Tag: Business & Finance

According to marriage.com, money is one of the top reasons couples cite when filing for divorce. Money and investments are emotionally tense – after all, although money can’t buy happiness, it does make the world go around and give you choices. With the recent stock market volatility, and all the emotion’s volatility evokes, I thought it might be time to confess that even professionals experience moments of uncertainty. Below are a few times I had to rely on my training to overcome my emotional bias towards making some common financial mistakes.

1) Making asset allocation decisions based on current market conditions. Although my children might argue otherwise (my youngest has drawn pictures of me, thoughtfully including my many forehead wrinkles!), my wife and I are relatively young. We won’t be tapping into our retirement accounts for at least another 25 years. With such a long investment time horizon, we should be invested entirely in equities. And yet, as the market continued to climb to new heights, I started to question if perhaps we should “take some gains off the table.” This is not uncommon – behavioral finance researchers have found that the emotional pain of losing $1 is far greater than the joy derived from gaining $1 – so we are wired to try to protect our gains. Although it would be painful to see the value of our investments halved (as happened from the peak in November 2007 to the bottom in March 2009), because we don’t need to tap those assets for at least 25 years, we chose to maintain our current asset allocation strategy, and will modestly reduce our exposure to equities as we get closer to retirement.

2) Negatively arbitraging our assets. For clients who are still working, we recommend keeping roughly 3-6 months’ worth of expenses liquid – in a savings account, or money market fund – to be tapped for emergencies. Funds above and beyond that amount can be invested (example: real estate) or used to pay down debt. And yet, I took great comfort in seeing our savings account balances grow beyond our emergency fund, even though we were only earning 1.5% on our savings. Having a large cash balance provided me with comfort but didn’t make sense. We decided to put the additional funds toward buying more real estate.

3) Being underinsured. I will never forget the absolute terror I felt when I was out of state meeting with other business leaders, and my phone rang, with Grand Strand Medical Center coming up on the caller ID. Worst case scenarios flashed through my mind; I was terrified I was a widower with two boys at 41. Now, my wife was fine, and I will not bore you with the details. Yet, even though we were at that time eligible to apply for life insurance coverage, we just…didn’t. We knew it was important to be insured in the same nebulous way we knew we should eat less sugar, but never felt compelled to action. Not until I sat in a client meeting and seen that the clients were underinsured. The young, beautiful wife laughed, and said they would be getting a quote for insurance the next day, because if anything happened to her husband, she didn’t want to be looking for her next husband at her first husband’s funeral. I left work that day, and by the next morning my wife and I had both applied for life insurance.

Conclusion

It’s easy to be emotional, or complacent about money – I’ve been there. In working with our clients, we try to point out places where improvements could be made, while managing the complex emotions and attachments we have to our money and investments.

Still interested in understanding more when it comes to making money mistakes? If so, contact our firm at 843-999-1570 and someone will be able to explain more in depth of what you need to know when it comes to making money mistakes and learning from our experiences! With that said, “We have great challenges & great opportunities, and with our help we’ll meet them together!” – Jason Pries

Economic Growth Slowed in 2019 Q3

As the U.S.-China tariff war escalated in 2019 and investors became more concerned about the economy’s long-term prospects, GDP growth slowed to 2.1% in 2019 Q3. Private investment spending contracted for the second straight quarter by 1% as non-residential investment spending dropped by 2.3%, although residential investment spending rose 4.6%, buoyed by low mortgage rates. The pullback in business spending as somewhat offset by the expansion in private consumer spending that rose 3.2%, amid strong job growth. Net exports rose a modest 1% after contracting in the prior quarter, while imports increased 2% after a flat growth in the prior quarter. Government spending rose 4.8% due to the strong growth in federal spending of 8.3%.

Sustained Job Creation in 2019

Job creation remained strong in 2019, with 2.1 million net new payroll jobs created as of December 2019 compared to one year ago. Payroll jobs rose in all sectors except in utilities and mining/logging. The retail trade industry, which had been losing jobs in past months, created net new jobs (15,300). The construction industry created 143,000 net new jobs, although this is about half of the 342,000 annual jobs created in January 2019. The unemployment rate dipped to 3.5%, at par with 50 years ago. The number of 16+ year-old unemployed workers trended downwards to 5.75 million, near the level in 2000 (5.69 million).

Economic Conditions

Nonfarm payroll jobs increased in all states, except Wyoming, Oklahoma, and West Virginia. The states with the strongest job growth were Utah (3.0%), Texas (2.7%), Nevada (2.7%), Idaho (2.6%), Washington (2.5%), Florida (2.5%), Alabama (2.4%), Arizona (2.4%), Rhode Island (2.2%), and Colorado (2.1%).

