· It is with great pleasure that ProVise recognizes Bruce Fyfe, CFP, Executive Vice President, on his selection by the Invest in Others' Foundation as the recipient of the 2013 Community Service Award. Over 200 financial planners were nominated for this award and Bruce was among three finalists. He was recognized for the work he has done at Homeless Emergency Project (HEP) and more specifically the recent work that HEP has done to help veterans suffering from post-traumatic stress syndrome. On Thursday, September 19th, accompanied by his wife, Wanda, and supported by Eric and Ray, he was chosen number one amongst the three finalists. Anyone who knows Bruce understands it isn't about the recognition; it's about the young men and young women who need assistance during this troubled part of their life. Nonetheless, we can't express how proud we are of his accomplishments not only at HEP, but all of the not-for-profit organizations that have had the benefit of his time, talent, and treasure. Way to go Bruce!
Effective October 1st, the health exchanges are open for business and enrollment can occur over the next 90 days. It will be interesting to see just how many people feel compelled to sign up under the individual mandate. While the premiums are not inexpensive for most of the eligible people, many will receive tax credits to help offset the cost. Nonetheless, others will find it a significant burden to the budget, and there is great debate over just how this will affect the economy long-term. And, ObamaCare is having an effect in many other ways. A few weeks ago, IBM announced that 110,000 Medicare eligible retirees will no longer be part of the IBM medical plan. Instead, they will be given a cash stipend to allow them to purchase a Medicare supplement policy in the open market or join a Medicare Advantage plan. This has been a growing trend among large corporations and you can expect to see this accelerate.
· So can anyone tell us where the first three quarters of the year went? It seems that we just finished second quarter earnings, but in just a few days the third quarter numbers will start flowing. We expect them to be modestly higher than expected, not so much because companies will be doing that much better, but more because of the very negative sentiment currently in the marketplace. Over the past 20 years, the S&P 500 Index produced a total return of +145.4% during the fourth quarter versus the other three quarters combined return of 97.6%. While there is obviously no guarantee that the fourth quarter will be positive, it does seem that the fourth quarter has a lot going for it. In 10 of the last 12 years, October and November, along with April, have produced the best monthly results for the Index. The best month so far this year is January with a 5.2% positive result. (Source: BTN Research)
· In 2012, it took $114,000 of household income to be in the top 10% of income earners. The top 10% had 48.2% of all income which was an increase of about 1.5% from 2011. The top 1% required household income of $394,000 which represented 19.3% of all household income. Statistics like these will continue to foster the debate about a disparity in wealth in the United States between the haves and the have nots. Because household income includes investment income, it's not too surprising to note that the wealthiest 1% saw their incomes decline during the Great Recession three times more than everyone else. Conversely, they've seen the greatest increase in the recovery. (Source: University of California at Berkeley; Paris School of Economics; Oxford University)
· It is amazing to us that the Department of Labor has once again “delayed” rules about a fiduciary responsibility on the part of a financial advisor to a retirement plan like a 401k. While most plan sponsors (companies) believe that the financial advisor is acting in their best interest, which is what a fiduciary must do, the fact is most do not; nor do they want to act as a fiduciary to the plan because of the heavy legal issues and responsibilities that come with being a fiduciary. As a result, they do not have to disclose conflicts of interest (and there are plenty in many plans), how much they make, and by whom they are compensated, nor whether they are using proper investment choices. Even the employees, according to a survey by AARP, overwhelmingly were concerned that the advisor was not giving them unbiased advice. If you are an employer with a 401k it would likely be in your best interest to do a fiduciary audit to get the answers to these and other questions. Through one of our divisions, we provide this service at a fiduciary standard of care. Please give us a call to chat about it. You will be surprised at the results.
This is all getting a little boring as Bill Gates was recognized as number one on the Forbes List of 400 Wealthiest Americans for the 20th year in a row. When he was first given this distinction, he had a mere $6 billion fortune that has now grown to $72 billion, in spite of the $28 billion he has given away. Yes, Bill's good philanthropic partner, Warren Buffet, came in second with $58.5 billion. Rounding out the top three spots was Larry Ellison, co-founder of Oracle, who has $41 billion in net worth.
