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·         Earnings season got started on the right foot with Alcoa, the company that traditionally reports first, handily beating expectations and then company after company following. That is not to say that all companies beat expectations, but many surprised to the upside. Standard & Poor’s now expects earnings for the S&P 500 companies to come in at $29.12 for the second quarter which is a 10.4% improvement over the $26.36 during the same period last year.  S&P is projecting total earnings for 2014 at $119.18 versus $107.30 for 2013, or an increase of 11%. The projection for 2015 is $136.50 which translates into a 14.5% increase. Even if the numbers work out this way, it may not translate into a big gain in the equity market between now and the end of the 2014.  At a multiple of earnings of 17 times, it would suggest that the S&P 500 would finish at about 2,026 which is about 3% higher than where it is today.  Looking at next year’s earnings, the S&P 500 would be at 2,320 using the same multiple. The market has a funny way of fooling investors, however, and only time will tell how these numbers pan out. Remember, it is all about earnings in the long run. 

·         A few weeks ago, in what can be described as nothing less than "very interesting", the Department of Treasury promulgated the rules for using a Deferred Income Annuity within a retirement plan. What in the heck is that?  In a Deferred Income Annuity an investor sets aside a lump sum of money and does not withdraw it until a future date in retirement; typically age 75 or 80. It's almost like having an insurance policy to make sure that you never run out of money and is sometimes referred to as “longevity insurance”. So what's the big deal? The Department of Labor will allow any IRA owner and/or defined contribution participant to invest up to 25% of the account balance within these accounts up to a maximum of $125,000 per account in a deferred income annuity. If the owner/participant dies before the annuity starts, the money can be paid back into the retirement account(s) and then is subject to the normal distribution requirements of a beneficiary. The owner/participant can contribute to this on a payroll deduction basis or can make a lump sum at any time. Should the owner/participant put too much into the annuity, the excess amount can be withdrawn without penalty or disqualification of the contract. If you think you have good genes and/or are in great health and are going to live a long time, these annuities may be a way to give you some peace of mind. 

·         In the mid-1930s, workers spent a mere 400 days building the Empire State Building. It took more than 3,600 days to wade through the red tape and politics and complete the replacement for the Twin Towers. The country built the 47,000-mile Interstate Highway System in 35 years. But 34 years after Maryland decided to build a 19-mile Intercounty Connector, that stretch of highway is still under construction. 

·         Through July 30th, the Russell 2000, a benchmark for small company stocks, has fallen by about 1% while the S&P 500, a benchmark for large company stocks, has risen about 7%. This sort of divergence hasn’t happened too often in modern times. In fact, the small cap index has underperformed the large cap index in only two calendar periods since 1999. 

·         It was four years ago that the Dodd-Frank Bill was passed to create the financial reform in response to the events leading to the Great Recession. It was designed to put protections in place for investors through both law and regulation. Yet, here we sit with many parts of the Bill hardly touched by the various agencies involved, let alone implemented. As an example, the Bill called for a study to determine if “financial planners” needed to be regulated. Some people in financial services do not want to call themselves what they are, i.e., life insurance agent, stock broker, etc., so they would rather be called “financial planners”. This has led to confusion on the part of the public about who really is a financial planner; if you will, it is the wolf hiding in sheep’s clothing in many cases. Regulation of financial planners, and the use of the term, died because of powerful people (aka people with money) in industries that preferred to hide who they really are. Then there is the famous provision to require the SEC to determine if there should be a unified fiduciary standard (put the client’s interest ahead of your own if you are a financial planner, stock broker, financial advisor, life insurance agent, etc.) that is “no less stringent” than the fiduciary definition which has grown around the Investment Advisor’s Act, which ProVise is bound to. In short, do the right thing for the client, not yourself or your boss. This common sense approach to deal with clients at a fiduciary standard of care still can’t get through the SEC. Go figure. The public expects the people advising them to put their interests first. Firms like ProVise actually do. 

