are usually considered to be of lower risk and have less volatile price action. At first glance, one may think a higher dividend yield is always the better choice, but this couldn’t be further from the truth. There is a sweet spot for dividend yields which rely on a few different factors, mainly being its dividend payout ratio (total yearly dividend payout divided by net income), and the number of constant yearly dividend growth. Ideally, we are looking for firms that have a dividend payout ratio of less than 60%~, and a company that has been raising their dividends for around 10+ years. The payout ratio is looking at the safety of the dividend in comparison to how much they are paying out of their net income each year, with the lower the % the better. The years of constant dividend growth shows that the company prioritizes growing this dividend, which means that at the end of the day they will take drastic action to retain this growth to keep shareholders happy. How to master your mind. Your whole experience of existence is really what’s going on in your mind. All of our emotions are created by our thoughts. Most of your interpretations are not particularly true. People distract themselves because they cannot live with their minds. The healing is only going to come once you change the perspective of the pain. Suffering is your mind not dealing with the feeling in a positive way. “I feel really lonely and that’s okay”. “It’s for the best”. Growth comes from pain and challenge. Find the meaning in the pain. Your whole life is your attitude towards life. “I’ll change my thoughts to change my emotions”. To get rid of the pain, take away the thinking. Is it true or not? Is it serving any purpose? Is it going to help me? Acknowledge it and then replace it with positivity. Write down negative thoughts that come to you and number them. You will be more aware when they come. “That’s not who I am anymore, I don’t do that”. Choose your thoughts and replace it with something good. I’m holding onto a rope that’s not attached to anything. Let go, feel the pain, except that this connection is no longer in service. Say whatever is wrong, except that it’s wrong, and then say, “and it’s okay”. “I feel really lonely and that’s okay”. “What’s your perspective and attitude towards life?” I know everything in my life is there to test me and make me better and stronger. Keep Climbing, The Alchanati Campbell and Associates Team What's up chaos and uncertainty? The world is so full of it, but I've found myself clarity11/2/2018 Dear Climber,
With all of the chaos and hate filling the air that we breathe, we take this week to reminisce on the good, because there is good in everything, and we take a minute to remember those who passed in the Pittsburgh Synagogue massacre, flight Lion Air 737 crash, the Yemeni Civil War and all other bloodshed that keeps you up at night. We want you to sleep well tonight so let's get to it: The Market. Student loan debt is 7.5% of US GDP. Fears of an easing in corporate earnings growth is a big factor in the stock market volatility. The top 20 financial firms now control a record 43% of assets, $40.6 trillion. The US economy remains one of the world’s most powerful employment-creation machines. Tightening labor-market conditions are helping wage growth. More jobs and higher wages are attracting more people back into the labor force. There is no negative sentiment towards bonds- even when bonds are showing signs of an end to their 30-year bull market. Manufacturing fell to a 6-month low as orders and hiring cooled. Be inspired, the best of us are, what’s your inspiration? I tore myself away from the safe comfort of certainties through my love for truth, and truth rewarded me. The only way to get people to do great work is if they love what they do. The masks we wear – or don’t wear – shape the way we interact with the world around us, and they determine the space in front of us. Don’t work for your money, have your money work for you. When we strive to become better than we are, everything around us becomes better too. What makes a human life have meaning or significance is not the mere living of a life but reflecting on the living of a life. Your whole life is your attitude towards life. You can either sit around and watch everything from a distance or you can be the one to act and have everyone watch you. Wages are back. It's November, which puts the October equity beatdown officially behind us. It also means it is time to stop shaving for a month, and apparently, the U.S. jobs report got the memo. For the month of October, nonfarm payroll employment grew by 250,000 jobs, easily beating estimates. Moreover, the unemployment rate remained astronomically low at 3.7%, the lowest in nearly 5 decades. Given that jobs are increasing, and unemployment is decreasing, it’s easy to see that there may be a lack of workers. Thus, it’s a good sign that wages increased by 3.1% over the past year, the largest year-over-year gain in nearly a decade. Also, wages are growing ahead of inflation which hovers around 2%. In a world of increasing chaos, it is easy to get overwhelmed and lost in it all. It's important to remember to always P.A.C.E. yourself. Positive attitude changes everything. – Alex Martino (Part of The Alchanati Campbell and Associates Team) The sunk cost fallacy. You are reading a bad book. For the past few days, you have endured through 100 pages. You are considering abandoning the book; however, you are compelled to continue because you’ve already read so much. What should you do? If you truly dislike the book, the 100 pages that you have read are a sunk cost and should have no effect on your decision making going forward. This phenomenon is something economists call the “Sunk Cost Fallacy”. In basing a decision on previously invested capital (in this case, time) one ignores the costs of engaging in a particular behavior. For an investment firm, this could be holding a bad stock because the firm is a legacy shareholder; for the reader, this could be reading a terrible book because they’ve already read 100 pages. By acknowledging sunk costs, firms and readers alike can more clearly see the costs and benefits of their decisions. Peter Thiel's “competition is for losers” is something I live by. Living every day as an improvement upon yesterday is a better way to live. – Daniel Covelli (Part of The Alchanati Campbell and Associates Team) The grass could always be greener. For the last 15 years, Brazil has had a leftist government. That all changed on Sunday when Brazil elected Jair Bolsonaro as president. When president-elect Bolsonaro takes office on January 1st, he is expected to begin enacting his far-right political plan, one that is very similar to US President Trump’s plan when he first took office in 2016. In fact, Bolsonaro openly admires Trump so much so, that many political analysts and colleagues describe him and Trump to be extremely likeminded. Bolsonaro’s plan covers many of the same issues that include: pulling Brazil, the country with the largest section of the Amazon rainforest, out of the Paris climate accord, restructuring and pulling out of free trade agreements both with neighboring countries and China and moving Brazil’s embassy in Israel to Jerusalem. Many of these issues are expected to cost Brazil billions of dollars, and political analysts are uncertain if the president-elect will follow through. I believe in learning and sharing accurate knowledge so I and the people around me can make informed decisions about the world around them. – Matthew Campbell (Part of The Alchanati Campbell and Associates Team) A trade deal with China? Yesterday, November 1st, our president announced on Twitter that he “had a long and very good conversation with President Xi Jinping of China” “with a heavy emphasis on Trade”. What does this mean? Well, many analysts think this is Trump trying to raise investor confidence and boost the stock market in anticipation of the midterm elections. Trump told reporters yesterday, as he was leaving the White House, that “I think we’ll make a deal with China”. Currently, the US has imposed tariffs of $250 billion on Chinese goods and stated another potential $17 billion to be added soon. In nearly every case, barriers to trade are a net negative on each country’s economy, and weigh on economic growth, according to David Ricardo's comparative advantage theory. Why is the trade war weighing so heavily on China? Well, China’s historically has exported around twice as much as they import, making them an export-heavy country. To put this in relation to the US, they import around 2.4t worth of goods, and export around 1.6t, which means they are an import-heavy country. The 2 main components of what I am inspired by are: 1. To be part of tomorrows change, and 2. To leave a positive mark on the world. I believe that nothing is more powerful than a group of people, working towards the same goal, and what they will be able to achieve. – Brent Gordon (Part of The Alchanati Campbell and Associates Team) How to make friends and influence others. If you want to gather honey, don’t kick over the beehive. Talk about your own mistakes before criticizing others. Don’t criticize them; they are just what we would be under similar circumstances. A great man shows his greatness by the way he treats little men. The only way I can get you to do anything is by giving you what you want. The deepest urge in human nature is the desire to be important. If you tell me how you get your feeling of importance, I’ll tell you what you are. Give honest and sincere appreciation. Arouse in the other an eager want. The ability to get the other person’s point of view and see the things from that person’s angle as well as from your own. Everything I am and hope to be is due to my ambition to be my best self, the love that surrounds me daily and the appreciation I have towards the experiences and memories I carry and the life I was given. – Camden Alchanati Keep Climbing, The Alchanati Campbell and Associates Team Dear Climber,
Self-driving scenario testing, Tesla in the green, #150, GDP, junk wrapped in junk and bitcoin for hedging? The Market. Roughly 60% of the time a 10% correction (historically) did not lead to a bear market while roughly 40% of the time it did. Returns on U.S. leveraged loans and collateralized loan obligations have outperformed other fixed-income asset classes. Investors are more concerned with risks associated with higher interest rates. Banks appear to be chasing increasingly dangerous deals and forgoing protections against borrowers going bust. Sales of new single-family houses were down 13.2% in September year-to-date. Despite a tightening labor market, companies have so far not felt compelled to increase wages to retain workers. Inflation: In order for expected changes in the general price level to not effectively alter business or household decisions, it needs to be 2%. The Moral Machine. A game-like platform that would pull together people’s decisions on how self-driving cars should prioritize: humans over pets, passengers over pedestrians, more lives over fewer, women over men, young over old…And if the car should swerve (action) or stay on course (inaction)? Example: A little boy is crossing the street and your self-driving car is unable to stop in time; you can either let the car drive forward and kill the boy or you can turn the wheel and kill an older man on the sidewalk. Which do you choose? Results: countries with more individualistic cultures are more likely to spare the young and spare more lives. Dunbar’s number. The bigger the brains, the larger the social groups. Animals with larger brains should be able to remember more individuals and manage more relationships. 