Why you need a Retirement Income Road Map

Retirement is a series of irrevocable decisions, make sure that you have a Retirement Income Road Map from Anthony Capital, LLC to help guide you through the process.

retiremenet Income road map

What exactly is a Retirement Road Map?

noun
  1. a map, especially one designed for retirees, showing the income sources that they will have in retirement.
  2. a plan or strategy intended to achieve a particular goal, for example–making sure that you have enough money to live on in retirement.

A Retirement Road Map is a critical piece of Anthony Capital, LLC’s integrated and comprehensive retirement income planning process. A properly designed retirement income road map should detail exactly the steps that today’s affluent baby boomer retiree needs to take to create inflation adjusted income for life. It should outline:

  1. From were and from which accounts your income will come from in retirement.
  2. Provide for inflation adjusted retirement income
  3. Provide for tax free income
  4. Provide for guaranteed income
  5. Provide for investment income
  6. Provide for alternative income

8 Boxes Matrix--JUDE-PNG

When you combine the “Eight Essential Financial Decisions” that every affluent baby boomer must make to secure a successful retirement, you have a comprehensive, integrated, and rock-solid retirement income plan that can save today’s affluent baby boomer retirees hundreds of thousands of dollars in unnecessary fees, expenses, taxes, and penalties throughout their retirement lives.

To request your Retirement Income Road Map, contact us to get on our calendar!

Set up your complimentary review meeting today!

FBIAS ™market update for the week ending 10/07/2016

 

FBIAS ™market update for the week ending 10/07/2016

The very big picture:

In the “decades” timeframe, the question of whether we are in a continuing Secular Bear Market that began in 2000 or in a new Secular Bull Market has been the subject of hot debate among economists and market watchers since 2013, when the Dow and S&P 500 exceeded their 2000 and 2007 highs. The Bear proponents point out that the long-term PE ratio (called “CAPE”, for Cyclically-Adjusted Price to Earnings ratio), which has done a historically great job of marking tops and bottoms of Secular Bulls and Secular Bears, did not get down to the single-digit range that has marked the end of Bear Markets for a hundred years, but the Bull proponents say that significantly higher new highs are de-facto evidence of a Secular Bull, regardless of the CAPE. Further confusing the question, the CAPE now has risen to levels that have marked the end of Bull Markets except for times of full-blown market manias. See the graphic below for the 100-year view of Secular Bulls and Bears.

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Even if we are in a new Secular Bull Market, market history says future returns are likely to be modest at best. The CAPE is at 26.72, down from the prior week’s 26.90, and only a little lower than the level reached at the pre-crash high in October, 2007. Since 1881, the average annual return for all ten year periods that began with a CAPE around this level have been just 3%/yr.

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This further means that above-average returns will be much more likely to come from the active management of portfolios than from passive buy-and-hold. Although a mania could come along and cause the CAPE to shoot upward from current levels (such as happened in the late 1920’s and the late 1990’s), in the absence of such a mania, buy-and-hold investors will likely have a long wait until the arrival of returns more typical of a rip-snorting Secular Bull Market.

In the big picture:

The “big picture” is the months-to-years timeframe – the timeframe in which Cyclical Bulls and Bears operate. The U.S. Bull-Bear Indicator is in Cyclical Bull territory at 61.97, down from the prior week’s 63.77.

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In the intermediate picture:

The Intermediate (weeks to months) Indicator turned positive on June 29th. The indicator ended the week at 30, down from the prior week’s 31. Separately, the Quarterly Trend Indicator – based on domestic and international stock trend status at the start of each quarter – was positive entering October, indicating positive prospects for equities in the fourth quarter of 2016.

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Timeframe summary:

In the Secular (years to decades) timeframe (Figs. 1 & 2), whether we are in a new Secular Bull or still in the Secular Bear, the long-term valuation of the market is simply too high to sustain rip-roaring multi-year returns. The Bull-Bear Indicator (months to years) is positive (Fig. 3), indicating a potential uptrend in the longer timeframe. The Quarterly Trend Indicator (months to quarters) is positive for Q4, and the Intermediate (weeks to months) timeframe is also positive. Therefore, with all three indicators positive, the U.S. equity markets are rated as Very Positive.

