The markets have been extraordinarily volatile and painful this week as we have closed in the red four days out of five. Investors find themselves in fear as terrorist attacks in France and California could happen anytime and anywhere and a federal interest rate decision is looming on the horizon of next week. On top of these matters, the presidential election in November will usher in a new era of national economic priorities and objectives. In an ocean of volatility, KFA seeks to be your vessel of calm and guide you to successfully reaching your goals.
No matter what Janet Yellen of the Federal Reserve decides on interest rate movement, the markets will be dissatisfied. A rate hike will potentially slow down growth and go against what every other central bank is doing. Not doing anything will cause the same dissatisfaction that came with the last Federal Reserve decision as many investors and media figures have been calling for a rate hike since October. If a decision is made next week for rates to go up, your portfolio stands to benefit as we have significantly increased our allocation in financials. We continually adjust our sails to put you in the best market position possible.
Author of Classical Economic Principles & the Wealth of Nations, Dr. Robert Genetski has increased his recommended stock exposure from 80% to 90%. This reflects mostly on the undervaluation of stock prices which he says are at least 21% below their fundamental value. Once the first rate hike since 2006 passes, Genetski projects a return to an upward trend. Against the backdrop of terrorism, interest rates, and an election this is what the majority of economists believe and hold firm to. All fundamental signs point to a 2016 that reflects what the market has done this year, no exceptional growth but nonetheless slow and steady growth. Although the current market driver is fear, we hold fast to our convictions in fundamental data that expresses long term growth.
This week, we reduced our bond allocation as bonds are in a disadvantageous position against an interest rate hike. Our role in the war on terror increased as we added an aerospace defense fund that we believe will outperform the market. We are always researching positions to reduce your portfolio’s volatility while maximizing your return. Our efforts have been concentrated on matters concerning year-end tax harvesting, tax strategy, and sustaining your portfolio growth. As always, should you have any questions or inquiries regarding your portfolio, taxes or experience a life changing event, please feel free to contact any member of the KFA Team.
Thank you for your continued trust and support.
(CNN Money, Fear and Greed Index)
If you read our latest commentary on Monday you may have noted that we projected the market to make a rebound this week and this was before we were informed of the Paris attacks. Our projection was correct and we experienced a nice recovery of 66 points up since last week's S&P 500 close. This was in large part a concluding calm after an overreaction of fear to retail and energy reports. The world became united as we survived the aftermath of a terror attack, sluggish consumer reports, and a continued free fall in the energy sector - we have much to be thankful for as we head into Thanksgiving week.
The energy sector will likely see some support next week as we endure our first round of winter weather. This will spell added trouble to oil dependent industries such as airlines and transports and carry an adverse reaction to tourism. These industries braced let downs last week from the Paris terrorist attack and may once again experience setback. This will have little to no effect on your KFA holdings as we have very little exposure to energy and presently hold no transports in any of our investment models.
Your portfolio is likely to experience the greatest lift from continued economic progress and a Federal Reserve interest rate hike. An interest rate hike would prompt investors to allocate more to financials which is where we have been adding and will continue to add to in our investment allocation. We are also confident in consumer goods as Nike, Square, Keurig, and Home Depot posted strong gains in the previous two weeks. This week provided stability and clarity against market turmoil we experienced last week.
We expect the market to experience volatility and as always we are here to address any concerns you may have. The market will be closed Thursday and we have a shortened trading day on Friday. Our office will also be closed Thursday the 25th and Friday the 26th. From our family to yours, we hope you have a relaxing Thanksgiving.
Thank you for your continued trust and support.
Our hearts are heavy as we mourn the loss of life in France after Friday’s attacks. Terrorism is a constant threat to our world, a world that values liberty and freedom over tyranny and oppression. Thankfully, global financial markets have reacted with an unwavered and even defiant response to the 129 lives lost in Paris. The chief culprit amongst international instability presides in the crude oil price but it actually went up today by almost a full percent. However, we are still recovering from a selloff last week and we are on watch for more volatility this week.
Airlines and the tourism industry bore the brunt of losses today amid concerns of safe travel. Overall, the market remained calm with the S&P 500 finishing 1.5% up today. Typically, stocks fall anywhere from 1-3% in response to terrorism attacks. The 2005 London subway bombings saw the S&P 500 fall nearly 1% the following day and the 2013 Boston Marathon bombing saw a devaluation of 2.3% the following day. In both cases, terrorism did not succeed in the long run as lost ground was made up in just two weeks.
Investors, entrepreneurs, and citizens of the free world will not waver because of a few radical insurgents. As our friends in France look toward bringing justice to their country we continue to preside over your investments with rational and sound logic. Our concerns are more aligned with upcoming home buying reports, an interest rate decision, and your year-end distributions than playing in the hands of fear-mongering. We continue to believe that the fundamentals are sound and look forward to a positive return for 2015.