Wage Growth Tapers as Inflation Picks Up

Even as the unemployment rate continues to fall, average weekly wage growth has tapered. In December 2019, average weekly rose 2.3% from one year ago, about the same pace as the inflation rate. Wages have been rising at slower pace since January 2019 while inflation has picked up, resulting in no real wage gains for workers. Meanwhile, CPI-Shelter, an indicator for the price of housing services (e.g., rent) rose 3.2%. Rent growth has generally outpaced inflation and wage growth since 2012, an indication that housing supply remains low relative to demand. Average weekly wages rose in all states, except in Wyoming, Ohio, Alaska, and Texas (this may just be a statistical fluke given Texas’ strong job growth.

Yield Curve Normalized in November 2019

The Federal Open Market Committee lowered the federal funds rate three times in 2019 by a total of 0.75%, to the current range of 1.5% to 1.75%. The yield curve normalized in November 2019 after it inverted in January 2019 when the 5-year T-note yield fell below the 1-yr T-bill rate.

Macroeconomic Outlook Conclusion

We expect GDP growth to pick up to 2.4% in 2020 given the de-escalation of trade tensions between the United States and China, starting with the signing of the Phase One Trade Deal in January 2020. We view this development as having a positive impact on investor confidence and rising business investment. Unemployment rate will further ease to 3.6%.

The Federal Open Market Committee to likely maintain the federal funds rate at the current range of 1.5% to 1.75%. Under an accommodating monetary policy, the 30-year fixed contract mortgage rate is expected to stay below 4%, which will support 5.5 million of existing home sales and 0.75 million of new home sales. Low interest rates will keep debt financing for new home construction low, encouraging the production of more homes. As builders continue to see strong demand for both owner-occupied homes and rentals, we expect builders to increase construction of new housing to 1.37 million, of which 415,000 (30%) will be multi-family units.

Still interested in understanding more when it comes to today’s economic conditions? If so, contact our firm at 843-999-1570 and someone will be able to explain more in depth of what you need to know when it comes to the macro-economics in this global landscape! With that said, “We have great challenges & great opportunities, and with our help we’ll meet them together!” – Jason Pries

For all the headlines surrounding geopolitical and trade tensions with China, it also remains one of the world’s most important markets and one that’s vitally important to many American companies. Chinese consumer confidence hit a ten year high in 2019. But as happy as stock investors might be to see the globe’s second largest economy happily buying luxury goods, trips and food, a recent McKinsey & Company survey (China Consumer Report 2020) shows that consumer tastes in China are evolving. Like U.S. millennial’s, the digital native generation in China is increasingly health conscious and a more discerning customer.

In this era of increasing globalization, “domestic stock” is often a bit of a misnomer. Large cap domestic companies sell and manufacture more of their products in China than they do here in the United States. Here are some factoids about China that might encourage you to pay closer attention to China:

• If measured by purchasing power parity, China is the world’s largest economy.
• The Chinese population is 1.384 billion, compared with 329 million in United States (as of 7/2018).
• Sales on November 11 (Singles’ Day) in 2020 were $58 billion, double the projected sales number of $29 billion in the US for the entire Thanksgiving through Cyber Monday period.
• The IMF projects the Chinese economy will grow by 22% from 2019 to 2021 to $17.762 trillion. China’s growth in GDP in 2015 was equal to the GDP of Switzerland.
• KFC (YUM) is the most popular fast food chain in China, followed by McDonald’s. (Business Insider recommends we try KFC’s Dragon Twister.)
• General Motors sold 26.5 million vehicles in China in 2018, versus 21.5 in North America.
• In the mood for your daily Starbucks fix? There are 4,000 locations in China.

Our media overemphasizes China’s centralized government and suppression of individual freedom and understates popular support for the current system. Riots in Hong Kong against mainland control also give the impression that the current government is under siege. That is untrue. China’s citizens generally support their government’s policies and perceive the U.S. as unfairly demonizing China due to its rapid growth. That’s leading to boycotts against U.S. brands. Domestic Chinese brands have steadily improved in quality, leading to a shift in consumer preference towards their domestic products.

Some psychology studies indicate we overweight familiar information and discount things we have trouble understanding. It’s tempting to dismiss China due to its distance and different culture, but that would be a mistake. For many companies, China is the elephant in the room. If we’re to make informed investment decisions, we need to see that elephant as it is.