In the markets:

U.S. stocks fell modestly for the week as investors awaited the start of the 3rd quarter earnings season. All major indexes finished in the red, with the typically more volatile smaller cap indexes declining the most. The Dow Jones Industrial Average fell -68 points to 18,240, a loss of -0.37%. The NASDAQ Composite fell -19 points to 5,292, also down -0.37%. The LargCap S&P 500 declined -0.67%, while the S&P 400 MidCap index lost -1.18%, and the SmallCap Russell 2000 brought up the rear, ending the week down -1.21%.

In international markets, Canada’s TSX reversed from recent gains, falling -1.08%. The United Kingdom’s FTSE 100 had a strong week rallying +2.1%, while on the mainland of Europe France’s CAC 40 was basically flat, up just +0.04%, and Germany’s DAX fell slightly, down -0.19%. In Asia, Japan’s Nikkei was up a strong +2.49%, along with Hong Kong’s Hang Seng which rallied +2.38%, although China’s Shanghai Composite Index pulled back by -0.96%. Developed international markets as a group, as measured by the MSCI EAFE Index, ended down -0.93% while emerging markets as a group, as measured by the MSCI Emerging Markets Index, rose +0.64%.

In commodities, precious metals had another difficult week, this time led by a -9.5% plunge in Silver and a -4.95% drop in Gold. The industrial metal copper, viewed by many as a proxy for the economic health of the global economy, also ended down -2.13%. On the positive side, crude oil rallied for a 3rd straight week, rising +3.25% to $49.81 for a barrel of West Texas Intermediate crude oil.

In U.S. economic news, the economy added +156,000 new jobs last month, a gain “good enough” that some analysts suggest will give the Federal Reserve the green light to raise interest rates. Job creation in some industries such as energy and manufacturing has slowed since last year, but most segments of the economy are adding workers. Professional services, high-tech employers, health care companies, and restaurants led the hiring in September. Jim Baird, chief investment officer in Plante Moran Financial Advisors said “the jobs market remains a relative bright spot in an environment that continues to be characterized by moderate growth overall.” The unemployment rate rose slightly to 5%, the first uptick since April, mostly due to the fact that an additional 444,000 people entered the labor force.

The number of people who applied for new unemployment benefits fell by 5000 to 249,000 last week, the second lowest level since the end of the Great Recession. Economists had been expecting a reading of 256,000. Initial jobless claims have been under 270,000 for 14 straight weeks, an achievement not seen since the early 70s. The low level of layoffs helps explain how the unemployment rate was able to fall below 5% this year for the first time since 2008. The less-volatile smoothed four week average of initial claims dropped -2,500 to 253,500. Continuing jobless claims, those people already receiving unemployment checks, declined -6,000 to 2.06 million in the week ended September 24 – the lowest level since late summer of 2000.

Private-sector employers added 154,000 private sector jobs in September, lower than the 175,000 reported by payroll processor ADP. The increase was the smallest since April and missed expectations of 170,000. In the report, small private-sector businesses added 34,000 jobs, medium businesses added 56,000, and large businesses added 64,000. Most of those gains were in the service sector with 151,000 jobs added, while goods producers added 3,000, and manufacturers actually lost 6,000. Mark Zandi, chief economist at Moody’s Analytics, said job growth should be expected to slow as the U.S. nears full employment.

The Institute for Supply Management (ISM) services index accelerated last month to an 11 month high of 57.1, beating expectations by 4 points. Growth in the services sector has now reached 80 straight months. In the ISM report, business activity surged +8.5 points to 60.3, while the index for new orders was up +8.6 points to 60. Employment in services was also strong, up +6.5 points to 57.2. Numbers above 50 indicate expansion.