150 is Dunbar’s number. Humans could have no more than 150 meaningful social relationships. Smaller funds usually perform better than larger funds. Companies that grow to over 150 members start having more disputes and disagreements within the group. GDP. Gross Domestic Product grew at a 3.5% growth rate in this past quarter, just nudging the estimated growth. However, this is down from the growth rate experienced in the second quarter of 2018. PCE, or Personal Consumption Expenditures, measures price changes for goods/services and is the Fed's preferred method of monitoring inflation. The third quarter of 2018 saw PCE growth of 1.6%, far off the estimated 2.2%. This information would lead us to believe that inflation is stable for now. Consumer spending also grew 4% this quarter, which is a good sign, being that it accounts for roughly 66% of economic activity. This consumer spending growth was countered by nearly an 8% decrease in business spending. Remember way back in 2017 when those corporate tax cuts came into play? The assumption then was that businesses would have more cash at their disposal to invest in their operations and further stimulate the economy. Fixed investments, investments such as factories, actually had a negative contribution to GDP. The decreased investments and decreased business spending would suggest that C-Level executives are not too eager to spend money right now and are potentially bracing for something. Moreover, and probably more alarming, net exports took away nearly 1.8% points from GDP. In other words, the entire saga with China and NAFTA is definitely being noticed by the economy. Perhaps, as many analysts are suggesting, companies are importing excess goods now, so they don’t get hit with potential tariffs later. Junk Yard or Gold Mine? The Debt/EBITDA ratio is a common way in which rating agencies grade corporate bonds. Companies with a high debt/EBITDA are less capable of paying their debts, and because of this, their corporate bond ratings fall. According to Moody’s, bonds of “Ba” rating and below are considered non-investment grade or are popularly referred to as “Junk” bonds. Because companies that issue junk bonds have a higher relative chance of default, the junk bonds incur a risk-premium to reward investors for taking on excess risk. Lately, junk bond yields have been outpacing other securities. In October, S&P 500 total returns (-0.70%) have fallen below Bloomberg’s High-Yield US Corporate Bond Index (1.45%). Despite growing concerns of an economic slowdown, investors seem confident that leveraged companies will be able to pay down their debts. Portfolio construction. There has been an investing trend of dollars flowing from higher-cost products to lower-cost products (supports the trend of banks ridding their products of high expense ratios). Investors are becoming increasingly discerning when it comes to factoring cost into the investment-selection process (low costs are important to achieve investment success). Broke the break-even line. A big win for Tesla this week as the Q3 earnings report shows Tesla is profitable by a comfortable margin. Tesla reported a revenue of $6.82 billion and a profit of $2.90 a share which blows away the estimated 15-19 cent loss per share that Wall Street analysts were expecting. The end of the third quarter marks the culmination of over a years’ worth of efforts to streamline the manufacturing process and bring the world’s first sensible mass-market electric car to fruition. Over the course of the company’s history, CEO Elon Musk has made several “bet the company” moves. First when making the Tesla Roadster, then the Model S and X, and finally the Model 3. Each time Tesla over-leveraged the company and faced bankruptcy if the success was not found, and each time the bet paid off and paved the way for the next round of production and innovation. With the huge success of the Model 3, the road looks clear for Tesla’s next projects which include the Tesla Semi, Tesla Roadster, the Model Y, a new Giga factory in China, and full self-driving capabilities. Bitcoin: digital gold? A possible hedge? Over the last week, we have seen immense volatility in the current U.S. stock market, with shifts from 1-4% each day. During this time, Bitcoin has not had more than a 1% movement each day, starting the week at $6427, and ending today around $6410. Due to this, we have seen a few comments come out from the media asking if bitcoin is the NEW digital gold, or if it’s a potential hedge to use in your portfolio. My answer to both of these? No and No. Bitcoin isn’t the new digital gold; in the current state it’s not a low-risk hold of value and has no physical backing like gold has. It’s possible that we see Bitcoin become a hedge in the future, but as of now, there has been a complete lack of correlation between the crypto markets and the stock markets. What does this mean? Well to be a hedge, the two assets need to be negatively correlated, so for Bitcoin to become a hedge, we would need to see money leave the stock market during fear, and go into the crypto market, which would mean an inverse relation to the price movement of Bitcoin and the stock market (SPX, RUT), we would also need to see the inverse hold true, with during times of greed, money will leave bitcoin and go into the stock market. If this becomes a reality, we could also see a future of bitcoin being a reliable hold of value. Keep Climbing, The Alchanati Campbell and Associates Team Dear Climber,
The minutes, economic data released, investing in this market, the biggest investing mistake and tax benefits with 'opportunities'. The Market. Stocks are the cheapest they have been in nearly 7 years (according to the PEG ratio). Investors are becoming increasingly nervous about growing trade tensions, higher inflation, and rising interest rates. The average loan rate for a 30-year mortgage was 5.10 last week, the highest since the start of the decade. Student loans (totaling $1.5 trillion) have cumulatively grown 157% over the last 11 years, with auto loan debt growing 52% during the same period. Consumer Sentiment Index buying conditions for autos and homes fell as low as they were in the early 1980s. The dollar is up. The US budget deficit expanded to an estimated $782 billion, 3.9% of GDP (country’s debt load= $21.5 trillion). The minutes. The Federal Open Market Committee released its minutes on Wednesday, and the results were not too surprising. The Fed voted to continue onward with their 2018 rate hike schedule, increasing the range by another quarter percent. Granted, this meeting occurred priorto the volatility spike within the markets this past week. The Fed has stated that 3% remains the target neutral rate in the long-run, meaning that, theoretically, it would not have a positive or negative impact on growth. While President Trump continues to oppose these rate hikes, it is likely that there will be another rate hike in December. We've talked about this mystical "rate" several times, but perhaps we have never fully explained what it exactly is. Basically, it is the interest rate in which banks can lend to other banks. The banks, who are always required to keep a certain reserve amount, can use this lending to meet the requirement. Then, they can lend that money to individuals. The higher the rate, the more expensive it is to borrow. Increasing the cost of borrowing then leads to lowering the money supply. Thus, interest rates are increased and help to slow down the economy by keeping inflation in check. This week’s economic data. The end of the year is coming up fast, as October reports come in we get to see a clearer picture of the health of the economy and its performance over the year. Dozens of major monthly indicators were reported this week ranging from Retail Sales to the EIA Natural Gas Report. These will be the last major indicators to come in before midterms next month so what these reports entail will be very important in the political future of America. Retail Sales are closely watched by economists, investors, and traders as it is a very timely report, but this month sales were less than expected in 3/4 of the categories (prior= 0.1%, forecast= 0.6%, reported= 0.1%). Next up is the Business Inventories report which tracks the dollar amount of inventories companies kept for the month of the report. This report met the forecast which was down from the prior month, but that is understandable as companies get ready to fill their inventories for the holidays (prior= 0.6%, forecast= 0.5%, reported= 0.5%). Monday was the beginning of the fiscal year for the Federal Government making the treasury budget report an extremely timely indicator as people look to see how well the current administration is performing. The Treasury reported a whopping $119.1B, $41.6B more than was forecast (prior= $214.1B). Lastly, we will look at the Energy Information Agency’s Petroleum Status Report that is filed every Wednesday. This week they reported 0.5 million more crude oil and 2.0 million more gasoline barrels in reserve than were expected by analysts, possibly showing an attempt to keep domestic gas prices from rising. Investing advice for the current market weather, but we are NOT advising.
The single greatest mistake investors make. Recency bias. Trend following. Momentum investing. The illusion in which a thing that has recently come to one’s attention suddenly seems to appear with improbable frequency shortly afterward. Not using technical indicators and fundamentals which creates blind spots. A psychological dynamic that operates according to well-defined psychological principles based on the belief that past growth in market prices is strong evidence for more growth in the future. Opportunity Zones. Putting money into funds that are committed to serving “opportunity zones” to avoid the immediate capital gains tax until 2026. Those who commit their money will receive a reduction in the capital gains tax they pay if they hold the money in the fund for 5 years (and more if they hold it longer). The Opportunity Zone fund then uses the money in different ways to serve specific low-income areas. If these funds do make money, the investors will not have to pay any tax on the second capital gain. Small habits create big changes. The moments when you’ve habituated yourself to a pattern of behavior for long enough that it becomes instinctive. We don’t change our lives in flashed of brilliance, but through a slow process in which assumptions unravel and require new explanations. What you do every single day accounts for the quality of your life and the degree of your success. The outcomes of life are not governed by passion, they are governed by principle. If you want to change your life, you need to make tiny decisions every hour of every day until those choices become habits. Tether - the USD of the crypto world - so we thought. Tether, a cryptocurrency which is pegged to the USD, should have an innate value of $1. The backing to the USD, is possible by the creators of the coin, Bifinex, holding 1 USD for every tether that is in the market. There has been controversy whether this is true or not, and last week was another case of doubt. Tether is used as a way for crypto traders to stay out of the crypto market, while still staying in the stable currency. Early last week, there was another scare concerning Tether, and we saw traders trying to get out of it which shot the price of BTC up to around $6800, from $6200. This decreased the value of tether from 1 USD, to around $0.93. A week later, it’s still sitting at a 3% discount, at around $0.97. The effect of this? We saw a large rise in traders using other stable coins, such as the Gemini Dollar, created by the Winklevoss’s, and Trueusd. Keep Climbing, The Alchanati Campbell and Associates Team Dear Climber,
The Market. From Wednesday to Thursday, about $8.5 trillion in market cap was wiped off of US markets. The downtick spike suggests either outright panic or a series of automated program trades were the cause. Today’s rally was due to trade data from China easing concerns and the tension, finding out China isn’t manipulating the Yuan and relief on bank earnings. Economists believe a rate inversion will be likely to happen in 2019. Over this last week, we saw gains that occurred over the last 3 months get wiped out. There is a lot of speculation to what caused this drop, if this drop is going to persist, and why bonds and stocks both went down on Thursday. Personally, I feel it’s a two-part answer to what caused this drop: it’s a mix of increased fear in retail investors, and trading algorithms selling when the market dropped past the Moving Averages (specifically the 200-day moving average). CNN’s fear and greed index, which 1 month ago was rated at 59 equaling to greed, is now currently ranked at a 5 equaling to extreme fear. Housing market slowdown. Several economic factors have led to discouraged and hesitated homebuyers in 2018. These factors include:
What determines how successful a portfolio is in terms of net inflation-adjusted returns.