We are here if you have questions as we watch for any new information that may confirm or change our thoughts about the market. Terrorism will never have the capability of stopping the progress of freedom and economic liberty.
We thank you for continued trust and support. We hope you enjoy your week!
This week has been extremely hostile to markets as data contrary to US economic growth emerged. The market was harmed by several factors ending with today’s news that the holiday shopping season is off to a weak start. This news came on top of increased chances of a fed rate hike, weak commodity prices, and a dollar that may be too strong and hurt domestic production. International concerns still abound as the Eurozone posted a disappointing growth rate and China concerns plague Asia. Uncertainty around the world and US consumer concerns set the market in a downward spiral in this week.
To fully understand the US economy, you must first be aware of its driving forces. We are a consumer driven economy. US consumption as a percent of GDP is 71%, the highest in the world. This is why monthly retail reports are paid closely attention to. The annual savings rate stands at 4.8% which is higher than the pre-recession norm of around 3%. Although consumer confidence is high folks are not opening their wallets and it is resulting in a slowdown in our consumer driven market.
Despite the latest slate of bad news, the market is still fundamentally oversold. Every technical analysis points to an undervalued market because so many are acting out of fear. We hold strong in our conviction that we will end the year on a positive note. Many indicators point to a positive 4^th quarter ending as unemployment is the lowest in years, vehicle sales are at their highest point in a decade, and home buying numbers remain strong. Thought leader and noted economist Dr. Robert Genetski has stated that stocks are nearly 20% undervalued and with this week’s market stocks may be undervalued by over 20%.
We hope to see the market digest the round of bad news this weekend and swing in a positive direction next week. As always, we are keeping a keen eye on every economic report and we will keep you updated with our thoughts. We are here if you have questions and we are watching for any new information that may confirm or change our thoughts about the market. As the great Warren Buffet said, “Be greedy when others are fearful and fearful when others are greedy”.
We thank you for your continued trust and support. Enjoy your weekend!
*** As of the time this update was written, the events in Paris were not known. We will be in communication early next week to update you on how this news over the weekend may affect any changes in our market outlook. ***
Medicare is an essential benefit available to eligible Americans starting at age 65 and it is critical that you understand your Medicare options. You should enroll in Medicare three months before your 65th birthday so your coverage will begin the first day of your birthday month. Failing to enroll in a timely manner can result in financial penalties that can last the rest of your life. When you enroll in Medicare you automatically receive Part A which covers hospitalization but not doctor’s fees. This makes enrolling in Medicare Part B essential, part B will cover a portion of doctor visits, ambulance fees, blood tests, and other healthcare related expenses. You must pay a monthly premium for part B which is usually around $104 for the majority of the population. However, your premium cost is dependent on your income level and may costs as much as $300 a month for those with high incomes. An alternative exist for part A and part B which may be advantageous for those in higher income levels.
Medicare part C is an alternative to Medicare parts A and B. Often referred to as Medicare Advantage, it is privatized Medicare and provided by companies such as BlueCross BlueShield and Humana. Under federal law, Medicare Advantage must provide all of the benefits covered in Medicare Part A and B and most Medicare Advantage plans include Medicare part D. Medicare part D is a prescription drug plan that helps you pay less or nothing for prescription drugs. It is very important that you select some type of prescription drug coverage when you begin Medicare or you will be penalized for lack of coverage the remainder of your life. Even purchasing a policy with minimal coverage qualifies to meet this.
At Kabarec, we recommend having Medicare parts A, B, and D or Medicare Advantage with part D included. It is important to review the pros and cons of Medicare Advantage, often your selection of hospitals and doctors is severely limited by choosing Medicare Advantage over original Medicare. Medical costs are often your largest medical expense during retirement and being properly insured is critical to your financial success.
In addition to the basic parts of Medicare we suggest adding a supplemental policy. Supplemental Medicare plans offer great value and are necessary to pick up any additional medical costs not accounted for in original Medicare and Medicare Advantage. The most common supplemental Medicare plan option is plan F. For example, if you go to the doctor and you are charged $100 part B will pay $80 and you are left to pay $20. If you have plan F you would pay nothing, plan F picks up on excess costs uncovered by part B. In addition to this benefit, plan F covers 80% of medical costs covered outside of the United States –coverage in foreign countries is not provided without a supplemental policy like plan F. There are 6 supplemental Medicare policies which you can consider, plan F is the most comprehensive but in many cases an alternative plan may fit you best.
Medicare does not replace the need for long term care insurance and for additional information you can visit medicare.gov.
Your KFA team understands how important your health is to you and should you have questions we can help provide answers.