Breaking recent trends, manufacturers reported improved business conditions last month, according to the Institute for Supply Management (ISM) manufacturing index. The index rose back into expansion to 51.5, after dipping into contraction (sub-50) territory in August. Forecasts had been for a reading of 50.6. The survey of executives reported that new orders rose, but the industry is still experiencing soft demand in the United States and weak exports. Richard Moody, chief economist at Regions Financial stated “All in all, we’d rather have the headline index above 50.0 than below it, but the bottom line is that the manufacturing sector still faces challenging conditions.” On a positive note, the measure of new orders jumped to 55.1 from 49.1 and a gauge of production increased +3.2 points to 52.8.

Research firm IHS Markit’s Purchasing Managers Index (PMI) manufacturing index report was considerably less enthusiastic than the ISM report. The PMI report indicated that production declined in September and that orders are the weakest of the year. Chris Williamson, chief business economist at IHS Markit stated “Manufacturing growth slowed to a crawl in September, suggesting the economy is stuck in a soft-patch amid widespread uncertainty in the lead-up to the presidential election.”

Auto sales in the United States began to slow in September with the largest automakers reporting declines. General Motors reported sales slipped -0.6% and Ford’s sales fell -8.1% despite efforts to keep dealer lots full and offers of sweetened incentives for buyers. But Toyota reported that its sales rose +1.5%, along with Nissan that reported an overall +4.9% gain. Industrywide, U.S. light vehicle sales are expected to have fallen -1% compared with the same time last year, according to JD Power. In addition, retail sales, which strip out sales to fleet buyers are seeing by JD Power as falling -1.4%, the fifth decline in the past seven months.

U.S. construction spending weakened, according to the Commerce Department, dropping -0.7% in August. Year over year, the spending in August of $1.14 trillion was -0.3% lower than a year ago. The decline was led by steep cuts in spending on public projects, down -8.8% from a year ago and the lowest level since March 2014. Spending on private projects fell -0.3% in August. Within that category, residential spending fell -0.2% and nonresidential spending dropped -1.1%.

In Canada, for the first time in two years the economy managed two consecutive monthly employment gains, adding +67,200 jobs last month. Statistics Canada reported that the gain was driven by the biggest increase in self-employment in seven years. “If you can’t find work, you create your own work,” said Vincent Ferrao, at the Labour Division of Statistics Canada. “It makes sense, given fewer people were working for companies and more people were working on their own.” Most of the job gains came in Quebec, Alberta and New Brunswick, Statistics Canada said, while employment in other provinces was basically steady — most notably in Ontario and British Columbia, which had previously been showing labor gains. The unemployment rate remained unchanged at 7% as more Canadians reported they were actively looking for work.

Across the Atlantic in the United Kingdom, the International Monetary Fund (IMF) stated that Britain will be the fastest-growing G-7 economy this year. The IMF also accepted the fact that its prediction of a post-Brexit financial crash was overly pessimistic. The Washington-based IMF said Britain would have a “soft landing” in 2016, with growth of +1.8%. However, it is sticking with its prediction of sub-par expansion in 2017, sticking to its view that the economy would eventually suffer from its break with the EU.

On Europe’s mainland, French President Francois Hollande gave a speech demanding that the United Kingdom pay a heavy price for deciding to leave the EU. The French President called the Brexit referendum the biggest crisis in the EU’s history and said its future depended on a determination to be tough during exit talks. President Hollande stated: “There must be a threat, there must be a risk, there must be a price. Otherwise we will be in a negotiation that cannot end well.” The comments followed similar tough talk from German Chancellor Angela Merkel, none of which seemed to deter UK Prime Minister May.

In Germany, politicians have accused the US of waging economic war as concern continues to rise among that country’s political and corporate leaders over the financial health of Deutsche Bank, its largest financial institution. Some of Germany’s top corporate leaders have come to the support of the bank, stressing its importance to the economy and confidence in the leadership of the bank’s CEO John Cryan. Deutsche has been under intense pressure since the United States Department of Justice requested the bank pay a $14 billion settlement to settle claims of its mis-selling of mortgage securities. Shares fell to their lowest level since 1983 last week before a rebound following rumors that the settlement was closer to being a much smaller $5.4 billion.