Banks report earnings. JPM (-0.98%), FRC (+2.51%), PNC(-5.59%), CITI (+2.14%), WFC(+1.34%) were of the first publicly traded banks to release their earnings, earlier today. JPM, CITI, WFC, and PNC all were slightly above estimated EPS. With FRC being directly below estimated, by less than a cent. JPM stated that “they had attracted a record amount of fresh money” - CEO Jamie Dimon, as well as decreases in credit losses by over 35%. The general sense that we are seeing from these earnings calls are rises in deposits, increases to interest income, and increased lending activity. All of the banks are signaling for a positive outlook on future economic growth, and this should help to squash a bit of the fear currently in the market. The only bank struggling in the current market is PNC, as they are dealing with raises of around 1% in non-interest expenses and weak loan growth. To infinity and beyond…. Almost. Over the past few years, we have seen private companies kick off a second space race with the goal of sending a paying customer into space and eventually to the surface of Mars. This week there have been several exciting developments. SpaceX has finally landed a booster on the west coast and created a magnificent spectacle over the Californian horizon in doing so. Amazon founder Jeff Bezos gets his rocket company, Blue Origin, ready for their first suborbital flight which they estimate will take place in the first half of 2019. Richard Branson, yet another billionaire with a rocket company claims that Virgin Galactic will be in space “in weeks, not months” taking a direct jab at all the other companies reaching for the stars. Not all news is good, yesterday a Russian Soyuz rocket carrying an American astronaut on his way to the ISS failed causing an abort and reminding us that space travel is still extremely dangerous and far from routine. Both the American astronaut and the Russian cosmonaut are unharmed, but this innocent means that there is no way to re-crew the ISS. If Russia isn’t ready to fly by January, and SpaceX and Boeing don’t expedite their crewed test flights then the ISS may need to go un-crewed for the foreseeable future. Life advice. Be true to yourself- live the life you want to live. Focus on what is true to yourself. Take a break, meditate, or take time off. Don’t forget to show love- be selfless. It’s not about the hours in the day, it’s how you use them. Right is might, and when you do your work and figure it all out, all the other noise will disappear. Don’t give up. You need to know your limitations- you shouldn’t do what you don’t understand. You always live to fight another day. Do something you love. Everything you do really means two things. Find the smartest people you can, surround yourself with them, and shut up and listen. Regret. Senior citizens flashback to their youth and give advice on what they would change about their financial planning. Here are some of the mistakes they made:
The Volatility Index. Here is something you should know because it might be useful with upcoming market volatility...
Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
How to be smart, how to be less risky, how to have less regret + some more. The Market. Two-thirds of economists expect a recession to begin by the end of 2020; the biggest fear: trade tensions. The US government payed $523 billion in interest payments, more than the total economic output from Belgium’s latest fiscal year. The confusion about tax law changes are cleared up: companies can deduct 50% of meals while entertaining clients and customers. Volatility in the market is back up. The unemployment rate fell to a 48-year low to 3.7%. Property prices continue slow rise. For the most part, commercial property appreciation has been modest over the past few years- something like 2% per year on average. Industrial property has increased 11% and Manufactured Home park real estate has increased 16% in the past year; while Malls have declined 9% and Strip Retail property has decreased 4% in the past year. Americans are retiring later. People are retiring and taking their benefits later. 57% claiming their benefits under social security at age 62 in 1997 versus 34% at age 62 in 2017. Increased life expectancy and improved health are some reasons for this. Another reason is private pensions have transitioned from defined-benefit plans to defined-contribution ones creating less incentive to retire earlier. Risk management for regret. Project yourself to age 90: looking back on your life, you want to minimize the number of regrets you have. A few regrets are universal: a decision that can not be easily reversed and a decision with downside so severe that it prevents eventual recovery. Risk management comes down to avoiding decisions that can not be easily reversed, whose downsides are unrecoverable. Taking good risks requires knowing both the odds of failure and how that failure will affect you afterwards. “Risk is what’s left over when you think you’ve thought of everything,” (Carl Richards). Lots of kinds of smart. Smart is the ability to solve problems. Accepting that your field of work is more important or influential to other people’s decisions than dozens of other fields, pushing to spend your time connecting the dots between your expertise and other disciplines. Willing to make bold moves but always within the context of making survival the top priority. Humility not in the idea of the world you’ve experienced you are likely wrong, especially in knowing how other people think and make decisions. Insufficient sleep = risky teen behavior. Teens who sleep for less than 6 hours per night are at greater risk of mental health issues, substance abuse, accidents and other risk-taking behavior. Teens require 8-10 hours of sleep at night for optimal health, but 70% of high school students get less than that. The odds of unsafe behavior by high school students increased significantly with fewer hours of sleep. Those who slept less than 6 hours were more than three times as likely to consider or attempt suicide. Rate hikes and investment advice that we are NOT advising you on. After the almost unprecedented job report, we can expect yet another interest rate increase come December. In fact, if nothing dramatically changes, many economists from banks including PNC Financial and J.P. Morgan Chase expect at least 2 more rate hikes in 2019. 10-year Treasury notes hit a seven year high (3.229%) following the job report, but the Fed believes the economy is still strong. In previous interest rate hikes, shares of J.P. Morgan have increased 5.2% in a month-to-month period, Goldman has seen a similar 3.9% gain, companies like Visa and Exxon Mobil have also done well. Historically, Walmart and Coca-Cola have struggled. Is it Musky in here? Last week, Elon Musk, eccentric CEO of Tesla, was being sued by the SEC. Now, Musk has a somewhat decorated history of using social media to speak about Tesla (which often leads to sharp increases in Tesla's share price). However, he went too far this time. In August, Musk tweeted that he was thinking of taking Tesla private at $420 dollars per share (another juicy story behind that number), and that he had already secured the funding necessary to buy back all the shares. Tesla jumped 11% on that day. However, upon further investigation by the SEC and Tesla shareholders, it's been revealed that he may have been stretching the truth just a bit. Musk got sued by the SEC for Securities Fraud, issuing "false and misleading" statements to manipulate the stock price in a favorable manner. Musk has settled his lawsuit with the SEC, agreeing to pay $20 million to the SEC with Tesla, Inc. also paying $20 million. Furthermore, Musk agreed to resign as Chairman of the Board but remain Tesla's CEO. The drama seemed to be over, but that’s never the case. On Thursday, Musk further taunted the SEC. He tweeted out that the SEC is doing fabulous work but referred to them as the “Shortseller Enrichment Commission”. Given Musk's history of opposing investors shorting Tesla (betting that the stock will go down), this is clearly a jab. Investors responded by sending shares down 7% today, which wipes out the slight recuperations made from the settlement. Remember folks, secure funding before manipulating securities! Government spending. Government spending currently accounts for 36% of US GDP, with 57% attributable to federal spending, 26% to state spending and, 27% to local spending. Government spending is split up into 3 subsections: mandatory spending, discretionary spending, and the interest on our debt. In the last few years, the government has started to reduce the amount they are budgeting to discretionary spending, decreasing from 13.1% of GDP in 1968, to 6.3% currently. Although discretionary spending is decreasing, total government spending is increasing drastically due to mandatory spending and the earned-benefits programs under it. Specifically, when looking at the mandatory budget, you will notice Social Security and Medicare dominating a large % of the budget. This is due to one of our largest generations reaching retirement age, the Baby Boomers. It is projected that there are currently 10,000 new retirees every day, with that number projected to increase in the next few years. Currently, social security is completely funded by payroll taxes and the interest earned on previous payroll taxes that were invested. The trust fund is currently running at a surplus, but the board predicts that by 2036, the surplus will be depleted and social security revenue from payroll taxes and the interest earned on them, will only be able to cover 77% of the benefits promised to retirees. Keep Climbing, The Alchanati Campbell and Associates Team Subscribe here: http://eepurl.com/do-SwL Dear Climber,
The two-sided American economy.
