Capturing bull market returns

The Challenges of Capturing Bull Market Returns


You probably didn’t notice, but Monday, September 11 marked a milestone: the S&P 500 index’s bull market became the second-longest and the second-best performing in the modern economic era.  Stock prices are up 270% from their low point after the Great Recession in March 2009—up 340% if you include dividends.  That beats the 267% gain that investors experienced from June 1949 to August 1956.  (The raging bull that lasted from October 1990 to March 2000 is still the winningest ever, and may never be topped.)

With the benefit of hindsight, it’s easy to think that the long eight-year ride was easy money; you just put your chips on the table when the market hit bottom and let them ride the long bull all the way to where we are today.  We tend to forget that staying invested is actually pretty difficult, due to all the white noise that tries to distract us from sound investing principles.

Consider, for example, that initial decision to invest in stocks that March.  We had just experienced the worst bear market (down 57.7% from the peak in October 2007) since the Great Depression, and were being told many plausible reasons why prices could go lower still.  After all, corporate earnings were dropping from already-negative territory.  Was that the time to buy, or should you respond by waiting out the next couple of years until a clear upward pattern emerged?

The following year, investors were spooked by the so-called “Flash Crash,” which represented the worst single-day decline for the S&P 500 since April 2009.  Then came 2011, two to three years into the bull, when the S&P 500 declined 20% from its peak in May through a low in October.  The pundits and touts proclaimed that another recession was looming on the horizon, which would take stocks down still further.  Surely THAT was a good time to take your winnings and retreat to the sidelines.

By the time 2012 rolled around, there was a new reason to take your chips off the table: the markets were hitting all-time highs.  Of course, historically, all-time highs are not indicative of anything other than a market that has been going up.  If you decided to take your gains and get out of the market when the S&P 500 hit its first all-time high in 2012, you would have missed an additional 98% gain.

The headline distraction in 2013 was rising interest rates, which were said to be the “death knell” of the bull market.  Low rates [it was declared] were the “reason” for the incredible run-up from 2009-2012, so surely higher rates would have the opposite effect.  (The “experts” were wrong.  The S&P 500 would advance 32% in 2013, its best year since 1997.)

In 2014, the U.S. dollar index experienced a strong advance, as markets began to expect the U.S. Fed to end its QE program.  A falling dollar and easy Fed money were said to be responsible for the “aging” bull market, so this surely meant that it was time to head for the exits.  Instead, the index ended 2014 with a 13.7% gain.

The following year, a sharp decline in crude oil prices was said to be evidence of a weakening global economy.  The first Fed rate hike (in December 2015) since 2006 led many institutional investors to sell their stocks in the worst sell-off to start a year in market history.  The 52-week lows in January and February were said to be extremely bearish; the market, we were told, was going much lower.  Instead, the S&P 500 ended 2016 up 12%.

CA - 2017-9-20 - Capturing Bull Markets (2)


Today, you’ll hear that the bull market is “running out of steam,” and is “long in the tooth.”  New record highs mean that there is nowhere to go but down.  In other words, you are, at this moment, subject to the same noise—in the form of extreme forecasts, groundless predictions, prophesies and extrapolation from yesterday’s headlines—that has bombarded us throughout the second-longest market upturn in history.

This is not to say that those dire predictions won’t someday come true; there is definitely a bear market in our future, and several more after that.  But investors who tune out the noise generally fare much better, and capture more of the returns that the market gives us, than the hyperactive traders who jump out of stocks every time there’s a scary headline.  As we look back fondly at the yellow line in the middle of the graph, let’s recognize that holding tight through big market advances and allowing your investments to compound is never easy.  But it can be extremely profitable in the long run.


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What you need to know..Power of Attorney


Facts About Powers of Attorney

Everybody should have a power of attorney.  But not everybody knows exactly what it is or why it’s so important.

A power of attorney is a legal document that empowers a person you trust to handle your financial affairs if and when you become incapacitated.  While you’re up and around, the document just sits in a file.  But if you’re in an accident, where suddenly you can’t act on your own behalf, the document allows somebody else to make decisions on your behalf—usually temporarily, until you can start handling your own affairs again.  At that point, the document goes back in the file, and you’re back in charge.

There are several flavors.  What is called a Limited Power of Attorney is used when you want someone to act on your behalf only in a certain circumstance.  A General Power of Attorney is more powerful because you’re giving someone else the power to act on your behalf whenever you’re unable to manage your own affairs on your own.  But either way, when the power of attorney is triggered, it can be used for all legal and financial matters.