The IMF has lowered its global economic growth forecast for China by -0.1%, to -3.1% based on China’s efforts to switch its economic engine away from investment and towards consumption and services. According to its forecasts, the change would reduce China’s GDP growth down to 6.6% this year, and 6.2% for next year. Frederic Neumann, co-head of Asian Economic Research at HSBC stated, “We are a little bit cautious because we think the restructuring in China has barely begun. We would expect the Chinese economy to slow down next year, and that could put headwinds for emerging markets going into 2017.”

In Japan, Prime Minister Shinzo Abe is working on a ¥1 trillion ($9.6 billion) economic cooperation deal with Russia. The envisioned cooperation covers 41 items chiefly concerning infrastructure construction, resource development and improvement in the quality of life in the Russian Far East and Siberia. Among the items are improvement of three Far Eastern ports — Vladivostok, Zarubino, and Vostochny — as well as a ¥600 billion ($5.8 billion) project to construct a petrochemical plant near Vladivostok.

Finally, as the U.S. economy continues to create jobs there still appears to be no shortage of people looking for work. The U.S. economy has added over 11.5 million jobs since the bottom of the Great Recession, but that growth has slowed over the past 6 months. The slowdown is leading some to speculate that we are nearing full employment. One number in the monthly jobs report that doesn’t get a lot of attention is the available labor supply—the number of people who aren’t working, but would like to. Over the past year, this “available” work force has actually grown despite the creation of 2.4 million jobs. It appears that as more jobs are created, even more people are being pulled off the sidelines looking for work. Even as headlines abound that the U.S. has achieved “full employment”, there are nonetheless more than 14 million people out there who’d like to start earning a paycheck, the most in more than a year.

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Figs 1-5 source W E Sherman & Co, LLC)

The ranking relationship shown in the graphic below between the defensive SHUT sectors (“S”=Staples [a.k.a. consumer non-cyclical], “H”=Healthcare, “U”=Utilities and “T”=Telecom) and the offensive DIME sectors (“D”=Discretionary [a.k.a. Consumer Cyclical], “I”=Industrial, “M”=Materials, “E”=Energy), is one way to gauge institutional investor sentiment in the market. The average ranking of Defensive SHUT sectors fell to 23.75 from 21.5, while the average ranking of Offensive DIME sectors rose to 14.0 from the prior week’s 19.5. The Offensive DIME sectors have widened their lead over the Defensive SHUT sectors. Note: these are “ranks”, not “scores”, so smaller numbers are higher ranks and larger numbers are lower ranks.

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Contact Us Today:

If you have any questions about the FBIAS™ Fact-Based Investment Allocation Strategy portfolios, feel free to give your Anthony Capital, LLC advisor a call at 303-734-7178 or by scheduling a private virtual meeting/conference call. We work with clients from all over the country and would be happy to help.

You can also open up an online account by clicking HEREat our preferred custodian, Folio Institutional.

Sincerely,

Dave Anthony, CFP®, RMA®

 

How to link your Interactive Brokers account with Finance Logix

Anthony Capital, LLC uses Finance Logix and their award winning financial planning software to help their clients navigate their investment and retirement savings.

Their preferred clearing broker or custodian is Interactive Brokers. Find out how to link your Anthony Capital, LLC investment advisory account at Interactive Brokers to Finance Logix by clicking on the link below:

LINK MY INTERACTIVE BROKERS ACCOUNT TO FINANCE LOGIX

How to determine if you are ready to retire or not, in one simple number–The Funded Ratio

How do you know if you can retire? How can you tell if you’ve saved enough and can truthfully answer the question, will I run out of money in retirement?

 

The answer to these questions can be found in the “Swiss army knife”  of all retirement planning readiness gauges, THE FUNDED RATIO.

Funded Ratio

 

The funded ratio describes the degree to which your total assets are able to satisfy not only your total liabilities, but also your future liabilities. A ratio greater than one indicates that you’ll have more than enough money to pay for your future retirement expenses. The larger the number the better. A ratio less than one indicates that you are not in as good a situation as you should be when you retire and you run the risk of retirement failure = running out of money before you run out of time.