The Intercontinental Exchange, commonly known as ICE, is giant in the trading world.They own 23 exchanges including the New York Stock Exchange, 6 clearing houses, and now plan to offer Bitcoin futures. ICE has launched a startup called Bakkt and teamed up with several other giants including Microsoft and Starbucks to help bring Bitcoin to the public. Bakkt plans to offer physically delivered bitcoin futures, and warehousing. This will allow investors and everyday consumers to trade and speculate the price of bitcoin and in a way that is faster, safer, and more convenient than ever before. As of this writing, ICE has a market cap of $43 billion dollars and Bitcoin of $115 billion. When these two titans come together, we may see these values vastly increase. Mind over matter. In your brain, messages from the thalamus travel to two important destinations simultaneously: your amygdala and your prefrontal cortex. The amygdala handles emotions like fear, anxiety, arousal and aggression. The prefrontal cortex deliberates decisions and moderates social behavior. But, it takes 40 milliseconds for the prefrontal cortex to get a message compared to the amygdala’s 12. You’re emotional before you’re practical. Learn how to not act out of fear or anxiety and give yourself some time to process what’s happening before you act hastily. Another Fed rate hike with 3 more in the pipeline. This is the 3rd rate hike this year boosting the federal funds rate to 2.25%. The hike has caused mortgage rates to reach levels not seen in more than 7 years. The average rate for a 30-year fixed mortgage is 4.72% and the average 15-year rate climbed to 4.16%. The Fed’s strategy is to, “Engineer a soft landing of the economy by raising rates just enough to prevent overheating, but not so much that they trigger a recession”. The pork is going bad. This week’s addition to the Trump-China Trade War Saga is causing industry leaders to freak out. Walmart, Ford, Proctor & Gamble, and Coco-Cola have all released public statements stressing that the new tariff will cause price inflation. One of the biggest losers is the US Pork Industry. Since May, prices for a lean hog have fallen by 19%, the predicted overall losses for the pork industry are estimated to reach $2 billion this year. Reports in July have suggested that pork and other meats are “piling up” in storage facilities. Without the Chinese market, there are simply not enough mouths to feed. In response, the USDA has pledged to hand out over $700 million in grievances to the pork industry. Consumers are confidently confident. Among the plethora of economic data to be released this week is the Consumer Confidence Index. For the month of September, Consumer Confidence beat expectations and hit an 18-year high. Essentially, this indicator represents how optimistic consumers are about the future of the economy and of their own personal, financial health. The more optimistic they are, the more they will spend/consume, which all lead to a greater stimulation within the economy. The Organization for Economic Cooperation and Development recognizes this metric as a leading indicator for the economy. With September's number coming in so high, this reiterates what Fed Chairman Jerome Powell said this week as well: the U.S. economy is in good shape…for now. Conspicuous consumption. Also known as, buying goods to show off. When people indulge, they want to feel like there’s some sort of rational excuse for their behavior. Some say this is being “fake”, but what they don’t know is acquiring something luxurious can temporarily increase one’s self-esteem. Increasing your self-esteem temporarily might seem good, but it is in the consequence of not making friends. A study shows that people would rather befriend someone who doesn’t display high-status, but rather more neutral makers. An explanation of these findings is that people, when looking for friends, don’t like feeling inadequate (when their friends outperform them) and they are less okay with a friend’s success than with a stranger’s. Average-American household data. The average US household has a net worth of $692,100. The average net worth for a college-educated person is $1,511,000 versus $249,600 for someone with just a high school diploma. The average net worth for a homeowner is $1,034,200 versus $91,100 for a renter. Kindness with the reward of nothing. There are two types of kindness: altruistic (no hope of gaining something in return) and strategic (when there’s something to be gained as a consequence). Scientists discovered that the reward areas of the brain are more active when people are altruistically kind than when they are strategically kind. This study shows that self-interest is sometimes not so rewarding, and that it might be better to give out of true altruism. The recent rally can put new retirees in a dangerous place. After such a long bull market, we are likely to see slowing growth or even a sharp decline. Here are two strategies to assure steady income for that “Palm Spring’s” lifestyle:
In the world of sports. Last night on Thursday night football, we had an offensive explosion from both sides of the turf. The Los Angeles Rams beat the Minnesota Vikings 38-31 at home in a game where Jared Goff and Kirk Cousins both aired it out for over 420 yards and no picks. Jared Goff became the fifth quarterback in NFL history to throw for more than 450 yards with five touchdown passes and no interceptions in a game. The Rams improved their record to a perfect 4-0 and will look to keep their undefeated streak going next Sunday in Seattle. For golf fans, Tiger finished 11-under for his first PGA Tour win since 2013 on Sunday. His last victory on Tour before Sunday was the WGC-Bridgestone Invitational on Aug. 4, 2013. Lakers will open up their preseason at the Staples Center this Sunday. Keep Climbing, The Alchanati Campbell and Associates Team Subscribe here: http://eepurl.com/do-SwL Dear Climber,
Success, economic measures, emerging market growth, the current economy and the science behind the rate hike. #dearmoon. On Monday, September 17th, those who watched the SpaceX special event left the real world for little and entered a world more akin to an Arthur C. Clark novel, as Elon Musk announced that Yusaku Maezawa would be the first private citizen to fly around the moon in what felt like the intro to a sci-fi movie. The Japanese entrepreneur and billionaire entered the stage to introduce himself, and explain his mission. Maezawa has purchased all of the available seats on the BFR spaceship to fly himself and several world renown artists around the moon. Maezawa has named this endeavor, “Dear Moon” and hopes that sending these artists around the moon will inspire them to create artwork with the goal of world peace. Maezawa has paid an undisclosed amount that will help fund the creation of the Big Falcon Rocket or BFR. While this mission is not set to take place until 2023, effects will be felt through the aerospace industry immediately. Companies like SpaceX, Blue Origin, and Boeing are in a race to gain an advantage in the emerging market of space tourism and the completion of the BFR would set SpaceX far ahead of their completion. Success only by luck..? “You don’t know whether you’re going to be born rich or poor, male or female, infirm or able-bodied, in the US or Afghanistan. All you know is that you get to take one ball out of 5.8 billion balls. And that’s you,”(Warren Buffett). This is called the “Ovarian Lottery”. It might seem reasonable that the Ovarian Lottery determines most of your success in life, but hard work might produce the same result. When you work hard you typically get better results than you would with less effort. Luck matters more in an absolute sense (against a world of people) and hard work matters more in a relative sense (against a group of similar people). Absolute success is luck and relative success is choices and habits. Important economic measures to know.
The secret behind emerging market growth. 18 emerging economies stand out the most. China, Hong Kong, Indonesia, Malaysia, Singapore, South Korea, and Thailand all have per capita GDP growth of at least 3.5% annually over 1965-2016. Azerbaijan, Belarus, Cambodia, Ethiopia, India, Kazakhstan, Laos, Myanmar, Turkmenistan, Uzbekistan, and Vietnam all have per capita GDP growth of at least 5% for the last 20 years. The secret that enables certain economies to achieve more stable and robust growth is:
Record low unemployment + low wages = the current economy. The unemployment rate has dropped to a nearly two-decade low. Wages remain flat, with raises getting eaten up by inflation. This is caused by low business dynamism and diminished worker power. An indicator to help explain the persistence of low wages in an environment of low unemployment is sluggish productivity. Productivity growth is low relative to historical standards. How the FED increases interest rates. On September 26, the Federal Reserve's Federal Open Market Committee, or FOMC, is set to meet and another interest rate hike is widely expected. But what does a rate hike actually mean? In a rate hike, the Federal Reserve pulls extra capital out of the economy. The FED does this by selling US Treasury Bonds to banks. Banks lose capital in this transaction. This leaves the banks with less capital to produce loans. To make it harder for consumers to acquire loans, the banks increase interest rates on loans. This disincentives consumers from acquiring loans which additionally disincentives consumers from spending. With less spending in the economy, unemployment rates go up, production decreases, and with less capital for investment the stock market drops. Here’s a link to learn more about quantitative easing. RIPPLE. If you don’t know much about cryptocurrency, the two coins that you have probably heard of are bitcoin, and the coin that is always talked about on the news, Ripple (XRP). Well Ripple just pulled off something that no one expected would ever occur: they just overtook Ethereum for the 2nd highest market cap coin in crypto. A bit of background on Ripple before we go further into why this is such a big deal. (I am going to give an outside view of this coin as I have strong opinions against it) Ripple is a cryptocurrency that is used as a transfer of value, boasting the capability of “instant and direct transfer of money between two parties”. Not to go that far into the tech, this sounds like a great idea… the capability to instantly transfer a ‘currency’ to anyone, anywhere in the world, for minimal fees. Ripple also has the ability to handle over 50,000 transactions a second. Now to the large issue that I have with this coin: there is no capability to mine this coin, but the corporation behind Ripple chose a random number, 100B, and literally just created that many coins. The only thing stopping them from ‘printing’ more coins, is their promise that they won’t. Now here is the kicker, the team currently holds around 60% of the coin, which is around 60 billion ripple. At the current price, now up ~50% in the last 24 hours to $0.57, that makes the team worth a whopping $34 billion. In a new-and-upcoming industry which is constantly toting decentralization, why is the #2 market cap coin, a completely centralized project? Now, what did ripple pull off? Well, they just revealed that their pilot program was a success and led to bringing 12 large banks on board creating a new XRP-based payment solution, xRapid. Which banks in question, well only one has been announced, and its PNC bank and they will be using this payment solution to speed up, and reduce the costs of overseas transactions, solely for their US clientele. My personal opinion on Ripple? - I dislike Ripple and feel that serious manipulation could occur with the team holding such a large amount. I find it to be too large of a risk, even in the world of crypto, to fit into my already extremely risky crypto portfolio.