Who would draw up this important document?  You should consult an attorney; many of them will have a template document that they can modify to your specific circumstances.  The key is finding a person you really trust to handle things on your behalf—and then hope you never need them to.


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Tips for filing an insurance claim


Suppose you’re the victim of a huge natural disaster like Harvey or Irma, or have experienced some local damage, like a tree falling on your house.  What are the best practices for filing a claim for the damages your home and property have suffered?

Recently, the Consumer Federation of America offered tips on how to get all you’re entitled to from your insurance company.

The organization starts by noting a disturbing trend: families victimized by Harvey-related wind and flood damage will have to dig deeper into their pockets because few of today’s homeowners have federal flood insurance, and because insurers have been steadily increasing hurricane wind coverage deductibles and imposing other homeowners insurance policy limitations.

Among the tips: Report your claim as promptly as possible, since insurance companies generally handle them on a first come, first serve basis.  Be sure to write down your claim number, since insurance company claims departments can locate your file most promptly using your claim number.

Meanwhile, maintain receipts for any expenditures related to immediate repairs you had to make to secure your home or any living expenses (hotel, meals) if you could not return to your home in the wake of the storm or as a result of your own home damage experience.  (If your claim is limited to flood insurance, additional living expenses are not covered.)

When an adjuster arrives to survey your damage, ask if he/she is an employee of the insurance company or an independent adjuster (I.A.) hired by that firm.  If this person is an independent adjuster, ask if he or she is authorized to make claim decisions and payments on behalf of your insurance company, and ask for the name of the in-house company adjuster to whom the I.A. is sending your information.

Many insurance companies will send out one of their approved contractors to estimate your property damage.  You are not under any obligation to use them, and you should realize that these approved contractors have likely agreed to limit repair costs based on average cost estimates in the area.  You might benefit from getting an estimate from other local contractors, since your damage situation will be unique.

Before you file a claim, know that it helps to have pictures of your possessions, which you can file as evidence of what you’re claiming.  Make as thorough a list of your possessions as you can.  When the claim is made, start a notebook documenting contacts with your insurance company, writing down the date, time and a brief description of every exchange.  Keep receipts from emergency repairs as well as any costs you incur in temporary housing, which may be reimbursable under the “Additional Living Expense” portion of your homeowners’ policy.

Suppose the claim is denied, or you feel the offer is too low.  At that point, you should ask the company to identify the language in your homeowners’ policy that served as the basis for denying your claim or offering so little.  Once the company pinpoints the appropriate language in the policy, you should be able to determine the fairness of the offer.  If you feel that the company has slipped new limitations into the policy and not adequately informed you, it might be a good idea to consult an attorney.

For those not living through Harvey, this might be a good time to look hard at your current policy.  The Consumer Federation of America has noticed that new provisions are showing up which limit replacement cost payments, and many insurers no longer cover the additional costs to bring a damaged home up to new building codes (wiring, elevation for flood risk, etc.)

Once the insurance company tells you the reasons for its action, it cannot produce new reasons for denying payment or making a low offer at a later time. You have locked them in—an important protection for the consumer.

If you feel that the offer is too low or the claim denial is wrong, complain to an executive in the firm’s consumer relations (who is paid to keep consumers happy) rather than an executive in the claims department (who is paid to keep claims costs low).  In the conversation, use the records you’ve kept since the claim process began.  The more serious the insurance company sees that you are in documenting how you were treated, the more likely they will make a more reasonable offer.

If that doesn’t get you anywhere, complain to your state insurance department.  All states will at least seek a response to your complaint from your company, which will give you more information as you consider your next steps.

Your last option is to consult a lawyer.  If you’re sitting in the attorney’s office, the notes you took take on additional importance.  If your treatment was particularly bad, the courts in many states will allow additional compensation when the insurance company acted in “bad faith.”  Since insurance companies take your money in exchange for their promise to make you whole when disaster strikes, they must act in utmost good faith in performing that obligation.



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Realized Capital Loss – A Conversation with Travis Brock

There is a definite financial strategy when faced with a portfolio that has a realized capital loss.

First we take a look at where the account has been throughout the year.

There are certain times in the year where trades need to be placed.   So sometimes we can’t avoid clients taking a capital gain or loss. If they did have some capital gain, we can offset those by taking investments that may be down during that time period and balance out those gains essentially minimizing or eliminating the tax that they would have to pay.  This has an impact on some scenarios more so than others, but it is an important practice for everyone. Obviously, the lower your tax obligation, the better.

