Buy, Sell and Ponder October 2017 Hi guys!
LA port traffic has seen record imports.....July, August and now September.....with 40% of imports coming through LA. This looks good for Christmas. Also, where or at what price would you start to think about GE? Just pondering a bit....
Also, a Fidelity update:
Quarterly market update: fourth quarter 2017
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Key takeaways
The global economy is experiencing a relatively steady, synchronized expansion amid low inflation, with low risk of recession.
U.S. fiscal policy is supportive of growth, and hopes for tax-cut legislation represent a potential upside for corporate earnings.
A shift toward tighter global monetary policy may boost market volatility, underscoring the importance of diversification.
Each quarter, Fidelity's Asset Allocation Research Team (AART) compiles a comprehensive quarterly market update. Here is a summary of their outlook, plus key investor takeaways for the third quarter of 2017. For a deep dive into each, read the Quarterly market update: fourth quarter 2017 (PDF) or the interactive PDF.
First, let's look at how the markets did in Q3.
Market summary: Goldilocks backdrop persisted, widespread gains across asset markets
The synchronized expansion in global economic activity—along with low inflation and accommodative monetary policies—continued to provide a steady backdrop for asset markets in the third quarter of 2017. Non-U.S. equities spearheaded a global stock market rally for the third quarter in a row, bolstered by a weaker dollar and a strengthened economic backdrop. Credit spreads tightened further amid the "risk-on" tone, allowing emerging-market and high-yield corporate bonds to add to their solid year-to-date gains. Steady interest rates kept high-quality bonds in the black, and all asset categories posted positive returns.
Since equity markets hit a near-term bottom in early 2016, global assets have posted exceptional returns while experiencing remarkably low levels of volatility. Compared to historical averages, price fluctuations of riskier assets were extremely subdued, even as they registered big gains. More defensive assets such as investment-grade bonds posted smaller gains, but also experienced unusually low volatility.
Economy/macro backdrop: Synchronized global economic upturn, but markets may be tested by monetary policy shift
The global economy is experiencing a relatively steady, synchronized expansion. Broadly speaking, most developed economies are in more mature (mid-to-late) stages of the business cycle, with the eurozone not as far along as the United States. Recession risks remain low globally, although less accommodative policy in several countries, including China, may constrain the upside to growth going forward.
A rebound in global trade continued to bolster the global economy. The global expansion has been underpinned by a turnaround in export-oriented sectors and manufacturing activity. China's rising import demand over the past year has helped push the percentage of major countries with expanding new export orders to more than 90%. China’s economy remains in expansion, however, policymakers' tighter stance is beginning to show an impact, and peaking activity suggests that upside to China's cyclical trajectory is limited.
Elsewhere, the eurozone is on a cyclical upswing, enjoying a reasonably synchronized mid-cycle expansion across both its core and its periphery. The U.K., however, is confronting late-cycle pressures, as consumers’ expectations deteriorate alongside rising inflation and faltering real income growth.
The U.S. economy remains in expansion, between the mid- and late-cycle phases. Tight labor markets are supporting wage growth and the U.S. consumer, keeping recession risk low. So far, low inflation has been the key to a prolonged mid-to-late cycle transition in the United States. U.S. inflation is likely to remain range-bound due to multiple factors: Tight labor markets, rising wages, and increasing food costs have been supportive, while slowing shelter costs and other transitory factors have served to dampen inflation. Historically, rising wages pressure profit margins and cause the Federal Reserve (Fed) to tighten monetary policy; this in turn has caused a flattening of the yield curve and raised debt-servicing costs for businesses. While many of these indicators remain relatively healthy, they have all deteriorated and are indicative of a maturing U.S. business cycle.
U.S. fiscal policy is supportive of growth, and hopes for tax-cut legislation represent a potential upside for corporate earnings. However, tax cuts may do more to boost inflation than growth, as rate cuts tend to have a bigger impact on growth when there is a large amount of economic slack and monetary policy is easing (unlike today). Meanwhile, escalating tensions in the Korean peninsula represent a potential catalyst for meaningful market risk, as the U.S. and China are the world's 2 economies that are most central to global trade.
Firming U.S. inflation and global growth have given the Fed confidence to continue gradually hiking its short-term policy rate; other central banks may also recognize the need to begin moving away from extraordinary easing. The Fed's unwinding of its balance sheet, and the ECB's likely tapering of asset purchases next year, could pose a liquidity challenge to markets. Overall, the global economy is in a synchronized expansion amid low inflation, with low risk of recession. Going forward, a shift toward global monetary policy normalization may boost market volatility.