The Alchanati Campbell and Associates Team Dear Reader,
How bout em apples, Brexit, cryptocurrency, technology and fertility rates. Hi Apple. “Here’s to the crazy ones, the misfits, the trouble makers, the round pegs in the square holes” to the ones who use a trillion dollar company to bring the power of innovation to hundreds of millions of people across the planet. Apple’s September special event hosted at the Steve Jobs Theater was a hit. Apple continues to double down on Jobs’ philosophy and focus on the hardware. This year’s main product announcements included the Apple Watch Series 4, iPhone XS, XS Max, and XR. The new watch is now capable of monitoring your heart rate for irregularities, can preform an ECG and can alert authorities if the user falls and is injured. These new features will help Apple gain a larger share in older demographics and potentially save lives. Tim Cook announced that Apple recently sold their 2 billionth device and the impressive numbers don’t stop there. The new A12 Bionic chip puts in emphasis on matching learning and can perform 5 trillion operations every second! The product launch also shows off Apple’s new strategy. The three new iPhones will allow Apple to expand into several markets, the XS Max is expected to preform well in China, while the XR can boast many of the same specs as the XS and even surpass it in some like battery life. It also comes at a much lower price making this new tech accessible to more people. Two weeks ago, we speculated that Apple would not include a 5G ready receiver in the new iPhones, well the iPhone XS and XS Max have gigabit LTE antennas which is a stepping stone to 5G. The Situation with BREXIT. By now, I'm sure all of you have heard about BREXIT. For those that haven't, let's give you the run down. Essentially, the United Kingdom is planning to leave the European Union. To be incredibly broad, the European Union is a pact between 28 countries establishing a system of a free flow of goods and people between the participating countries. The actual exit isn't happening until 2019, but there's a lot to be done before then. This week, there has been more extensive talks of a deal for the exit plan, which officials hope to reach prior to December of this year. If a deal is not reached and BREXIT occurs, it could be disastrous for all parties. Primarily, the flow of people from country to country would be more limited and costly. This would of course have ripple effects on each country as they are losing tourists who go to those countries and spend money there. Furthermore, Mark Carney, Governor of the Bank of England, informed the world that the housing market in Britain would crash in this event. Remember what happened when the United States Housing Market collapsed? Where is the bottom? You will get a different answer every person you ask. Some people are saying we could see mid $3000’s, while others are saying we have already hit the bottom, and there is only room for growth. A lot of people are claiming that $6000 will be the bottom as that sets it equal to the cost of mining a single BTC. Personally I think we have the chance to go down further than $6000, as cost to produce isn’t always the price floor of an item. Mining operations won’t just turn the power off once BTC falls below $6000, as they have a lot of fixed costs they will still need to cover. We could easily see BTC drop below $6000 in the next few weeks, or we could even see it rise and try to break its resistance zone at $7400. It is constantly brought up concerning the crash from $19,950 to $5700, that it will never recover to its previous highs, the common common argument against that is to look at its previous crashes. In 2012, it fell from $7.38 to $3.8, which was a 49% drop. In 2013, we saw a drop from $260 to $45, a 83% drop. In 2015, $1163 to $152.4, a 87% drop. This last drop, from $19,665 to 6000 was 70% drop. Will history repeat itself and will we recover back to previous highs? Only time will tell. Are they improving our intelligence or making us stupid and violent? Research shows that by constantly distracting us, the internet affects cognitive performance, but does not radically alter our brains. There is simply no experimental evidence to show that living with new technologies fundamentally changes brain organization in a way that affects one’s ability to focus. When individuals try to do two or more things at once that require their attention, their performance suffers. Multitasking on the internet paradoxically makes users less effective at switching from one task to another. Now with violence: the American Psychological Association concluded that playing violent video games accentuates aggressive thoughts, feelings and behavior while diminishing empathy for victims. An asset allocation that has never lost money over rolling 6-month periods. If you want a portfolio to not have any losses over short rolling periods (less than 10 months), then simply invest all your capital in 30-day US Treasury bills. If you want a portfolio to not have any losses over a three-year rolling period, then allocate your capital to small-cap equities, precious metals, intermediate-term US Treasuries and long-term US Treasuries. (These asset allocations are based on historical data, a 45-year exam period, when small-cap stocks did exceptionally well and Treasuries and precious metals were excellent diversifiers. These strategies were great ways to not lose money, but to gain market or above-market returns, not so great.) Lehman, Happy 10 year Anniversary! Banks had too much debt and too little equity. Now, theres a safer banking system (strengthened capital buffers, more responsible approaches to balance sheets and better liquidity management) and a more robust payments and settlement system. But, the misconception of the collapse of Lehman Brothers causing the crisis is not true. There are more factors in play than Lehman filing for Chapter 11 bankruptcy. A drop in fertility rates may cause future trouble. Global fertility rates have dropped to about 2.4 from 5 in the 1960s. 2.1 is the rate required to keep the world’s population stable in the long run. Why is this happening? With advances in agriculture and medicine, people are living longer and fewer children are dying young. Increasing urbanization means families don’t need as many kids to work in the fields. More women are delaying marriage and children for work and education. There is a high correlation between low fertility and higher incomes. If a country’s population stops growing, the pace of its economy’s expansion would be limited to the speed at which productivity (output per hour worked) is rising. If fewer people work, there’s less income to go around. In the world of sports. Yesterday on Thursday night football, Andy Dalton and the Bengals beat the 2013 Super Bowl MVP Joe Flacco and his Ravens at home to stay undefeated with a 2-0 record. On Monday, 20-year-old Naomi Osaka beats tennis star Serena Williams in the women’s US Open after accusing umpire Carlos Ramos of sexism. During the game, Ramos gave Williams a code violation following a gesture made to her by her coach which is isn’t allowed during a game, that’s called “coaching”. Ramos penalized Williams again a point later after she smashed her racket in frustration and docked her an entire game again after she called the umpire a “liar” and a “thief” for stealing her point away. Keep Climbing, The Alchanati Campbell and Associates Team Subscribe here: http://eepurl.com/do-SwL Dear Reader,
Money problems, the bears are coming, investing tips (not advice), conquering pain and falling asleep quick & easy. Trouble with paying for the necessities. The economy is doing great, unemployment at a two-decade low, corporate profits at record highs, but 40% of people ages 18 to 64 are facing hardships. Much of the income earned is devoted to fixed expenses like rent or healthcare. If a large, unexpected expense arises, most people simply wouldn’t be able to cover it. Almost 25% of Americans experienced food insecurity last year: didn’t know if they’d be able to eat if they were hungry. The typical worker is making less while the cost of stuff has grown with real average hourly earnings down .2% last month compared with a year before. The bears are coming out of hibernation internationally. Emerging markets have officially entered a bear market, with Argentina, Turkey, and Brazil driving the downturn. The MSCI Emerging Markets index has dropped by 12.5% since May as investors fear increased interest rates and political turmoil. Many of the 23 economies in the index have a high amount of dollar-denominated debt owed in USD. This dollar-denominated debt grows when the Feds increase interest rates because rate hikes increase the value of the USD. As a consequence, what was once a cheap debt has now become a more expensive debt, and investors are in a panic because of it. Another driver of the emerging markets panic is the political inability of the 23 small governments to manage their own currencies. Many of the governments on the list do not have a central bank that has been increasing interest rates alongside the Fed. These governments are unable to keep up with the rising value of the USD, as seen in Argentina, whose currency is now valued at 37 pesos per dollar. Despite the turmoil, we see the panic as a buying opportunity. Investing in the late-cycle. High volatility, expansion in its tenth year, US inflation at its target level… here are 3 investment opportunities for investing in the late-cycle:
Why the school day ends 2 hours before the workday. Both parents work in 50% of married-couple families and 70% of them work from 8am until 5pm. The 8-hour workday started in the early 1900s from labor unions pressuring corporations to be more lenient on the backbreaking schedules. But, the American school day never adapted. 19th-century school reformers wanted a nationwide, standard 6 and a half hour, 5 days a week school year schedule. Why some feel less pain. Mindfulness is related to being aware of the present moment without too much emotional reaction or judgment. Mindful people feel less pain. People with higher mindfulness ratings had less activation in the posterior cingulate cortex (a central neural node of the default mode network) and experienced less pain. On fire. The U.S. Department of Labor released their report today, in which they supported what Jerome Powell, Chairman of the Fed, said a few weeks ago. Basically, this economy is good. Really good. Some might even say it's on fire. The unemployment rate is still at 3.9%, which is one of the lowest we've ever seen. Non-farm payroll employment increased to 201,000 this past month, which is a fancy way of saying that the U.S. economy added 201,000 jobs. This number is higher than the estimated number of 196,000. Of equal or greater importance, the wage growth is at 2.9% over the past year. However, over the same time period, inflation also grew 2.9%. This leads to a pretty stagnant level of real growth. Moreover, some think that this period of intense wage growth and inflation at the same time is a precursor to the economy burning out, which would be bad, very bad. Interestingly, Kevin Hassett, Donald Trump's lead economist, reported that wage growth is even higher than what the Labor Department is reporting, as the department's report does not include certain benefits and bonuses among other factors. The military secret to falling asleep in two minutes. Relax the muscles in your face, including the tongue, jaw and the muscles around your eyes. Drop your shoulders as far down as they’ll go, followed by your upper and lower arm, one side at a time. Breathe out, relaxing your chest followed by your legs, starting from the thighs and working down. Then spend 10 seconds trying to clear your mind before thinking about one of these images:
