Election Musings

Trump ClintonAs the DNC convention concludes, we now have our two Presidential candidates and about 100 more days of campaigning before the Election on November 8th.  In a year of unprecedented dislike of both candidates, billions will be spent trying to convince voters.  What a waste.

The Supporters aren’t Changing.  Trump and Clinton supporters aren’t changing their minds.  One Trump enthusiast was asked what it would take for the Donald to lose his vote.  His response: “Nothing. There is nothing he could do to lose my vote.”  To his supporters, Donald Trump is going to make America great again.  “He’s rich and can’t be bought.” “He speaks his mind.” “He’ll get the job done.”  Those who oppose him often believe him to be a narcissistic buffoon, liar, racist, and woman-hater; unfit to be president.

Hillary Clinton’s supporters believe she is the only qualified candidate, the only one capable of being commander-in-chief and, of course, she isn’t Donald Trump.  Those who oppose her believe she is a phony, part of the establishment that caused their economic woes, and has a long history of corrupt episodes including the recent FBI investigation into the “extremely careless” use of her private email server.

For supporters, new information makes no difference.  “It really goes back asswards, lots of times,” said Peter Ditto, a psychologist at UC Irvine.  “People already have a firm opinion and that shapes the way they process information.”  Psychologists call this “motivated reasoning” meaning that once a person selects Trump or Clinton, they tend to downplay or ignore things that paint their candidate in a bad light by forcing new information to fit within pre-existing beliefs.  Even lies don’t matter.  Many people would rather hear an appealing fib rather than an ugly truth. And politicians know that for sure.

Investors like Clinton.  Americans with money in the markets prefer Clinton.  They love divided government and are assuming the Republicans will control Congress and Clinton would be held in check.  Actually, for all their promises of sweeping changes, U.S. Presidents can’t do much without the House and Senate.  Furthermore, Republican House Speaker Paul Ryan has his own ideas, different from Trump and Clinton on taxes, trade and other matters.  So, we’ll likely have a divided government in any case.

Wall Street seems to think that it is highly unlikely that Trump will win.  Of course, think back to Brexit, when the “Remain” camp was certain they wouldn’t lose.  If he did win, Trump would likely move quickly to get the U.S. out of NAFTA and perhaps put tariffs in place on Chinese and other goods.  This could lead to a “trade war” which would most likely hurt the U.S. and world economy.

The Race will likely remain too close to call.  With more than three months remaining, we will continue to be bombarded daily with media coverage, emails and phone calls.  Like Brexit, it will likely come down to voter turnout. There are many angry, disillusioned Americans these days.  They question is which ones will show up in droves on November 8th.

Impact on Investments.  When Britain voted to leave the EU it surprised investors worldwide.  In the U.S., markets initially declined 5-10% and many investors bailed out.  It took the markets just a few days to realize that Brexit is a UK problem, not a U.S. issue and since then the S&P 500 Index and Dow Jones have hit all-time highs though demand remains high for “haven” assets; for example, government bonds and gold.

Investing based on world events is nearly impossible. UK politicians, property owners, businesses and bookies got all it wrong.  Timing the market, both entrance and exits, is impossible.  Longer-term investors know that you need to look beyond short-term events like Brexit, Kennedy’s assassination, the 1987 market crash and 9/11 to see that each had a short-term downside and fear followed by a return to fundamentals.  It’s prudent to leave the short-term noise to short-term traders.

Let’s focus on staying invested in a globally diversified portfolio with an appropriate asset allocation.  Yes, diversification may be boring, but it works.  We can control our behavior, but there are lots of things we can’t control, including the U.S. Presidential election.  So, enjoy the Greek drama as it unfolds. Not sure we are watching a comedy, tragedy or satyr (featuring lustful, drunken woodland gods).   Regardless, don’t let it stress you out.  Enjoy the rest of the summer and focus on what you can control.