· Well, the Federal Reserve found itself even more in the news this month than usual. First, Larry Summers, who was President Obama's first choice to replace Ben Bernanke as Fed Chair next February, withdrew his name from consideration. It wasn't like he had a choice as numerous Democrats and Republicans, in a rare display of unity, opposed the potential nomination. The President tried very hard to get Senators on board to support Summers. In the end, however, it would have cost an unbelievable amount of political capital which the President needed to save for the budget and debt ceiling discussions. Summers is a really smart individual, but his brash, candid style caused him to say and do some really stupid things over the years. As we pointed out last spring, we thought the best and most likely person to get the nod would be Janet Yellen; that now appears to be a lock. A few days after all this, the Fed announced that it was keeping short term rates at their current level and, in a move that surprised almost everyone, decided not to begin tapering on the $85 billion bond purchases. They cited, among other things, the lack of Congressional fortitude to arrive at a compromise on the budget and debt ceiling. Isn’t that ironic… having the Federal Reserve blame Congress if something happens to the fragile economy.
· As we noted about a month ago, September has historically been the worst month for the markets, but it also seems to be a month with big financial news. Ten years ago, an ambitious young Attorney General for New York made headlines with accusations that Bank of America's mutual fund subsidiary, Nations Funds, was permitting certain hedge funds to engage in "late trading", or said another way, they received very preferential treatment over average investors. This all led to a huge mutual fund scandal of after-hours trading and market timing activities among many large well know fund families. Then five years ago we had the fall of Lehman Brothers which sent the markets into a tailspin that didn't bottom until early March of 2009. In the process it created terms like TARP, quantative easing, Dodd-Frank, tapering, and many more terms than we have space for. We have come a long way in these brief past five years, but we are not back to the growth we want. When you think about how sick the financial world was, it shouldn't surprise anyone that it’s taking longer this time.
· On September 23rd, the first change since June 2008 in the 30 companies which represent the Dow Jones Industrial Average (DJIA) was made. Getting the boot were Alcoa, Bank of America, and Hewlett Packard. They were replaced with Goldman Sachs, Nike, and VISA. IBM remains the largest company in the DJIA, but VISA moves into second place. When changes like this happen, adjustments are made so that the DJIA's value remains the same. For you historians, the DJIA was first calculated in 1896 with only 12 companies. General Electric is the only original company still in the DJIA.
· The last thing we want to do is to jinx a good thing, but as we close out the third quarter of 2014 some reflection is needed. As of the end of September, the S&P 500 is up 19.79% for the first nine months of 2013. This is better than the index's actual performance in 12 of the last 14 full calendar years. Of course, there are still 90 days to go. Over the past 50 years when the stock market has gained 20% or more in a given year, it has been followed by an average total return of 11.9%. The market has not produced a 10% or greater drop in the S&P 500 index for 727 calendar days. This is the fifth longest period without a double-digit pullback over the past 50 years. As we have stated many times, a 10% pullback is part of a normal healthy bull market. It reminds investors that there is still risk, and it takes the weak hands out of the market. The longest stretch without a 10% pullback, however, during that same 50 year period was 2553 calendar days which ran from October 11, 1990 through October 7, 1997. (Source: BTN Research)
· Well the Republicans have done it to themselves again by not being able to find a way to pass a budget without a declaration to defund ObamaCare. This stalemate has led to a shutdown of non-essential services of the US government. It is likely that the shutdown will be short, but it certainly won't be sweet. The last time the Republicans tried this in 1995, they paid a huge price in the following elections letting the Democrats take control. We will have to wait until next November to see if something similar happens. Coming up soon will be the debt ceiling debate, and while we expect it to go to the 11th hour, we don't expect it to cause the US to default. Nonetheless, it will cause the markets to be shaky. Don't the politicians remember what happened the last time they played this kind of brinksmanship? What are they thinking – if they are thinking at all?
As always, we encourage you to give us a call if you would like to discuss anything further. We will visit again soon. Proudly and successfully serving our clients for over 27 years.
RAY, KIM, ERIC, BRUCE, LOU, NANCY, TINA, JON, STEVE, and DOROTHY
© 10/1/13 ProVise Management Group, LLC
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Dow Jones Industrial Average - The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy.
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