When (if mass adoption will come), how will it make way? In my opinion, there are two possible ways that blockchain can fast-track to mass adoption, and these ways are either by being a hold of value (while other currencies fail around the world) or by providing utility to the market. The main industry that people think blockchain will influence, is the financial sector. Financial Times released an article in late 2017 where they asked a dozen seasoned bankers, consultants, and analysts, how they thought blockchain could benefit the banking industry. They responded with clearings and settlements (which deals with the actual cash transaction for the security and updating the user's account), global payments, trade finance (domestic and international trade transactions), verifying identity, and loans. With this being said, Goldman Sachs is currently looking into adding a crypto-focused unit which could help with further implementation. With Goldman Sachs and other banks potentially looking into incorporating blockchain into their already working systems, it provides legitimacy to the future of uses for blockchain technology. To bring up another point, how much do you think it is costing Goldman Sachs and these other corps. to look further into blockchain? Probably isn’t cheap. In the world of sports. “Believe in something. Even if it means sacrificing everything." In 2013, Colin Kaepernick and the 49ers notched an 11-4-1 record earning a spot to play the Baltimore Ravens in Super Bowl XLVII. Starting under center in the biggest football game of his life, Colin Kaepernick began his decline. Losing to Joe Flacco by a score of 34–31 handed the 49ers their first Super Bowl loss in franchise history. Next season Kaepernick went 12-4 losing to the Seahawks in the conference championship game. 2014/2015 was the end of his playing days, his team went 8-8 with Kaepernick losing his starting job before being sidelined for the final couple months with a shoulder injury. Colin Kaepernick has become bigger than football since he refused to stand up for the national anthem before a preseason game in late August 2016. Fighting for what he believes in, Kaepernick has become an icon in the fight against racial injustice and police brutality. He hasn't suited up since 2016 but now stars in Nike's new ad campaign. Staying with the NFL, week 1 of the regular season kicked off last night with the defending champion Philadelphia Eagles squaring off at home against the visiting Atlanta Falcons. Keep Climbing, The Alchanati Campbell and Associates Team Subscribe here: http://eepurl.com/do-SwL Dear Reader,
Alcohol, energy, metal straws, the yield curve, STDs, Apple… enjoy the longer read for the longer weekend. “I get drunk because it tastes good…” The harm from alcohol worldwide increases with each additional drink per day. For each set of 100,000 people who have one drink a day per year, 918 can expect to experience one of the 23 alcohol-related problems in any year. At two drinks per day, the number increases to 977. The current population level of average daily drinks is 1.9 for women and 3.2 for men. Out with the old, in with the new… For those unaware, the Trump Administration has held a less-than-favorable stance on NAFTA, the North American (that’s us, Canada, and Mexico) Free Trade Agreement. Everything that NAFTA does (removing tariffs/barriers, promoting economic growth/increasing competitiveness in global market) is crucial for our country and its consumers. Still, Donald Trump ordered that NAFTA be renegotiated back in January. This week, the United States and Mexico came to terms on a bilateral agreement. What Changed? The two countries came to terms on changes for auto-manufacturing - now, 75% of parts used in cars sold in North America must be made in the two countries. Wages for the workers in the auto-manufacturing industry are also going up. This new deal is going to last for 16 years, and every 6 years will allow opportunity for revision. While President Trump is a fan of separate, bilateral trade deals with each country (i.e. a separate deal for both Canada and Mexico), Canadian and Mexican officials have expressed interest for a trilateral deal between all three countries. The United States gave Canada until today to come to terms in the negotiations with the two countries. Alas, that didn’t quite happen today, and President Trump is moving forward with United States-Mexico deal. However, negotiations will resume next Wednesday with Canada so that they may enter the deal. Let's hope that a fair deal may be reached in the coming weeks. Energy at its cleanest… California lawmakers approved a measure mandating that all electricity come from wind, solar and other clean sources by 2045. 29% of California’s current consumption of energy is coming from renewable energy. Solar and wind are the cheapest sources of electricity in some regions and some say California can get to 100% in 15 years. An Apple worth a trillion… Apple has now become the first modern day American company to have a market value of $1 trillion, thats $1,000,000,000,000. What’s next for Apple? According to company insiders, more iPhones! The trillion dollar giant will be announcing three new iPhone in the coming month in order to help sustain future growth in a market that has cooled off in recent years. Apple is said to be releasing a model similar to the iPhone X, but will substitute the OLED screen for a LCD making it cheaper for consumers, as well as a large iPhone measuring 6.5 inches diagonally, and finally a model similar to the X, but with upgraded components. With 2019 just around the corner, it’s promising to be the inaugural year of the long anticipated 5G network. Apple has not made mention of any 5G capabilities even though other companies already have phones with 5G ready receivers. When 4G launched, Apple waited until the technology was reliable and practical before launching a phone with 4G capability and we are likely to see that next year after the launch of 5G. The future looks bright for the world’s most valuable company as they prepare to launch new iPhones, iWatches, iPads, into a 5G ready world where we are even more reliant on technology. Warren Buffet also agrees, considering Berkshire Hathaway just acquired a $46.6 billion stake in Apple. Metal straws… First it was plastic bags, then eating utensils, and now, plastic straws. More than a dozen coastal cities prohibited plastic straws this year, but the number 1 man-made contaminant in the world’s oceans is the cigarette butt. The next thing that may be banned is the cigarette filter… The market is going to crash, we are all going to die… So, what is this whole “flattening yield curve” panic all about? On December 31, 2007, the yield rate difference between 3-Month and 10-Year treasury notes was (68) basis points. As of yesterday, the spread between each stands hazardously close at (75) basis points. Why does this matter? Yield rates for short-term treasury notes tend to increase as investors expect interest rate tightening by the Fed and market deleveraging. Long-Term rates react inversely to this, decreasing in lue of the same expectations. When the Fed signals that it will be increasing interest rates, the two phenomena coincide, leading to what is known as a “flattening yield curve”. When the yield curve is flattening, like what is happening now, the market is in a sense signaling that it is anticipating a correction. What’s most concerning about this flattening is its forecasted inversion; something analysts at Morgan Stanley say will happen mid 2019. Since 1975, when ever short-term yields have exceed long-term yields (when ever the yield curve has inverted) recession has always followed. *No one will outright say that there will be a recession soon, but based on the flattening yield curve, we predict that there will be one in the near future.* 2.3 million cases in 2017 alone… 2017 marked the 4th straight year of sharp increases in gonorrhea, syphilis and chlamydia. The trend is exacerbated by the fact that gonorrhea could soon become resistant to antibiotic treatment. Since 2013, syphilis cases have risen 76%, gonorrhea 67% and chlamydia is the most commonly reported with 1.7 million cases in 2017. Lack of screening, stagnant federal funding for prevention efforts, decrease in condom use and more accessibility through dating apps are the reasons for the rise. Go get checked. Questions answered… There isn’t a definitive answer to most of these questions, as we have a basic understanding of why blockchain is needed in our current environment and how it will impact the average person in the future. With that being said, we really don’t know how/if it will change our financial institutions into the future, to be honest the only thing that is really definitive is that the early days of blockchain is now, and its here to stay. Imagine a currency that doesn’t require third party centralized institutions to issue/validate the currency, and has no opportunity for counterfeits. Now take that currency, and put it in the hands of a decentralized community to validate all transactions through the blockchain, and give the possibility for another body of people to earn an income by mining the coin (which we will talk about at a later date). In its most simplest form, “bitcoin is a form of electronic cash utilizing the decentralized ledger from blockchain, that doesn’t need a central bank/institution to run”. With bitcoin, you could make a transfer between a US citizen and a CN citizen within 30 minutes, with a minimal fee, at any time/date. In the world of sports. “If I panic, everyone else panics.” Spoken like a true leader, this quote by Lakers legend Kobe Bryant sums up what it takes to stand up and not be afraid. Staying with the NBA for now, Cavs forward, Kevin Love, says he wants to help kids with mental health problems overcome them. He’s not the first to discuss this topic. DeMar DeRozan of the Spurs also talked to the Players’ Tribune last season about how mental health in the NBA is real and even though they are taller and more athletic than the average Joe, super star athletes also go through normal people problems. With football less than a week away, we open up our season with the Falcons heading into the defending champion Eagles on Thursday night football. The NFL released a new rule this summer in the name of player safety, which strictly defines what players are allowed to do with their helmets. The rule is there to completely eliminate crown of helmet contact from player to player. From a leagues perspective, there should definitely be less concussions; but from the players perspective, this completely changes football as they know it. Last night, the New York Jets traded Teddy Bridgewater to the New Orleans Saints. Bridgewater, who’s 25, is on his second move in six months. Stay tuned to hear how the season kicks off. Keep Climbing, The Alchanati Campbell and Associates Team Subscribe here: http://eepurl.com/do-SwL Dear Reader,