·         The S&P 500 had gone62 trading days (through and including Wednesday 7/16/14) without experiencing at least a 1% gain or loss (change based upon daily closing value of the index) before the index dropped 1.2% on Thursday 7/17/14. The 62 days without a “1% change day” was the longest stretchthe S&P 500 has gone without a 1% change since the index went 95 days (ending on 12/01/95) without a 1% gain or loss.  (Source: BTN Research) 

·         Inflation increased during the month of June at a rate of 0.3%, led by higher gasoline costs, which more than offset lower food costs. Over the past 12 months, inflation was up 2.1%, and when you exclude food and energy it was up 1.9%. The Federal Reserve would like inflation to average about 2 - 2½%. The good news is that gasoline prices have been coming down the last three weeks so we might see some good numbers on inflation for July. If inflation begins to set into the economy, it is likely that the Federal Reserve will increase interest rates sooner rather than later. Most people today believe that interest rates will not start going up until the first quarter of next year and perhaps as late as next summer. Higher interest rates are not necessarily a bad thing, as rate increases likely mean the economy is improving. But, if rates rise too quickly, it could dampen things quickly.  We are still not seeing wage inflation across the broad economy, but it is beginning to show up in some of the lower paying jobs.  (Source: Department of Labor) 

·         What took six years, several proposals and 1,400 comments to finally end in a 3 to 2 vote by the SEC Commission? Money market fund reform at the institutional level. Last week the SEC allowed institutional funds to “float” their net asset value rather than force them to keep it at $1.00 a share even though some of the investments might be underwater. All of this, of course, was in response to the financial crisis in 2008 when there was a run on some institutional money market funds. The new rules do not apply to retail money market funds or government funds which fared much better during the financial crisis. In addition to floating the NAV, the money market fund Board can institute redemption fees to discourage the run and further, in times of stress (whatever that means), even prohibit withdrawals altogether. We're not sure how all of these rules will actually play out in a financial crisis, and let's hope we never have to find out. 

·         So would you like to reach age 100? Most of us might answer it by saying, "it depends". It probably depends on how healthy you are and what your mental acuity might be. The BMO Wealth Institute on behalf of BMO Harris Financial Advisors (remember this later) recently issued a report entitled "The Four Keys to Longevity". The report speaks to "keys" that are important, and like many studies looked to the Mediterranean for those keys. Specifically, they studied the residents on the Greek island of Ikarian (wherever that is). The first is "the master key" and refers to the body which requires a good diet. Okay, how many times have you heard about the Mediterranean diet? The second key is "the fundamental key" and refers to the mind. It seems that these Greek residents have a tendency to keep themselves active and they don't refer to physical work as exercise. The report made a point of stressing the importance of not smoking and getting good aerobic exercise to cognitive function. An active mind either involved in work or volunteer service was important along with a large social network. In other words, "use it or lose it". The third key is called "the key to enjoying life". It seems that when people retire they often lose their social circles and this can lead to depression and a decline in overall health. Expanding on a hobby or perhaps doing part-time work is one way to maintain some happiness. Just as a strong social network helps keep the mind sharp, it was also important to simply enjoying life in general. People who had happiness generally had less stress and all of its bad effects. The fourth key is the "key to success". We have to admit that where this ends by suggesting that people with a financial advisor live longer was a bit self-serving to the survey. Those with more wealth and therefore greater financial security tended to live longer.  (Source: Think Advisor) 

·         This week, the Federal Reserve Board met and reduced the bond purchases one more time by $10 million. By fall, the Federal Reserve would be out of the bond buying business altogether. Over the course of this program they have created a significant amount of money and placed it into the economy. This has likely helped soften the blow from the still lingering financial crisis. The first question might be whether the economy can stand on its own without these bond purchases, and that's where interest rates come into play. Soon all of the attention will turn to interest rates as conflicting signals have been offered by different Federal Reserve Board members about when rates will go up and how fast. Although inflation has recently been a little higher than the past several years, by no means is it out of control. We still believe that, until wage inflation occurs, it is unlikely that there will be a significant increase in interest rates from the Federal Reserve. More people are being employed but many of them only on a part-time basis and thus there has been very slow growth in wages. We have to keep an eye, however, on job growth. The unemployment claims last week where the lowest since February 2006. The jobs report for July will come out on Friday. While anything can happen, we wouldn't anticipate rising interest rates until next spring at the earliest. 

·         At a seminar sponsored through the American Institute of CPAs, they presented their top 10 critical issues for retirees and financial planners. They are listed in no particular order, and we're not making any editorial comments: higher health costs; longer life expectancy; balancing risk and return; enjoying retirement; withdrawal strategy; monitoring expenses; Social Security uncertainty; when to file for Social Security; estate planning; and long term care needs. 

·         You can now follow us on twitter by going to and follow us at @pro_vise. We will use twitter to supplement the Bullets as the news warrants. We look forward to providing this valuable service.


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.




©7/31/14 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.

S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general.  You cannot directly invest in the index.


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