For example, let’s take a baby boomer couple ages 65 and 62 with an investment portfolio of $1.3 million dollars, a house worth $600k, and future lifetime Social Security and pension payments of $1.8 million.The present value of these assets is $3.7 million. The only debt the couple has is their $200k mortgage, but the present value of all of their future income tax and medical care costs for the next 30 plus years is $2.6 million. The present value of all of their future discretionary and non discretionary expenses for the next 30 years is $1.4 million. Adding those together gives us the present value of all of their future liabilities in today’s dollars,  $4 million.

Their Funded Ratio is:

 

Present Value of assets: $3.7 million / Present value of liabilities $4 million = .93

 

They are 93% “fully funded” for their retirement. Definitely not as good as you would like it to be, especially for someone with no debt (except for the mortgage) and $1.3 million in the bank.

 

The Household Balance Sheet—the key to understanding and improving the funded ratio.

 

The funded ratio is not a new concept, large insurance companies and defined-benefit pension plans have been using it for decades. It is a measure of the companies assets divided by it’s liabilities. A pension plan administrator knows that they’ll have future liability payments that then need to make to retirees, so they’ll always monitor their pensions’ funded ratio to make sure that the pension is “fully funded” with a ratio greater than one.How is your retirement funded ratio? Are you fully funded?

To understand how it is comprised, you’ll need to understand what the Household Balance sheet for a retiree is and how it differs from the traditional corporate balance sheet.

 

Household Balance Sheet

The typical balance sheet shows all of your assets on one side and your liabilities on the other side. Subtract the two, and whatever is left is available to the shareholders, it is the owner’s equity in the company. The Household Balance sheet for a retiree adds up not only your financial assets, the current value of your stocks, bonds, mutual funds, real estate, etc., but it also calculates the present value of all of your expected Social security and pension payments, for the rest of your life, adjusted for inflation. This give you more accurate assessment of your current asset status.

On the liability side, the Household Balance Sheet looks at not only the current debts that you may have (mortgage, credit cards, etc.) but also looks at the present value of all of your future tax payments and healthcare costs. These are two parts of your future liabilities that are grossly overlooked by most financial advisors. Most stockbrokers and financial planners are focused on the asset side of the balance sheet. They want to know how much money you have in invest, and how that can re-allocate your mix of stocks, bonds, and mutual funds to move you along the “efficient frontier.” They are concerned about growing your assets, and when the market decreases in value, you can simply dollar cost average in and buy more shares. There is very little thought put into the liability side of the equation, especially the future liabilities.

With healthcare costs increasing at an average rate of 7.5% per year, and taxes continuing to increase on “affluent baby boomers” (those who have more than $250,000 of assets and receive over $34,000 income in retirement) it is critical that today’s retirees work with a competent retirement income advisor that can help them improve both sides of their retirement household balance sheet to improve their funded ratio.

What steps can you take to improve your funded ratio and to make your retirement more secure?

Here’s a snapshot of their Household Balance sheet of this couple, let’s examine it for ways that it can be improved:

 

Itemized Houshold Balance Sheet Bill and Susan

 

 

The Asset side of the household balance sheet looks at not only their current financial capital, the monies that they have to invest, but also the future present value of all of their pending pension and Social Security payments. Retirees can improve the present values of these two line items by increasing their monthly pension option by taking a lump sum payout and creating their own pension, or taking the higher single life payout and purchasing life insurance with the difference in case of the early death of the pension owner. This way the surviving spouse can have income replacement from the proceeds of the tax free life insurance if the pension owner dies.

Another way to increase the asset side of the balance sheet is to properly optimize Social Security benefits as part of a larger plan. This particular couple was planning on taking Social Security benefits right away, the day after they retire, like most retirees. However by properly using the file and suspend and the restricted application parameters for the Social Security program, we can increase the Present Value of their Social Security benefits by over $300,000 to $1.6 million. This change alone brings them up to a funded ratio of 100%.

