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DWM is committed to learning for its team, clients and friends. In this changing world, it’s extremely important to stay current in all areas impacting your financial future.

We encourage all of team members to “drill down” on current topics important to you and contribute to our weekly blogs.  Questions from our clients and their families are often featured in our blogs.  

Financial literacy for clients and their families is very important to us.  We generally hold an annual wealth management seminar for all of our clients.  We encourage regular, at least semi-annual, meetings in person with our clients to review family updates, progress on financial goals, asset allocation and performance of investments.  We’re happy to assist younger members of the family as part of our total wealth management program.

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DWM 1Q18 MARKET COMMENTARY

Written by Brett Detterbeck.

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In our last quarterly commentary, we cautioned not to get complacent, overconfident, or “too far out over your skis”. It’s ironic how just three months later, many investors’ emotions are just the opposite: unsure, cautious, and even scared. And rightly so, given the extreme up and downs for the first quarter of 2018. The stock market was in a classic “melt-up” state in January, only to quickly drop into correction territory in early February, then bounce and fall and bounce again from there. Yes, as I mentioned in my February 12th blog, volatility is back and here to stay (at least for the near future)!

Before looking ahead, let’s see how the major asset classes fared in 1Q18:

Equities: The S&P500 had its first quarterly loss since 2015, falling 0.76%. On the other side of the globe, developed countries also suffered, evidenced with the MSCI AC World Index registering a -0.88% return. Emerging markets were a stand-out, up 1.28%*. In a turn of events, smaller caps significantly outperformed larger caps. Much of this has to do with the trade war fears, i.e. many feel that smaller domestic companies will be less affected than some of the bigger domestic companies that rely on imports. Growth continued to outperform value. However, that gap narrowed in the last couple of weeks with some of the biggest cap-weighted tech names getting drubbed, including Facebook because of their user-data controversy and Trump’s monopolistic tweets at Amazon.    

Fixed Income: Yields went up, powered by increasing expectations for growth and inflation in the wake of the recent $1.5 trillion tax cut. The yield on the 10-year Treasury note rose from 2.4% to 2.7%. When bond rates go up, prices go down. So not surprising the total return for the most popular bond proxy, the Barclays US Aggregate Bond Index, showed a 1.46% drop. Fortunately, for those with international exposure, you fared better. The Barclays Global Aggregate Bond Index rose 1.37%, helped by a weakening U.S. dollar (-2.59%**) pushing up local currency denominated bonds.

Alternatives: The Credit Suisse Liquid Alternative Beta Index, our chosen proxy for alternatives, was down 1.72%. Losers in the alternative arena include: trend-following strategies, like managed futures (-5.08%***), that don’t do well in whipsaw environments like 1Q18, and, MLPs, which were under duress primarily due to a tax decision which we think was overdone. Winners include gold****, which was up +1.76% for its safe haven status, and insurance-linked funds† (+1.60%), which have hardly any correlation to the financial markets.

In conclusion, most balanced investors are seeing quarterly losses, albeit small, for the first time in a while. So where do we go from here?

Inflation concerns were the main culprit to the February sell-off, but there are other concerns weighing upon the market now: fears of a trade war brought on by tariffs, escalated scrutiny of technology giants, new Fed leadership, increasing interest rates, stock valuation levels, and a bull market long in the tooth in its 10th year.

Opposite these worries is an incredibly hot economy right now, supported by the tax cut which should boost corporate earnings to big heights. In fact, FactSet has projected earnings for S&P500 companies to increase 17% in 1Q18 from 1Q17!

And, whereas there has been much dialogue regarding how the S&P500 has been trading at lofty valuations, the recent move of stock prices downward has really been quite healthy! It has put valuations back in-line with historical averages. In fact, the forward 12-month PE (Price-to-Equity Ratio) of the S&P500 at the time of this writing is almost identical to its 25-yr average of 16.1. International stocks, as represented by the MSCI ACW ex-US is even more appealing, trading at a 13.3 forward PE.  

We don’t think inflation will get out of hand. Even with unemployment around all-time lows, wage growth is barely moving up. So we doubt that we’ll see inflation tick over 2¼%. That said, we do think the Fed will continue to raise rates. Frankly, they need to take advantage of a good economy to bring rates up closer to “normal” so that they have some fire-power in the event of future slow economic times. But that doesn’t mean they’ll be overly aggressive. The new Fed Head, Jerome Powell, like his predecessor, most likely will be easy on the brakes, keeping focus on how the Fed actions play off within the market.

Put it all-together and it seems like we’re in a tug-of-war of sorts between the positives and the negatives. At DWM, we feel like the positives will outweigh the negatives and are cautiously optimistic for full year 2018 returns in the black, but nothing can be guaranteed. The only couple things one can really count on are:

      1. Continued volatility. After an abnormally stable 2017 that saw little whipsaw, 2018’s volatility is more reminiscent to the historical average of the last few decades. Back to “normal”.
      2. DWM keeping its clients informed and embracing events as they unfold, keeping portfolios positioned and financial plans updated to weather what’s next.

Here’s looking to what 2Q18 brings us!