Learning New Technology… Benefits Worth The Learning Curve

635956588092585447-6090119_social-mediaWhether you are as green as me to workplace tech, a 30 year vet required to attend a seminar, or a retiree simply learning a new function on a smart phone- at some point we have all been through the grind of learning new technology.  Having started with DWM in mid-April, I am still learning, but also making some significant progress.  Prior to starting, I thought this stuff would be a piece of cake.  After all, I’m 23 and kids are always helping older generations with technology- so how hard could workplace tech really be? I figured I’d have this stuff down in a couple of days.

I was so wrong…

My first week was about as overwhelming as finals week just before graduation.  I quickly realized how much time I had to dedicate to fully understand the software at DWM before I could even think about wealth management.  The success of any business begins with efficient and consistent internal practices; and in today’s age, efficiency starts with utilizing technological advances.

Day-to-day processes are a little different at a boutique firm compared to a large business.  A small company doesn’t have the luxury of calling the IT department when something is off, making it very tempting to ignore certain problems and just send an email, or make a quick phone call- it’s easy and on the surface seems harmless.  This is where firms focused on having well-defined processes separate themselves.

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If you take a look at the image above, you will see four levels of how to optimize a CRM (Contact Relationship Manager), and thus, the client experience overall.  Firms interested in continuous improvement look for ways to further optimize the yellow areas shown above, this means no shortcuts because we have seen what a difference it can make for clients.  In general, a firm cannot get to the 4th level (yellow) until the first three levels have been mastered.  DWM is proud to be a member of the “yellow club.”

Junxure, our CRM, is one of five major software systems we utilize, the others include Schwab (investments, research & trading), MoneyGuide Pro (financial planning), Orion (portfolio management), and of course- Outlook (email). So as you can imagine, there are many complicated/time-consuming projects we deal with on a weekly basis.  A single project may involve multiple email exchanges and all 5 systems!

Not to worry.  All five systems are integrated within one another at DWM.  To go along with this, we also make use of a process within Junxure known as “workflows.”  There are two types of workflows utilized at DWM, systematic and recurring.  The first type, the systematic workflow, is a step by step checklist of tasks.  Within this workflow, a team member activates a specific action which triggers a chain of events.  As one task is complete, the next is automatically assigned.  Systematic workflows can consist of just one team member or everyone at the firm.  The second type, the recurring workflow, is only entered once and assigned to specific team members at predetermined dates. An example of a recurring workflow, is something most clients will eventually utilize: money links.  This is an automatic withdrawal from a client’s Schwab investment account into their bank account.  Mostly utilized by retirees to replace income received during employment, money links are a great way to keep the appropriate amount of cash on hand while the rest of your portfolio compounds and grows in diversified investments.  For example, let’s say a client wants $1,000 withdrawn from their account every month.  We would then set up a money link with Schwab and record a workflow within Junxure.  Now, before every automatic withdrawal, a specific team member will get an action to ensure the account has sufficient cash to complete the money link.  If it does not, the team member will give our Portfolio Manager a due date and instructions within Junxure to raise cash before the money link is executed.  As the due date approaches, the action automatically moves further up on his/her to-do list.

DWM has shown me how important utilizing technology is and how much more efficient it makes everything.  I now get excited when I hear about a new update within one of our five systems because I know it is created to benefit not only our job, but more importantly, the overall client experience.

Two Suggestions for Your Personal Well-Being

women well beingMany people make New Year’s Resolutions.  How about adding a couple of good ones mid-year?  At DWM, we’re focused on both your financial and personal well-being.  Therefore, we’d like to suggest you consider two resolutions-spending more time in nature and less time sitting.  Each can provide huge rewards for you and your family.

Spending More Time in Nature.  In May of 2013, more than 10,000 Canadians participated in a 30×30 Nature Challenge spending 30 minutes in nature, every day, for 30 days.  The impact on the participants was:

  • Increased sense of well-being
  • More energy
  • Feelings of stress and negativity were reduced
  • Less sleep disturbances
  • Felt more productive on the job
  • Felt happier

Other benefits from more time in nature can include increased creativity, lower risk of cancer and other diseases, improved immunity, more spiritual benefits and less depression.