On the liability side of the balance sheet, the two easiest things to improve is the amount you have to pay in taxes over your lifetime and your future health care costs. Tax liability can be improved by reducing  the amount of your Social Security that will be included in your taxable income. Currently, up to 85% of a retirees SS income could be included in their taxable income if they make more than $34,000/year. Also, if a retiree has too high of an adjusted gross income then their Medicare Part B premium payments could increase by over 500%.

For this couple, because they had so much in IRA monies, it was creating a tax time bomb for them once they hit 70.5. By engaging in some proactive ROTH conversions between now and age 70 they were able to dramatically reduce the cost of insurance.

Success! Please call if you have any questions! 303-734-7078

 

Dave Anthony, CFP

Institutional verses Retail Asset Management

There are two types of investors, institutional investors and retail investors, and two types of asset managers, institutional asset managers and retail asset managers. Retail investors (individual investors) are those that are part of the 99%. These investors are the regular, run of the mill, mom & pop type of  investor that the big wall street brokers love to sell things to. As a matter of fact, this is where wall street makes most of its money, selling products to people on main street.

Brokers, registered representatives, stock brokers, & commissioned agents are all types of retail asset managers. They sell all of the fancy financial products that the big wall street firms invent for the retail public to buy on main street, usually with considerable mark-ups and commissions that are paid to the retail brokers.

Charles  Schwab, one of the pioneers in breaking the traditional wall street selling machine model, aired this commercial in 2002 that highlighted the conflicts of interest that many of these big wall street firms are faced with when they push and entice their retail sales army “put lipstick on the pig” for court side tickets.

 

FBIAS™ for the week ending 7/24/2015

 

FBIAS™ Fact-Based Investment Allocation Strategy for the week ending 7/24/2015

The very big picture:

In the “decades” timeframe, the question of whether we are in a continuing Secular Bear Market that began in 2000 or in a new Secular Bull Market has been the subject of hot debate among economists and market watchers since 2013, when the Dow and S&P 500 exceeded their 2000 and 2007 highs.  The Bear proponents point out that the long-term PE ratio (called “CAPE”, for Cyclically-Adjusted Price to Earnings ratio), which has done a historically great job of marking tops and bottoms of Secular Bulls and Secular Bears, did not get down to the single-digit range that has marked the end of Bear Markets for a hundred years, but the Bull proponents say that significantly higher new highs are de-facto evidence of a Secular Bull, regardless of the CAPE.  Further confusing the question, the CAPE now has risen to levels that have marked the end of Bull Markets except for times of full-blown market manias.  See graph below for the 100-year view of Secular Bulls and Bears.

Even if we are in a new Secular Bull Market, market history says future returns are likely to be modest at best.   The CAPE is at 26.7, down from the prior week’s 27.3, and approximately at the level reached at the pre-crash high in October, 2007.  In fact, since 1881, the average annual returns for all ten year periods that began with a CAPE at this level have been just 3%/yr (see graph below).

This further means that above-average returns will be much more likely to come from the active management of portfolios than from passive buy-and-hold.  Although a mania could come along and cause the CAPE to shoot upward from current levels (such as happened in the late 1920’s and the late 1990’s), in the absence of such a mania, buy-and-hold investors will likely have a long wait until the arrival of returns more typical of a rip-snorting Secular Bull Market.

In the big picture:

The “big picture” is the months-to-years timeframe – the timeframe in which Cyclical Bulls and Bears operate.  The US Bull-Bear Indicator (see graph below) is at 50.81, down from the prior week’s 52.3, and continues in Cyclical Bull territory.  The current Cyclical Bull has taken the US and some of Europe to new all-time highs, but many of the world’s markets have yet to top 2007’s levels – particularly in the Emerging Markets area.

In the intermediate picture:

The intermediate (weeks to months) indicator (see graph below) is Negative and ended the week at 11, down sharply from the prior week’s 17.  Separately, the quarter-by-quarter indicator – based on domestic and international stock trend status at the start of each quarter – gave a positive indication on the first day of July for the prospects for the third quarter of 2015.