Brett M. Detterbeck, CFA, CFP®

             DETTERBECK WEALTH MANAGEMENT

 

                *represented by the MSCI Emerging Markets Index

                **represented by the WSJ Dollar Index

                ***represented by the Credit Suisse Managed Futures Strategy Fund

                ****represented by the iShares Gold Trust

                †represented by the Pioneer ILS Interval Fund

 

 

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Our Children Are Our Future

Written by Les Detterbeck.

students marchThis Holy Week in the Christian world is an excellent time to put last Saturday’s “March for Our Lives” in perspective. While millions of Americans found the marches for gun control inspiring, many others were skeptical wondering “What do these kids know?”  Older people have been groaning about the young in politics for centuries.  Yet, in the late 19th century, during a very dark political time for the U.S., the young people helped save democracy.  Can they do it again?

Young people have always been involved in American politics, primarily as unpaid labor doing work behind the scenes; making posters, handing out campaign information, running errands and other unglamorous jobs.  The young were never allowed to champion themselves or their opinions, being told by established politicians to simply follow the party’s platform.

At the end of the 19th century, according to John Grinspan, Smithsonian historian and author, young people cried out to be heard on their issues.  A new generation of young people denounced current leaders and partisanship.  They demanded reforms.  In 1898, one New Yorker summarized their movement as “the younger generation hates both parties equally.”

At the start of the 20th century, the youth movement put an end to extreme polarization; forcing both parties to pursue its issues and concerns.  Independent young voters became a decisive third force, with enough clout to swing close elections.  Politicians supported them and their agenda, creating the Progressive Era, which included cleaning up cities and passing laws protecting workers.  Though unable to personally vote, women played a key role.  Women worked to refocus American life toward social issues, built schools and fought child labor.

Mr. Grinspan argues that the key to understanding youth politics is that young people can’t “focus simply on benefits for the young.”  Youth is temporary and gains are passed on.  The high school seniors who marched Saturday across the country will hopefully make their schools safer well after they have graduated.  Mr. Grinspan concludes that the young should set the nation’s political agenda as they will be here much longer than the rest of us.

Today’s young have much work to do.  The solutions the marchers want certainly depend on winning elections.  Ultimately, it’s not about standing up to be heard, but about accomplishing political change.  These kids didn’t spontaneously emerge from Florida a month ago.  They and millions like them were born after 9/11.  They have grown up with the worry of guns in their classrooms and the threat of terrorism for their entire lifetime.  Many have perceived that our grown-up generations have been stripping our nation’s resources, allowed or assisted in the destruction of the middle class, added trillions of dollars of debt to our nation’s finances and have allowed politics to sink into tribalism.  They’ve been watching us and our mistakes and they’ve decided it’s not for them.  We all have much to learn from these children and their perspective and they deserve our support.

In honor of Holy Week, it seems a very appropriate time to read Matthew 19:13-14 (from the new living translation): “Then the little children were brought to Jesus for Him to place His hands on them and pray for them; and the disciples rebuked those who brought them.  But Jesus said, ‘Let the children come to me.  Don’t stop them!  For the Kingdom of Heaven belongs to those who are like these children.’”

DWM wishes you and your family a wonderful Easter weekend!!

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Data Breach Deja Vu

Written by Grant Maddox.

facebook-data-dislikeSocial media behemoth Facebook landed itself in hot water this week when it was revealed that the company allowed a third-party firm to gain access to user data. This latest scandal comes amid a slew of serious data concerns and shows just how careful we need to be with our information in this digital age. In the world of mobile devices, social media, and the cloud, it can be disconcerting to think that your personal information might just be floating around out there.

The data firm, Cambridge Analytica (CA), accessed information from tens of millions of Facebook users without their permission and “improperly” stored this data for years, despite CA’s claim that the sensitive data had been destroyed. Furthermore, CA, who is known for supplying marketing data for political campaigns, is believed to have harvested this information for political campaigns after 2013.

According to the Wall Street Journal, Facebook bears a huge amount of blame for allowing CA to get its data to begin with. However, reports calling CA’s data harvesting a “leak,” a “hack,” or a serious violation of Facebook policy are all, unfortunately, incorrect. All of the information collected by the company was information that Facebook had freely allowed app developers to access.

Now, an investigation is being launched to find out exactly who knew about this large-scale improper data usage and when they knew about it. According to Facebook, this serious slipup should not be considered a data breach, because the data firm abused user data that was openly shared with third parties. However, I think we can all agree that sharing user data with third-party firms opened up the floodgates for illegal data breaches and abuse of personal information - as seen by Equifax in June of 2017.  While Facebook’s stock takes a nosedive and the company tries desperately to get out in front of this PR nightmare, the rest of us are left reflecting on how our sensitive data is being handled and what measures are being taken to protect it.

As a common rule of thumb, it should be noted that you should never keep sensitive information on any social media platform. This includes but not limited to phone numbers, addresses and even email addresses. While your email address, and sometimes phone numbers, are needed for the account setup in many social media platforms, this information should never be made viewable by friends or followers on any social media platform

With DWM, you don’t have to spend any sleepless nights wondering about how your personal and financial information is being handled. Our firm and our preferred custodian, Charles Schwab, would never jeopardize our clients’ information by handing out data to third parties. You can feel confident knowing that your information will never be released to any outside parties for any reason (except with your explicit permission).

You may want to consider deactivating your Facebook account, but you can rest assured that your financial information with DWM is safe and secure.

 

 

 

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