The key is to take a look at your financial scenario and tax obligation on a year- round basis.  We offer to touch base with your tax preparer to ensure that everyone is on the same page.  If we’re pursuing one strategy and the accountant also has a strategy, it’s our goal to mold the two together for the client.  Maybe the accountant has a different perspective.  It’s imperative that we all work together in the clients’ best interest to implement the plan. None of our respective areas is comprehensive, especially when assessing the implications of taxes.

I touch base, roughly once or twice a year, with that tax preparer after the tax season and toward the close of the year in order to eliminate those taxable gains that has to be accomplished before January 1.   Communication in February, for example, for the previous tax year simply doesn’t make a whole lot of sense.  We want to think about tax ramifications year-round.  We keep an eye on those taxes throughout the year.  By taking a look at your tax situation in the summer or early fall, we are able to tackle any issues prior to the close of the year.

Additionally, we want our clients to have the ammunition and knowledge about the strategy that we, as a team, are after so that it fuels the conversations that they are having with the other professionals in their life working on their behalf for financial success.

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Hurricanes’ impact


How Will Harvey Impact the U.S. Economy?

By now, you’ve surely watched with sympathy and concern as hurricane Harvey along with Irma flooded America’s fourth largest city.  You may remember seeing similar footage when Hurricane Katrina roared through New Orleans, and when superstorm Sandy roared through the most populous areas of New Jersey and New York.  As you saw Houston sitting in six feet of water, you’re probably wondering what the economic impact will be of all this devastation, and how it compares to natural mega-disasters like Katrina and Sandy.

While we don’t yet know the true cost of Harvey or Irma, and probably won’t for months, experts believe two things:

1) The financial toll of Harvey will break all previous records, with estimates ranging from $80 billion (Enki Research) to $160 billion (AccuWeather); and

2) in the end, the storm will actually have minimal impact on the overall economy’s growth.

You can see in the accompanying graph that either estimate would make Harvey the costliest hurricane in U.S. history.   Our country is bracing ourselves as we learn Irma’s impact.  But where will the impact be felt?

CA - 2017-9-1 - Harvey's Impact (2)First, at the pump.  The American Automobile Association reports that the average cost of a gallon of regular unleaded gas jumped from $2.34 to $2.40 in a matter of days, due to shutdowns that have slowed the flow of gas from the epicenter of Texas’ oil refinery industry. (The Houston area processes nearly one-third of America’s crude oil.)  Interestingly, crude oil prices are falling due to lessened demand; because refinery companies are no longer buying oil on the spot markets while they rebuild and retool.


The Houston area also has a lot of facilities that use petroleum to manufacture a variety of chemicals for export—roughly 21% of the U.S. total.  Disruptions to chemicals-related exports could reduce GDP in the fourth quarter by as much as 0.20%.


We can also expect a brief spike in initial jobless claims—the weekly tally of people who file for unemployment benefits for the first time.  Economists note that there was a spike in initial claims in Louisiana after Hurricane Katrina, and in the Northeast after Hurricane Sandy.  If the past is any indication, this will be a VERY temporary phenomenon (see the jobless rate graph), because the cleanup in the aftermath, including a lot of repair and construction, will require a lot of temporary labor, reducing the local unemployment rate, for a few months, to near zero.



ca-2017-9-1-harveys-impact-unemployment.jpgMeanwhile, up to half a million flooded cars and trucks could be scrapped, according to an estimate by Cox Automotive.  Auto insurers like State Farm, Allstate, Progressive, Geico will deal with claims for several months.


Harvey taketh away, but it will also give back: the impact of devastation on the overall economy will be somewhat offset by the huge rebuilding effort’s impact on overall GDP.  However, the final tally, as mentioned, won’t be measurable until the rebuilding has been mostly completed—which won’t be anytime soon.




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Forgotten stepchild: Long-term care insurance facts


The Facts about the “Forgotten” Policy

Everybody knows about life insurance, and disability insurance covers millions through corporate plans.  Health insurance is always in the news thanks to the controversy around the Affordable Care Act.

But what about the forgotten stepchild: Long-Term Care (LTC) insurance?  How much do you know about it?  How do you know whether you need it or not?

Recently, the Morningstar mutual fund service published an eye-opening blog that provides 75 statistics about LTC coverage, some of which will help people evaluate this often-forgotten piece of their personal risk profile.

For instance: 52.3% of people turning 65 will need long-term care during their lifetimes—meaning either skilled care providers in their homes or, more often, a stay for months or years in a nursing facility.  Already, 10% of Americans over age 65, and 38% over age 85, currently have Alzheimer’s dementia, which, in its advanced stages, requires round-the-clock care.