Timeframe summary:

In the Secular (years to decades) timeframe (Figs. 1 & 2 above), whether we are in a new Secular Bull or still in the Secular Bear, the long-term valuation of the market is simply too high to sustain rip-roaring multi-year returns.  In the Cyclical (months to years) timeframe (Fig. 3 above), all major equity markets are in Cyclical Bull territory.  In the Intermediate (weeks to months) timeframe (Fig. 4 above), US equity markets are rated as Negative.  The quarter-by-quarter indicator gave a positive signal for the 3rd quarter:  US equities were in an uptrend at the start of Q3 2015, sufficient to signal a higher likelihood of an up quarter than a down quarter.

In the markets:

Stocks declined for the week as disappointing earnings from some key companies weighed on the benchmarks.  The continued slump in commodity prices also added to the gloom.  The Dow Jones Industrial Average fell back into negative territory for the year-to-date, giving up 517 points and -2.86% for the week.  The tech-heavy Nasdaq also declined, but less than the blue chips, at -2.33%.  The LargeCap S&P 500 sank -2.21%, the MidCap S&P 400 ended down -2.06%, and the SmallCap Russell 2000 fell the hardest, down -3.24%.  Canada’s TSX, hard hit by the continuing declines in gold and oil, retreated by -3.12%.

In international markets, Developed International declined a relatively modest-2.17%, but Emerging Markets plunged -4.39%.  Weakness spread across European markets as the United Kingdom’s FTSE dropped -2.88%, Germany’s DAX gave up -2.79%, and France’s CAC40 declined -1.31%.  In Asia, China’s Shanghai index bucked the trend and had its second week of gains after its plunge last month.  Japan’s Nikkei held the 20,000 level, finishing the week down 0.52%.

In commodities, an ounce of gold continued its 6th week of declines, down -2.99%.  Silver also continued its decline, down -0.68%.  A barrel of West Texas Intermediate crude oil plunged -5.55% to $47.96 a barrel, its 6th straight weekly decline.  Copper continued its relentless plunge, down an additional -4.25%.  Copper has dropped over 17% in 10 weeks.  If the price of copper truly is a harbinger of coming worldwide economic conditions, as many believe it to be, there must be big economic trouble brewing.

In US economic news, initial jobless claims reached a 42 year low as there were 255,000 initial jobless claims last week, the lowest since November 1973.  Existing home sales jumped +9.6% versus a year ago and ran at a 5.49 million annual pace in June, beating expectations of 5.4 million.  Existing home prices reached an eight year high and sales were at the fastest pace since February, 2007.  All regions saw year-over-year gains, for the sixth straight month.  The Federal Housing Finance Agency (FHFA)’s home price index rose +5.7% versus a year ago, and has returned to its 2006 levels.  But despite the strong showing in existing home sales, new-home sales widely missed expectations as sales ran at a rate of 482,000 versus expectations of 550,000 in June, and down 7% from May.

The Conference Board’s Leading Economic Indicators (LEI) index was stronger than expected in its June reading.  The index rose +0.6%, reaching a level not seen since 2006.

Credit reporting firm Experian reported that consumer defaults were near all-time lows in June as Americans remained cautious about expanding their borrowing, even as the economy improves.  In the report Experian also noted that a pickup in inflation may pressure consumers but that “consumers remained optimistic and are primed to spend.”

St. Louis Federal Reserve President James Bullard stated that the likelihood of a September fed rate hike is greater than 50%.  He said that the Fed expects the economy above 3% in the second half and that there was no longer a need for “emergency” monetary policy, in his opinion, and that turbulence in Greece and China should not influence US policymaking.