There are some scientific reasons these occur:

  1. Exposure to plants and parks provides increased immunity. One reason is the existence of the chemical phytoncides which plants emit to protect themselves from rotting and insects and which benefits humans.  In Japan, there is therapeutic practice called “forest bathing.”  These regular forest walkers have been shown to exhibit lower concentrations of cortisol (a stress hormone), lower pulse rate and lower blood pressure.
  2. Sunlight is beneficial. When sunlight hits your skin, it starts a process to create and activate Vitamin D.  This vitamin helps to lower the risk of osteoporosis, cancer, and heart attacks.  Light skinned individuals need about 10 minutes of sunlight each day, while dark skinned individuals may need 15 to 20 minutes.
  3. Studies show that spending just 20 minutes in vegetation-rich nature improves vitality.
  4. A study done in 2012 revealed that a group of backpackers were 50% more creative after four days on a hiking trail.
  5. Research demonstrated that performance on memory and attention tests improved by 20% after participants took a pause for a walk through an arboretum.
  6. Green is good. If you live near a green space, you’re less likely to be depressed.  German researchers in 2012 concluded that simply focusing on a green cube for a few seconds can trigger greater creativity than cubes of other colors.

Sitting Less.  There was a time when standing desks were a curiosity; used by folks like Hemingway, Dickens and Rumsfeld.  Now research has shown that the cumulative impact of sitting all day for years is associated with increased risk of obesity, diabetes, cancer and cardiovascular disease.  Sitting has become the new “smoking.”

One study showed that men who sit six hours or more a day have an overall death rate 20% higher than men who sit for three hours or less.  For women, it’s 40%.  And, think of this:  a gym workout won’t cancel out the effects of sitting for long hours.  When you sit in your chair, in the office or at home, your metabolism drops to 1/3 of the rate when you are walking.  Standing burns about 50 calories more per hour than sitting.  The American Cancer Society’s recent report showed that people who stand for at least a quarter of the day reduce their chances of becoming obese.

Many of you know that I developed “laptopitis” five years ago.  I was hunched over my laptop for long hours a day for 3 weeks straight on client projects.  My back and my body didn’t like it one bit and after seeing my general practitioner, a chiropractor, having an MRI and few other diagnostics, the basic solution was that  I needed to stop sitting and get my working space in order.  I bought a desk that moves up and down.  I changed my monitors so they were eye-level.  I bought an ergonomic keyboard and mouse.  These days, I stand most of the day and love it.  In fact, Ginny and Sam in Charleston are now part of the “standing generation.” Both have desks that move up and down and we all use gel mats and wear comfortable shoes.  My wife Elise has converted her home office space to allow her to stand and view her monitor at eye level when she is working.

Hopefully, many of you will take or have already taken a vacation this summer. Think about how good you will feel or have felt while on vacation as you are next to nature, active and not sitting.  By incorporating some of the ideas above you can extend that “vacation high” when you get home by spending more time in nature and sitting less.  It should increase your feeling of well-being, which will make you and us very happy.

DWM 2Q16 Market Commentary

brett-blogWe’ve eclipsed the half way point of 2016; kids are out of school, people are gearing up for vacations, and temperatures are soaring. There are a couple more amazing things of note: 1) It’s July and the Cubs are still in 1st place! 2) Given all the uproar about everything from interest rates to oil to the election and to, most recently, Brexit; investor returns in general are not only positive, but pretty decent.

Think about it: we’ve been bombarded with negative news all year and the second quarter was no different. We had terrorism issues not only abroad, but here on American soil. We had job creation falter with May readings showing the worst month of employment gains since 2010. There’s economic weakness abundant around the globe. To top everything off, on June 23, we had Brexit – the UK referendum that shocked many when results showed more votes to actually LEAVE the European Union than remain! A sell-off in stocks ensued and had some feeling like it was 2008 all over again.