Asset markets: Non-U.S. valuations still most attractive, higher market volatility may be on the way
The third quarter was another strong quarter for U.S. and global equity markets. Growth stocks and emerging-market categories were the strongest performers, boosted by their exposure to big gains in the information technology sector. Credit categories continued to lead gains in the bond market, and year-to-date returns were almost universally positive across major asset categories and sectors.
Turning to fundamental factors, international corporate earnings growth has accelerated for several quarters and surpassed U.S. corporate profit growth. Earnings revisions have also stabilized for the first time in years, although lofty forward earnings growth expectations may provide a tougher hurdle to clear in the year ahead, particularly in emerging markets.
Generally speaking, stock valuations are mixed using one-year-trailing earnings; U.S. price-to-earnings ratios are above average, developed markets are below average, and emerging markets are roughly average. Forward estimates for all markets look more reasonable. Using 5-year peak inflation-adjusted earnings, P/E ratios for foreign developed and emerging equity markets remain lower than those in the United States. Despite dollar weakness in 2017, the value of most currencies also remains in the lower half of historical ranges versus the U.S. dollar. Meanwhile, yields and credit spreads across bond sectors remained low relative to history.
With the U.S. exhibiting the mid- and late-cycle phase dynamics, it's worth looking at the historical playbook. Historically, the mid-cycle phase of the U.S. business cycle tends to favor riskier asset classes, while late cycles have the most mixed performance of any business-cycle phase. The late-cycle phase has often featured more limited overall upside and less confidence in equity performance, though stocks have typically outperformed bonds. Inflation-resistant assets, such as commodities, energy stocks, short-duration bonds, and TIPS, have performed relatively well, as have non-U.S. equities.
From an asset allocation standpoint, given the maturing U.S. business cycle, the likelihood of less reliable relative asset performance patterns and increased volatility as a result of the risks in the global monetary policy, smaller cyclical tilts may be warranted. The possibility of higher volatility underscores the importance of diversification.
Long-term themes
Slowing labor force growth and aging demographics are expected to tamp down global growth over the next 2 decades. We expect GDP growth of emerging countries to outpace that of developed markets over the long term, providing a relatively favorable secular backdrop for emerging-market equity returns. Over long periods of time, GDP growth has a tight positive relationship with long-term government bond yields (yields generally have averaged the same rate as nominal growth). We expect interest rates will rise over the long term to an average that is closer to our 3.6% nominal GDP forecast, but this implies they would settle at a significantly lower level than their historical averages.
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the Pudd
BlackRock's Fink Warns Of Risk Of Inverted Bond Yield Curve From the article: Despite nearly nine years of gains in U.S. stock markets, investors are flocking to bonds. ... U.S. based bond funds have brought in more than $2 for every $1 gathered by equity funds this year ... BlackRock alone reported nearly $60 billion in bond fund inflows and another $20 billion in “cash management” products that also invest in debt during the third quarter, compared to $12 billion for equity funds.
That explains Fink’s concerns looking out a year or two. Interesting conundrum. On one hand, investors are seeking shelter from what they perceive as expensive equity markets. On the other hand, they’re avoiding cash and the short end of the curve because they yield next to nothing. As a consequence, longer bonds are pulling in money. If that continues long enough it could drive down long term rates to levels below what shorter paper yields. That’s rate inversion. Yes, it is often a precursor of recession.
What I think is different here is that usually the inversion is brought about by central banks raising rates at the short end to choke off an overheating expansion. But in the case Fink outlines, it would be a result of investors piling into the longer end of the curve in search of yield. But investors aren’t that dumb - are they?
Wife's job change and her 401K I'm not a tax guy so please double check my understanding. It sounded like the transfer has already happened from the 401K at your wife's employer to her Roth IRA at a mutual fund company. If that's true I'm not sure how easy it is to undo it because I think it would be considered a withdrawal from a Roth without waiting what I believe is the required 5 years and that would probably incur a penalty. If the transfer isn't done yet and you still have the option to change your mind, one advantage of transferring to a rollover IRA rather than the Roth IRA is that you don't pay any tax. Depending on your situation and what you believe/want to bet on about Trump's tax plans, you might potentially pay lower tax on a Roth conversion if you waited until a new tax code is in place.
As an addition to Bill's comments, I believe once you wait the required 5 years after converting to a Roth IRA, you're able to withdraw what you "contributed", or in other words what you've paid tax on, at any time without penalty. It's only the gains on what you contributed that you're not allowed to withdraw until retirement age without penalty.