Gold, real estate, Prop 13, blockchain and don’t be a smart be a smart. Gold, not a safe haven anymore? Gold is both a commodity and an alternative currency. There’s very little correlation between gold and 10-year inflation-linked Treasuries and gold has no inverse correlation to equities. Over the past 20 years, gold and the S&P 500 have experienced a daily correlation of negative 0.003 percent indicating almost no relationship. But there is a strong inverse relationship between gold and the USD, and that has been the cause of the decline in gold in the past months. Some say gold is no longer the historic safe haven as it once was… Real estate. Buyers are getting squeezed by rising mortgage rates and by prices climbing about twice as fast as incomes. Sellers are getting ‘jumpy’. Purchases of new homes are at their slowest in 8 months and existing-home sales dropped in June for a 3rd straight month. Inventory has increased and there is less competition. 65% of Americans said it’s a good time to buy a home, the lowest since 2008. Fun fact: Buying a home nationally is 26% cheaper than renting an equivalent home. Proposition 13. Under prop 13, property tax increases on any property were limited to no more than 2% per year as long as the property was not sold. Prop 13 capped property tax rates at 1% of full cash value at the time of acquisition. This tax advantage was also extended to inherited property. The controversial issue is California is losing billions of dollars in revenue due to the inheritance tax break, and 63% of homes inherited under the system are being used as second residences or rental property. Moment 4 Life. Sometimes, what you don’t have is just as important as what you do have. Change is only as good or bad as the response to it. Live what you preach and accept your reality as best as you can. They joy in life grows from being in the moment and really enjoying the little day to day things that make life worth living. We are not given a short life but we make it short, and we are not ill-supplied but wasteful of it. Life is long if you know how to use it. Another Hike Incoming? As many of you may know by now, this was a record setting week for the U.S. Equities market. By closing time today, both the S&P 500 and the Nasdaq were settling in at their record highs to enjoy the weekend. Jerome Powell, Chairman of the Federal Reserve, gave a speech in Jackson Hole, Wyoming today, ensuring the country that all is pleasant. Let us dive in as college students across the country dive into their studies, or beer cans. Powell stated the unemployment, currently at 3.9%, is sitting pretty near the 20 year low. "Most people who want jobs can find them," Powell said, which is sure to sooth. Inflation is hovering at the FOMC (Federal Open Market Committee) target level of 2%, without any current indicator of future acceleration beyond that target. Powell emphasized the balancing act that he and his colleagues must engage in in terms of rate hiking. On one end of the spectrum, they can act too quickly and prematurely halt a booming economy. On the other end, they can act too slowly and risk allowing the economy to burn out, which wouldn’t end well for the global economy. He believes that the current, gradual rate hikes as the way to go here. Thus, come late September, we can expect to go on a hike. Your first baby step to having a brighter future… knowing what Blockchain is. To simplify things, blockchain is a technology that records data in realtime. It is impossible to go back and manipulate what the data says, when it was sent, or any other detail pertaining to the data. The major question is, why is this so important to have? Well in a world where you have no choice but to have so much trust in these major institutions, its a breath of fresh air to have a system in place where data is stored in a completely public, online ledger, which can be audited at any time. Blockchain technology was created in 2008 by Satoshi Nakamoto, who has never been identified, as a alternative choice to using financial institutions. This technology was then implemented in 2009 into bitcoin. The first real transaction was in 2010, when 2 pizzas were bought for 10,000 btc. You can do the math to see the growth that BTC has seen since 2009, to today, where its being valued at a little over $6400. Learners are made not born (proven by a growing body of research including Marcel Veenman’s study)… don’t give up on yourself. Here are three practical ways to build your learning skills:
In the world of sports. 40 years ago yesterday, the black mamba was born. August 24, 2016, the city of Los Angeles has declared "Kobe Bryant Day" to celebrate the historical tenure of the retired Lakers legend. Bryant has gifted the city where he played his entire career with five chips and an MVP (08’) to go along with 18 all star selections. He is one of only three players to have played for the same franchise for twenty straight seasons, others include (Dirk and Duncan). Turning our attention to golf, the 2018 FedEx Cup playoffs are underway with Tiger Woods in top 20 in the FEC standings. He’s not just in the playoffs, but likely to make it to the final event! He actually has a chance to win… Tiger’s last win came in 2013 at the WGC-Bridgestone Invitational. But 2013 was four back surgeries, a DUI, and treatment ago. Keep tuning in to see if Tiger can come out victorious at PGA Tour this season for a grand total of $67 million in prize money. Keep Climbing, The Alchanati Campbell and Associates Team Subscribe here: http://eepurl.com/do-SwL Dear Reader,
Being versus doing, free trade, satisfaction and reality in it’s most blunt form… get ready for it (breathe in through the nose and out through the mouth). Is it better simply to be or continue to do? Modernity, capitalism, productivity, moving, evolving and doing. Being comes before doing. To be an effective doer, you have to develop the self-awareness to trace the root of surface-level conflicts that cause you to exert effort towards something you don’t care about deep down. The lower the cost of moving from one space in your life to another, the more you will be able to both experience and accomplish. Any extra decision you have to actively think about before you start doing something takes you out of the flow. If you focus on synchronizing your being by interconnecting the different modular goals of your mind, then you can get to a place where doing becomes enjoyable. Free trade. Completely free trade is unlikely because countries have vastly different economies in different stages of development, different degrees of domestic economic and political freedoms, and separate currencies. Americans with the skills and knowledge to compete in a free market world would continue to thrive, but the rest would suffer lower incomes due to globalization. Reality. The rate of people 65 and older filing for bankruptcy is three times what it was in 1991. The median retirement account balance of people ages 56 to 61 is just $25,000. The financial problems aging Americans are experiencing will be exacerbated by the fact that people are living longer. 78% of full-time workers sad they live paycheck to paycheck. Why we are never truly satisfied. Only a man who lives not in time but in the present is happy. For life in the present there is no death. Given that we are the narrators of life, we trust that the existence of the past and the future is as real as the existence of the present. We are so attached to an imagined inner story about who we are that we forget that the world in front of us isn’t at all dictated by this story. It is not often where you are simply there in a particular moment rather than stuck in a loop of thought dominated by a voice in your head that keeps you company. Humans report the highest satisfaction when they are completely lost in some activity around them rather than in the imagined struggle that goes on in their mind. We need to sacrifice the comfort of our imagination. Reality pt. 2. You are both everything and nothing at the same time. The key to an open mind lies in being able to attend to a topic at hand without using that same attention to closely tie in a current belief system in such a way that it forgets the existence of a world beyond what it already knows. You have to look for the pleasant in the unpleasant. Humans don’t make rational decisions based on outcome, but rather in terms of gains and losses. We don’t ever fully see or experience reality. Our personal experience makes up 0.0000000000001% of what has happened in the world, but it represents about 80% of how we think the world works. We don’t become who we are by staying as we are now. Your sense of attachment to who you want to become is more valuable than a life of more. Choose development beyond success; the only way to capture meaningful success is to give up chasing more of what you already have. Keep Climbing, The Alchanati Campbell and Associates Team Subscribe here: http://eepurl.com/do-SwL Dear Reader,
The Turkish Lira, generation Z, investments, loss, personality traits and tips. Turkish Lira in free-fall. Political and economic tensions arise between the US and Turkey, as Presidents Trump and President Erdogan exchange insults, furthering damage to Turkey's Lira and global markets. In a tweet posted at 5:47 AM PST, President Donald Trump said he had, “authorized a doubling of Tariffs on Steel and Aluminum”. In response, today President Recep Tayyip Erdogan in a speech told a Turkish crowd that, “those who believe they can make us kneel by economic manipulation, have never understood this nation at all”. As of today, the Turkish Lira has dropped 18% against the US Dollar, it now taking only 1 Dollar to buy 6 Lira. European markets are also feeling the damage, with Turkey’s biggest European lenders, including BBVA, UniCredit and BNP Paribas, all expressing concern as their stock prices fall. Post-millennials, iGen, Gen-Z. More than 70% of Gen Zers influence their family’s spending. Their expectations are lower, they are not as confident and they are more risk-averse than previous generations in terms of attitude and behavior (today’s teens are less likely to have sex or drink). American teens are four times less likely to use cash than the general public and only use cash for 6% of their transactions. Suggested investments. Uncertainty, fear and predictions of a turbulent market. Here are some investments to look into:
Loss aversion. The idea that people place more weight on avoiding losses than gains. A fundamental truth about human beings is we are more motivated by our fears than by our aspirations. Loss can feel permanent. From an evolutionary perspective, the biological penalties for losses are existential threats to an individuals survival. For gains, you live to hunt another day. The big 5 personality traits and earnings. Openness to experience, conscientiousness, extraversion, agreeableness and neuroticism. Men being conscientious and extroverted tend to get paid more. “Agreeable” men earn significantly less, but higher IQ is correlated with higher earnings. Maybe it’s not such a bad idea to buckle down and work hard, and don’t be shy! Tips for aspiring portfolio managers. Great fund managers are made, not born. Investment decision making is something you will always be able to improve upon, and the day you stop being interested in that improvement is the day you should find another occupation. Behavioral alpha and being more focused in self improvement than the next person is more important than being smarter than everyone else or having access to better information. Willingness to learn. Be skeptical, be critical and make up your own mind. Do not get overconfident, stay disciplined and be prepared to reflect on your personal shortcomings and deficiencies. Financial tips to help you live your best retirement life. Understand your lifestyle expenses. Be aware of financial costs that will change in retirement. Understand how taxes impact your money. Decide when to start social security. Understand how your investments support your income needs. Budget for unexpected expenses. Be aware of how expenses change over time. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
