2019 Second Quarter Newsletter
Tariffs: Mr. Trump is the only president that has called China on the carpet for trade misbehavior they have been doing for quite a long time. The tariffs have hurt both our economies and there is an echo to the rest of the world’s economies. I am not certain when or how this dispute will end. Like I said before, no country wins a trade war.
The Fed: The Fed seems to be following the markets, even for short maturities. I am hoping Mr. Powell and the rest of the Governors are not letting the marketplace determine what is going on with FOMC. I believe that a reduction of interest rates in the summer due to a weaker economy, is bogus. Let’s see what happens.
Congress: Will the adults please stand up. Nothing gets done because they are looking at the 2020 presidential election. This Congress is extremely partisan and no on with any legislative or political power is willing to offer a compromise on anything.
Middle East: Is a war just around the corner? Iran, Syria, Turkey, Iraq; all are hot points and one mistake could put us in the middle.
US dollar: Very strong and the Fed’s inflation number, 2%, has not been reached. The US is the place to invest because of low inflation, the rule of law, and interest rates that are higher than what investors can receive elsewhere with security.
What I see for the upcoming third quarter is more of the same. Volatility should continue and make stocks look like they are on a string. Corporate earnings should continue to lead the markets, although down slightly from the last reporting period. Interest rates should remain low making dividend stocks look very good. Some foreign countries are getting stronger and if the dollar slips just a little, they will be the place to invest.
Diversification should be the theme for everyone. There will be a market adjustment in the future, I just do not know when. No one does. If your investment portfolios are diversified to include quality US stocks and bonds and quality foreign investments, any sell off could be less costly and still leave room for continued growth. The question I like to ask is are you sleeping OK?
Index funds and ETF funds are making headlines in the business press. I think they are OK as a comparison to other funds. I prefer a mutual fund with a human manager overseeing the investments inside the mutual funds rather than an index. The manager of an index fund, by definition, has no ability to make portfolio changes unless the index changes. A manager of a managed fund can make changes as the economics dictate. I believe the extra cost of a human manager is worth the expense. There are new managed ETF’s coming out and I am studying them to determine if they are worth a portion of your investment portfolio. The ETF marketplace has grown quickly and there is no way to get out the door easily if many investors start to sell at the same time. An ETF trades like a stock, it can be sold during the day and not wait until 4 PM like managed mutual funds.
I keep harping on beneficiaries, especially contingent beneficiaries. Please keep me informed of any changes in your life. It is extremely important to let me know what is going on. I cannot read your mind!! Also, be sure that your will is up to date. Some wills are over 20 years old and need updating.
One promise I keep hearing from the Democratic contenders is freebies. Student loans, minimum income, healthcare and anything else that the contenders think will buy a vote. Please remember, nothing is free! The money to support any freebies has to come from somewhere. The top 1% do not earn enough to support these, so the money will have to come from the middle class.
How much are you willing to pay to have a steady monthly income for your lifetime? Annuities can provide an income that is guaranteed by the insurance company. If you are wishing you had a safe income to provide peace of mind and to help pay all your bills, maybe an annuity is worth the extra expense for you. Call me. We can review the pluses and minuses of an annuity.
One last thought on interest rates: low rates or negative rates are favorable to borrowers and not good for savers. I hope the Fed understands this and weighs the possibility of a rate reduction during the summer against the need of savers to earn a higher rate. The US growth rate of 2% is not great, but does not need an extra boos.
Thank you for your trust. Please call me with your thoughts and questions.
James F. Mangam, Jr., CFP, CLU