Well, it wasn’t. Markets reversed and many equity benchmarks are actually higher at this time of writing than they were before Brexit. (For more on Brexit, see our last week’s blog by clicking here.) In fact, in the US, the S&P 500 ended the week after Brexit up 3.3%, finishing the quarter with a 2.5% gain. In Europe, the EuroStoxx600 and the FTSE100 finished the week up 3.2% and 9.9%, respectively, in an apparent turnaround of investor confidence.

Investors also flocked to bonds during the quarter and even more so since the Brexit vote, with bond yields setting lows around the world. The Brexit vote actually helped solidify investors’ expectations for global central banks to keep rates down. And since yields move inversely to bond prices, bond investors did very well during this time period.

Let’s look at some numbers:

Fixed Income: The Barclays US Aggregate Bond Index, the most popular bond benchmark, was up 2.2% and now up 5.3% for 2016 – not many would have predicted that at the start of the year. Really almost everything within bond land did well. Corporates, in particular, did great as evidenced by the iBoxx USD Liquid Investment Grade Index registering 4.1% for the quarter & now up 9.0% YTD.

Equities: The MSCI AC World Equity Index registered +1.0% for the quarter and is now up 1.2% on the year. With the Brexit vote, European stocks struggled (MSCI Europe down 2.7% for the quarter & down 5.1% YTD), but emerging markets have done quite well with the MSCI Emerging Markets Index up 0.7% for the quarter and now up 6.4% YTD.  In terms of domestic cap style; in general, mid cap has outperformed small cap which has outperformed large cap. And value continues to outperform growth in a big way this year.

Alternatives: The Credit Suisse Liquid Alternative Beta Index aims to replicate the returns of the broad hedge fund universe using liquid securities.  It came in -0.7% for 2q16 thus indicating that those type of alternative strategies didn’t fare as well as some of the other alternative strategies we follow. For example, it was another stand-out quarter for gold* (+7%), real estate** (+3%), and MLPs*** (+19%). These alts are all up big YTD as well (24%, 9%, 11%; respectively).

So, a diversified investor with exposure to the three major asset classes may see returns somewhere between 3 and 5% for this first half of 2016 – 6-10% annualized – amongst all this so-called uncertainty.  Not bad!

We are also cautiously optimistic about the second half of 2016, however, the negativity and the uncertainty (CNBC’s word of the year so far) will definitely continue:

  • Brexit has really only started – this may take over two years to play out and even though Brexit fears have been shrugged off for now, they could come back. Clearly, European GDP and thus global GDP will be affected.
  • Central banks could be running out of ammunition if things do indeed get worse. Interest rates are NEGATIVE in Europe and Japan. How low can they go? And how much fire power really remains?
  • Here in the US, inflation remains well below the Fed’s 2% preferred target.
  • China growth problems and oil price volatility could resurface.
  • Profits at companies in S&P500 have fallen for four consecutive quarters and are expected to fall another 5% this quarter. Hard for stock prices to continue to go upward in that type of environment.

So, why be cautiously optimistic? There is some positive economic data out there including:

  • US consumer confidence is strong.
  • Retail sales continue to escalate steadily.
  • The Case-Shiller Home Price Index reported an April rise of 0.5%, with prices increasing on a seasonally adjusted basis in most cities.
  • There are pockets of strength to be found here in the US and around-the-world. Lots of exciting opportunities abound that keep hungry investors and companies enthusiastic!

Like we have said before, the key is to stay disciplined to your diversified game plan. Stay invested in accordance to a long-term asset allocation target mix which is in-line with your risk tolerance, and don’t let emotions control you. Unfortunately, that can be difficult to do on your own or if you have improper assistance.  On the other hand, if you have an independent, unbiased wealth manager like DWM, they can help you accomplish this by making the appropriate changes when and where necessary to lead you to the higher ground. Let us know if you have any questions on the way.

  • *represented by iShares Gold Trust
  • **represented by SPDR Dow Jones Global Real Estate
  • ***represented by Alerian MLP