In Canada, wholesale shipments declined -1% in May, missing forecasts of just a -0.2% drop; however, April was up a stronger +1.7%.  A weekly gauge of Canadian consumer sentiment dropped to a four month low last week after the Bank of Canada said the nation’s economy “contracted modestly”.  The latest telephone polling of Canadian consumers by Nanos Research Group shows optimism over the economy’s prospects has deteriorated to the lowest level since 2008.  Canadians also grew more pessimistic about the outlook for real estate, job security, and personal finances.  Canada’s Central Bank reduced its 2015 gross domestic product forecast by almost half to just 1.1% and cut its key interest rate to 0.5%.  The bank blames the weakness on damage from the oil price shock and the “puzzling” lack of a rebound in non-energy exports.

In the United Kingdom, minutes released by the Bank of England revealed that the bank has moved closer to a rate hike as policymakers were inclined to vote to raise rates in early July, but market turbulence in China and Greece deterred them from taking action.  The central bank’s governor has hinted that a rate rise is due sometime in 2015.  Markit’s flash Purchasing Managers Index (PMI) for Eurozone composite activity declined -0.5 point to 53.7, and the manufacturing component dropped -0.3 point to 52.2.  Markit noted that these numbers are still relatively strong, given that the region has struggled to come back from the downturn.

Strong exports in the second quarter strengthened the German economy, according to the Bundesbank.  Orders for domestic and international goods also bolstered industry, the central bank said.  Producer prices came in matching expectations of a -0.1% dip in June.  For the year, the German producer price index is -1.4% lower.

In China, manufacturing activity declined in July missing expectations for a slight gain, according to the flash PMI.  It reached a 15 month low of 48.2, down from 49.4, and remained in contraction (<50) territory.  New orders, new export orders, and employment all decreased.

Finally, the price of an ounce of gold has continued to slide, as noted above, which has frustrated gold investors who believe that the various central banks around the world, engaging in profligate amounts of quantitative easing,  will inevitably debase their nation’s currency and lead to inflation—or even hyperinflation.  Some economists and financial analysts view gold as a “barbarous relic”—the term for gold believed to be first coined by John Maynard Keynes.   Warren Buffett said this about gold in a speech he gave at Harvard in 1998: “(It) gets dug out of the ground in Africa or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”  In truth, there are lots of uses for gold other than simply putting it in a vault – some of them obvious, some not.

Here is a table from Morgan Stanley that details the source and destination of gold.  Not surprisingly, Jewelry is the #1 destination, with Coins the #2 destination.  Surprisingly, though, dentistry still consumes 55 metric tons of gold annually, and electronics another 300 metric tons.  “Investment” is just 25% of total demand.

(sources: Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com)

The ranking relationship (shown in Fig. 5) between the defensive SHUT sectors (“S”=Staples [a.k.a. consumer non-cyclical], “H”=Healthcare, “U”=Utilities and “T”=Telecom) and the offensive DIME sectors (“D”=Discretionary [a.k.a. Consumer Cyclical], “I”=Industrial, “M”=Materials, “E”=Energy), is one way to gauge institutional investor sentiment in the market.

The average ranking of Defensive SHUT sectors rose to 12.3 from the prior week’s 13, while the average ranking of Offensive DIME sectors fell to 18.5 from the prior week’s 18.3.  The Defensive SHUT sectors expanded their lead in rankings over the Offensive DIME sectors.   Note: these are “ranks”, not “scores”, so smaller numbers are higher ranks and larger numbers are lower ranks.

Summary:

The US has led the worldwide recovery, and continues to be among the strongest of global markets.  However, the over-arching Secular Bear Market may remain in place globally even as new highs are reached in the US.

Because the world may still be in a Secular Bear, we have no expectations of runs of multiple double-digit consecutive years, and we expect poor market conditions to be a frequent occurrence.  Nonetheless, we remain completely open to any eventuality that the market brings, and our strategies, tactics and tools will help us to successfully navigate whatever happens.

If you have any questions about the FBIAS™ Fact-Based Investment Allocation Strategy portfolios, feel free to give your Anthony Capital, LLC advisor a call at 303-734-7178 or by scheduling a private virtual meeting/conference call.  We work with clients from all over the country and would be happy to help.

You can also open up an online account by clicking HERE at our preferred custodian, Folio Institutional.

Sincerely,

Dave Anthony, CFP®, RMA®