But before you buy that policy that will pay for 5 years of assisted living or space in a nursing home, you should know that the average long-term care need for individuals who today are age 65 is 2 years, and only 22% of men will ever need more than one year in a nursing home.  The figure rises to 36% for women.  There is only a 2% (men) to 7% (women) probability of needing more than five years in a nursing home.

If you self-insure, what kind of costs are you looking at?  The median yearly cost for adult day care in the home is $17,680, but that rises to $43,539 a year if you move into an assisted living facility, and you can more than double that cost if you prefer a private room ($92,378).  Some places, like Manhattan, cost more: $164,250 for a private room.

Why can’t you just move in with your relatives if you begin to experience symptoms of Alzheimer’s or are too frail to get around on your own?  The blog cites some statistics: unpaid caregivers (usually family members, usually a daughter) suffer significant financial hardships; their 37 billion hours of unpaid labor cost them $3 trillion in potential earnings, in the most recent year for statistics (2013).  70% of these unpaid caregivers suffered work-related difficulties due to their caregiving duties.

Doesn’t the government pay for many peoples’ LTC expenses?  Yes; in fact, 62.3%: of long-term care services and supports are provided through Medicaid—and these payments make up roughly 20% of Medicaid’s total budget.  But there’s a catch: a Medicaid recipient can only retain up to $120,900 (total assets) to be eligible for long-term care benefits provided by Medicaid.

Suppose all of this has convinced you to buy LTC insurance.  You should know that there are now fewer than 15 insurers offering standalone long-term care policies, down from 125 back at the turn of the century.  Altogether, 7.25 million individuals have long-term care insurance coverage, with average annual premiums of $2,772.  Total benefits available at age 82, for a person who bought a typical policy at age 60: $547,000.



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“Insert reason here..”


Insert Reason Here

The major indices are indicated to open higher this morning.  There is no particular reason why, which is why most reports this morning are stretching to assign a reason for the positive bias.

There is optimism over the Jackson Hole Symposium; there is relief that President Trump in a speech yesterday before the American Legion didn’t inflame his government shutdown threat or anything else; North Korea hasn’t stirred the geopolitical pot; and there is the fallback excuse that the market remains hopeful that a tax reform deal will get done.

Basically, there is a blank line that says “insert reasonable-sounding excuse here” and that’s what a lot of people are doing.

What they should be simply writing is that the stock market fluctuates and that there is more demand from buyers than sellers at the moment.

That’s about the only good explanation that truly suffices considering the political reasoning for the stock market’s moves this week has flip-flopped like a fish out of water.

Well, for the time being, the fish has made its way back into the water.

The S&P futures are up seven points, the Nasdaq 100 futures are up 22 points, and the Dow Jones Industrial Average futures are up 68 points.  Those indications leave the major indices on track to open roughly 0.2% to 0.3% higher.

It won’t be a major move, yet the unanswered question is whether that modest move will trigger some more short-covering activity that turns into something bigger on what is expected to be another thin day of trading.

The retail industry is expected to have its share of big movers.  A number of companies reported their quarterly results and a number of companies, like Dollar Tree Stores (DLTR), Abercrombie & Fitch (ANF), Guess? (GES), Tiffany & Co. (TIF), Signet Jewelers (SIG), The Michaels Cos. (MIK), and Burlington Stores (BURL), blew past depressed earnings estimates.

The aforementioned stocks are all trading noticeably higher in pre-market action and will provide a dose of support for the broader market.

Presumably, the initial claims report will, too, only there hasn’t been much change in the futures market since its release, primarily because there wasn’t anything surprising about the report. That’s not to say it wasn’t good.  On the contrary, it was good — again!

Initial claims for the week ending August 19 increased by 2,000 to 234,000 ( consensus 237,000) while continuing claims for the week ending August 12 were unchanged from the prior week at 1.954 million.

The report marked the 129th straight week initial claims have been below 300,000, which is reflective of a tight labor market.

The Existing Home Sales report for July ( consensus 5.56 million; prior 5.52 million) will be released at 10:00 a.m. ET.  Market participants will be interested to see if it ultimately goes the way of the New Home Sales report for July, which showed a sharp deceleration in sales activity from June.

On a related note, there will be a deceleration in yesterday’s sales activity at the open.  We’ve made our thoughts known why we think that is, but feel free to insert your reason here __________.

Patrick J. O’Hare,


Briefing Investor, Page One Archive, August, 24, 2017.  Insert Reason Here.

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