Wife's job change and her 401K Wife worked for a large box store till May 1, 2017 and was involved in a layoff. They would not hold her 20 years of 401k investments and were required to make a distribution - so we directed the funds to in her ROTH IRA at another MF investment company with plans of paying the required taxes end of this year. Does anyone see any problems with doing this! Also the first of September she has went back to work at the same company but at a different location. Was wondering about the possibility of having the 401K funds in her ROTH IRA - plus gains transferred back to the same 401K fund administrator for the company.
Any response or ideas would be appreciated.
Thanks
Gary
Why Bitcoin’s Bubble Matters I've no investment in crypto-currency, though I think dabbling in it -- as a trade -- could prove very profitable. I think we are in the early, EARLY innings of this trend. IF its a bubble, I think it has a lot of room to run. It kinda feels like the internet 'bubble' circa 1994. -- speculate with a SMALL amount of capital, make a lot of money. Exit.
At this point, I have not identified any public investments in the blockchain 'ecosphere' which strike me as meritorious.
I would be interested in hearing any investment/trade ideas anyone has in this space...
Anyone?
New Target-Date Funds Are Geared For Withdrawal Time Great find
@Ted.
I’m always interested in what T Rowe Price is doing. Interesting that they
had a
Retirement Income Fund for many years, but decided about 5 years ago to rename it
Retirement Balanced.
Now a new
Retirement Income fund? Modeling its performance expectations on their current
2020 Target date fund would make it somewhat more aggressive than their previous
Retirement income fund (TRRIX). In hindsight, rebranding the old fund must have been Price’s way of “clearing the deck” for this new one. Brings to mind,
“What’s in a name ...”. When a company reaches the point where there are no longer
enough names to go around due to their offering so many funds, what does that say? :)
Still reading this story. Not entirely clear whether there’s a glide slope with this one - but probably not.
(Actually, their website says there is a glide slope). I don’t understand where the firm is going with the launch of so many new funds in recent years. This one is a real puzzle (unless their goal is just to attract more and more assets). Dodge & Cox seems to do just fine with only 5 or 6 funds.
One thing that would steer me clear of this one - In order for it to work as intended, an investor would seem to have to entrust his/her entire retirement nest egg to this fund. Diversifying into several other funds would appear to thwart the fund’s intended goal.
MFO Ratings Updated Through September 2017 There are now nine equity funds at least 10 years old through September that have never incurred a negative return over any 3-year rolling period. There were only five last month. The four new funds just turned 10! They are Boston Trust Midcap Fund (BTMFX), Delaware Healthcare Fund Inst (DLHIX), Prospector
Capital Appreciation Fund (PCAFX), and Prospector Opportunity Fund (POPFX).
Four of the nine are MFO Great Owls, and David
profiled PCAFX in 2011. He gave it a thumbs-up.
Here's an update of the complete list published in this month's
commentary (click image to enlarge):
Jonathan Clements: Retirement FYI: If you just entered the workforce, it’s time to start preparing for retirement. Over the next four decades, you might pull in tens and perhaps hundreds of thousands of dollars every year. An October 2012 Census Bureau study estimates that those with a bachelor’s degree have average lifetime earnings of $2.4 million, figured in today’s dollars.
Of course, it’s lucky you have all that income coming in, because ahead of you lies life’s toughest financial task: amassing enough money so you can retire in comfort. In dry economic terms, your working career is about accumulating enough financial
capital, so that one day you’ll no longer need the income from your human
capital. This, alas, is a task that most Americans are not good at.
Want to do better? As you ponder how to pay for retirement, it’s helpful to think about your life in three stages—your 20s, 30s and 40s, your 50s and early 60s, and age 65 and beyond—which is how this part of the guide is divvied up.
Regards,
Ted
http://www.humbledollar.com/money-guide/retirement/
2017 Capital Gains estimates
The Closing Bell: Wall Street Indexes Scale Fresh Record-Highs On Tech Gains
how to protect yourself if you fear new market crash coming Sounds sensible, if generic. But that's about as much as anyone can expect, given the topic. "Riding The Storm Out," whenever it happens, seems the best angle for me. Because my overall plan is in place, and whatever other investments (single-stocks is where I'm investigating, currently) I add to the portfolio in days to come is gravy: bought for their dividends. Capital gains would be nice, but not a requirement, for me, in October of 2017. :)