Shorter reads and interesting ideas to add to your long-term knowledge vault. The art of thinking. There is no real structure that you are forced to operate within unless your life depends on it. You can create your own rules if you build the right supporting systems. Our environment controls far more of our behavior than we realize. Creating better habits and opportunities begins with deliberately shaping your surroundings. The real purpose of life is to create a story in which you can constantly define what it means to be better tomorrow than you are today. That’s what we are programmed for. Happiness, productivity, presence, and fulfillment all find their roots in your ability to proactively control where you direct your mental energy. Take control of your attention. You don’t have to be an expert scientist, artist or psychologist, but you should know the fundamentals in all of the major disciplines if you want to optimize your thinking. Over a long enough timeline, if you seek to reduce uncertainty, you can optimize your exposure to luck. Success is often random, but that doesn’t mean it cant be designed. Psychology behind plate design. Your plate size has a definitive effect on how you perceive the food contained in it, and how it affects your perception all depends on how ravenous you are. If your brain sees food on a very large plate, you won’t be satisfied when you eat it. But put the same amount of food on a small plate, and you will. When you are hungry, it is more difficult to trick the brain via illusions when food is in need. How to be less wrong. Always being consistent makes you inconsistent with the reality around you. The ability to correct mistakes and to be less wrong over time comes down to the capacity to embrace and understand the contradictions that arise in the world when they do. The world around us is inconsistent and the way to fight this chaos is to live in a fluid and malleable way. Fear of death. There is an idea that all of human culture has a persistent fear of death. We are the only animal that is self-conscious enough to be fully aware that it ends. The realization of our mortality is deeply embedded in our psyche, and whether or not we notice it, it does affect how we live in this world. It shapes the decisions we make, it determines how we commit our time and it creates who we become. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
Mistakes, climate change, dementia risk, reading and debt. One costly mistake millennials are making. Cash. 1 in 3 millennial think cash is the best long-term investment (savings accounts and CDs). With the inflation target at 2%, earning less than the rate of inflation is losing buying power. Saving is important, but when saving for a decade or more, you can afford some short-term risk in exchange for compounding and higher rates of return. The millennial’s actions of not trusting the stock market and valuing cash more than securities is understandable… they did experience the 2008 financial crisis first-hand. Climate change. Climate scientists have discovered an uneven pace of seasonal change in the atmosphere. The frequency of temperature has become very volatile. It is getting much hotter in summers and much cooler in winters. Also, the seasonal cycle is changing and this is observed by trees flowering early. GDP. Gross Domestic Product has increased 4.1% Q2 to Trump’s acclaim despite an ensuing fiscal cliff. According to the Bureau of Economic Analysis, “the second-quarter increase in real GDP reflected increases in consumer spending, exports, business investment, and government spending”. Many economists, including NYT economics reporter Ben Casselman, are attributing the growth to the Trump tax-cuts and increases in government spending. Despite the growth, the Trump administration’s laxed economic policy is coming at a cost. According to the Office of Management and Budget, because of the Budget Act of 2018, debt will increase by $1 trillion over the next decade. Cutting your dementia risk. About a third of dementia causes might actually be avoided by living a lifestyle that better protects your brain. Dementia impacts memory and leads to a decline in cognitive performance. One brain disorder that causes dementia is Alzheimers and it is the most expensive disease in America costing $215 billion per year. Here’s a list of nine ways to cut your dementia risk:
Reading a book makes you a better friend. The readers ability to be transported by a story actually says a lot about how we can comprehend, interpret and empathize with the stories of those around us in real life. Evidence suggests there is a positive correlation not only between reading and social cognition, but more importantly between reading and empathy. The bottom half and debt. The bottom 60% of income-earners have accounted for most of the rise in spending even as their finances worsened. Tepid wage growth causes middle and lower-income Americans to dip into their savings and borrow more even with a hot job market and other signs of economic health (more jobs does not mean higher wages). Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
Who you are is who you are, markets are being a bit crazy, gold shines not as bright, REITs, your thinking and your time. The most important skill nobody taught you. “All humanity’s problems stem from man’s inability to sit quietly in a room alone,”(Blaise Pascal). We fear the silence of existence, we dread boredom and instead, we choose aimless distraction. We will never be able to learn the art of solitude. We now live in a world where we’re connected to everything except ourselves. Never being alone is not the same thing as never feeling alone and the less comfortable you are with solitude, the more likely it is that you won’t know yourself. We are increasingly out of touch with who we are and we are really addicted to a state of not-being-bored. But there is a solution: the only way to avoid being ruined by this fear is to face it. Let the boredom take you where it wants so you can deal with whatever is really going on with your sense of self. REITs. Interest rates and yields on Treasury bills are what tend to drive REIT prices and that’s what’s behind their recent rally. REITs have out performed other US equities since late February. REITs versus Private Real Estate Assets. From 1992-2017, a list of 7,300 private funds in Cambridge Associates’ database (an extensive collection of institutional-quality private funds) were tracked. The return from the 25 year period was 7.6% while the FTSE NAREIT REIT All Equity Index (a public REITs Index) had a return of 10.9% during that same time period. Investing privately gives you the privilege of investing with the greatest institutional managers, but you sacrifice the daily liquidity available with public REITs. Private real estate investments not only earned a lower return, but also took on much greater risk in the form of higher leverage. Private Banking versus Wealth Management. Many don’t know the difference. Wealth management deals with the optimization of a client’s portfolio taking into account their plans and goals and this can be practiced on a portfolio of any size. Private banking refers to an envelope solution for high net-worth individuals offering personalized care and management of their finances. How to improve your thinking. Understand the forces at play and understand how your subconscious might be leading you astray. Here is an effective framework for thinking that protects us when making decisions:
The most important asset… time. I would be willing to bet that none of you, if you were offered every dollar of Warren Buffett’s fortune, would trade places with him right now and I would also bet that Warren Buffett would trade to be 20 years old again for all of his wealth. Why is time your most important asset? Because you will never get a second more than what you already have. Money will come and go in your life, many times as a result of good and bad luck, but your time is only here now. Gold. The price of the precious metal dropped to its lowest since last July. A stronger dollar and higher short-term bond rates are blamed for gold's recent decline. Since gold is traded in dollars, a stronger greenback makes it more costly to buy this precious metal. Also with the expectations of the higher interest rate hikes from the Federal Reserve, investors are buying up higher-yielding assets. Markets are being a bit schizophrenic. US economic growth is accelerating and corporate profits are booming, but geopolitical risks, inflationary pressures and escalating trade tensions threaten the market’s outlook. A majority of investors worldwide believe a trade war is the greatest risk facing markets and the worst part is, it’s largely dependent on the actions of unpredictable politicians. Keep Climbing, The Alchanati Campbell and Associates Team Dear Reader,
This week’s “What’s up?” is dedicated to long-term knowledge. Who needs knowledge that expires… Enjoy. Expiring Knowledge versus Long-Term Knowledge. How much of what you read today will you still care about a year from now? It’s amazing how much of the information we consume has a half-life measured in days or months. Much of the information we consume is expiring knowledge. Expiring knowledge catches more attention than it should because there’s a lot of it and we chase it down. Long-term knowledge is harder to notice because it’s buried in books rather than blasted in headlines. Expiring knowledge tells you what happened; long-term knowledge tells you why something happened and why it might be likely to happen again. Investors focus on the wrong things. While most of us should be investing for the long-run, markets conspire against us drawing our gaze and enticing us to take action. Matters such as war or peace in the Korean Peninsula, NATO or NAFTA problems, or Italy leaving the EU are meaningful, but from an investment prospective, there is very little most investors can do to benefit. Before the temptation to act on news becomes too strong, try to answer these three questions:
Yield versus Total Return. Many don’t know the difference. Yield is the income return on an investment. This refers to the interest or dividends received from a security. Total return includes interest, capital gains, dividends and distributions realized over a given period of time. The difference between the two is total return includes appreciation from the security and yield does not. The limits of human existence. A person’s risk of death slows and even plateaus above age 105. Data tells us that there is no fixed limit to the human life span yet. People at age 110 had the same continued chances of survival as those between the ages of 105 and 109- a 50/50 chance of dying within the year and an expected further life span of 1.5 years. The odds of survival inexorably decline as a person enters middle and old age. Evolutionary selection and the influence of good genes and healthy life choices improves your odds of a longer life span. Are you sure your investments are appropriate for you? High valuations or low valuations, overweight or underweight, bullish or bearish, growth or value, income or total returns, etc. are very important to consider when investing, but are not nearly as important as how the investments jibe with you personally. Here are some important factors to consider to help you judge the appropriateness of your investments:
Public Real Estate versus Private Real Estate. There are three types of commercial real estate investors: those who buy buildings directly, those who invest in funds that buy buildings, and those who buy their real estate through Real Estate Investment Trusts (REITs). All real estate investors should look to the public market for signals on operating fundamentals and valuations (Reliable market information on public REITs is readily available). There are pricing discrepancies across private and public markets. In the apartment sector, the average REIT is trading at a 14% discount to the current market value of its assets (12% for neighborhood shopping centers, 16% for the office sector, and 17% for the mall business). Historical data shows that signals from the public market have been helpful in forecasting private-market returns across property sectors. Property prices have almost always appreciated in the 12 months after listed REITs traded at net asset value premiums and they have declined by an average of 2% following periods when REITs traded at discounts. |
AuthorWHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now. Archives
July 2020
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