A New Richest Person In The World And A New Law In Seattle

In The News...

There was a new sheriff in town, for a moment.

His name: Jeff Bezos.

Bezos, the CEO of Amazon, had supplanted Bill Gates as the world's richest person following Amazon's earnings release. Amazon's share price rose and Bezos' net worth climbed to $92 billion, narrowly edging the Microsoft founder.

But... by the end of the week, the stock price fell back and Bezos is again #2 in the world.

It is only a matter of time though. Perhaps more impressive than Bezos' meteoric rise is the fact that Gates has been the world's richest man in 18 of the past 23 years (per CNBC). Not only that, but the fact that the two-richest people in the world reside in Seattle (within blocks of each other) is mind-boggling.

Drop that device! Washington State passed a new law that went into effect last week, barring mobile device use while driving. The biggest change, which bolsters the existing law preventing drivers from texting or holding a phone to their ear, is that you cannot even hold your electronic device while driving. On top of that, you cannot eat or do your makeup while driving, either.

The law obviously aims to reduce injuries stemming from collisions. I approve it. Traffic has become horrendous in Seattle as the population has exploded in the absence of additional roads/infrastructure. The traffic is bad enough, but it worsens when people pull out their phones the second they hit a red light or bumper-to-bumper traffic. This legislation will hopefully curb what has been a self-perpetuating problem. Even if traffic does not dramatically improve, it should reduce the number of crashes and injuries.

In The Market...

The S&P 500 was flat this past week. Let's look under the hood...

(price data via Yahoo Finance)

Stocks: Role-reversal occurred last week, as previously weak sectors such as Energy and Consumer Staples led and stronger sectors (Health Care, Tech) declined. The last two times we saw the S&P 500 stall on a weekly basis like this (In June and March) the following few weeks were flat-to-down, before again chugging higher. We'll see if history repeats itself here, entering what is seasonally the worst month of the year for stocks.

Below in the Portfolios section you will notice that we bought Financials (XLF) and sold Real Estate (VNQ). This might seem funny considering my comments last week about patience. Sometimes things happen quick and conviction rises. That was the case here. Simply put, I believe Financials have a better technical outlook, led by the fact that Financials are knocking on the door of all-time-highs.

Bonds: A down week for conservative bonds (TLT, LQD), but not terribly unexpected given the yo-yo behavior the past few weeks. High-yield bonds were positive on the week, which bodes well for stocks, I believe.

In Our Opinion...

On Wednesday the Federal Reserve opted to leave short-term interest rates unchanged, keeping the federal funds rate at 1.00%. It was the 5th time the Fed has met this year. It would have been the 3rd rate increase this year, had that decision been made.

I always say to ignore the noise around the Fed. The below image typifies why. A lot of investors have grown so obsessed with finding clues within Fed statements and meeting minutes/notes that there are now side-by-side comparisons of current vs. previous Fed statements. Not just general comparisons of tone or major economic issues, but comparing Fed statements word-for-word. Take a look...

(source: Michael Sheetz, CNBC.com

The infatuation with the Fed baffles me. It has cooled a bit since the Fed began raising rates in late-2015, but nonetheless, the 24-hour news cycle and continuing narrative that the Fed dictates market returns attracts clicks.

My advice remains the same: Know what is going on but do not let speculation over the direction of short-term interest rates guide your investment decisions.

In Our Portfolios...

(Note: Each client's account is uniquely managed, based on account size and risk tolerance. Your account will only own some, not all, of the investments bought and sold over time.)

Q&A/Financial Planning...

I was asked to present to a group of new parents (myself included) this past week, on topics most relevant to financial planning for kids. After soliciting feedback on topics they were most interested in, my talk centered on 3 main areas:

  1. College savings
  2. Life insurance
  3. Estate planning

I realize most of you are not new parents, but many of the concepts within these categories may still apply. In no particular order, here were some takeaways I thought worth sharing...

  • Are you helping save toward your grandchild's college savings? If you use a 529 plan (the most popular option) make sure you understand how your eventual account withdrawals will impact, and potentially hurt, your grandchild's financial aid eligibility.
  • If you are already saving for college, have you run the math to know that you are saving the right amount to afford the type of school and number of years you want to accommodate? Most do not, which often starts with ignoring the fact that college costs increase 4-5% per-year.
  • Are you nearing retirement and in need of life insurance? Check to see what coverage you currently have with your employer, or what coverage you can obtain prior to leaving. It will likely be much more expensive to obtain a new life insurance policy in your 60s than it would to continue your existing policy held through work ("portability" feature).
  • If you own a permanent life insurance policy, does it still meet your needs? Do you need less coverage? More? How much cash value is there within the policy?
  • If you have a Last Will And Testament in place, how recently have you reviewed it? For example, if family dynamics have changed and you would prefer a different Executor to carry out your wishes post-death, you should update it.
  • Do you own a Living Trust? Among other things, a trust helps certain assets seamlessly pass to the intended heir, bypassing what can be a lengthy probate process. It also helps keep your personal/financial matters more private. A trust layers on top of your Will.
  • Are estate taxes a concern? The federal limit allows a married couple to pass roughly $10 million tax-free to their heirs, but you may still owe state estate taxes. Right now the WA State exemption is $2.1 million, a much lower threshold than the federal exemption.

What's New With Us?

There are a number of exciting things I have in the works. Sorry for being vague about it, but once I have more detail I will share it.

Have a great weekend!


Brian E Betz, CFP®

Market Keeps Hitting A Wall... What Now?

In The News...

Here are two numbers worth seeing:

Stock returns from Nov. 4th last year thru March 1st: +16.0%
Stock returns since March 1st, thru May 19th: +0.0%

That is right, U.S. stocks have gone nowhere the past 2.5 months since rallying hard post-election (per S&P 500%). I am not surprised, as I wrote back in mid-March that I felt this would be the case. Here is a visual look at how the S&P index hit a wall right at 2,400:

(chart via stockcharts.com)

I want to highlight the chart below the big chart above, which shows the percent of S&P 500 companies whose stock prices are above their 200-day moving average. This number is gradually declining and is currently at 67%.

Why does this matter? Because many investors (our firm included) does not like to buy/own stocks that are below their 200-day moving average. The 200-day serves as widely used barometer for a stock's long-term trend, in attempt to predict whether the price will move higher or lower in the future.

Why 200 days? Why not 150 days? Or 175 days? Or 250 days? I'm not sure, but it is one of those things where, if the 200-day matters to other investors, then it matters to us because it helps us anticipate what investors might do in mass. When investors act in mass that really catapults the market in one direction or the other.

I believe the market will continue to be choppy for the next couple months. This means we could see some bigger weekly gains followed by bigger weekly losses. Seasonally this would make some sense too as volatility usually increases in the summer months.

In The Market...

The S&P 500 fell -0.3% last week. Let's look under the hood...

(data source: Yahoo Finance)

Stocks: Last week's losers were this week's winners, namely Utilities (XLU) and Real Estate (VNQ). For only the second time this year, the S&P 500 fell in consecutive weeks. Financials were the biggest loser, as interest rates fell on the week. Which reminds me...

Bonds: A very nice week for bonds, which were up nearly across the board for the second-straight week. If you remember what I wrote two weeks ago, I showed a chart of the long-term Treasury bond fund (TLT) and suggested that it might be due to rally and rates would, consequently, fall. So far that is exactly what has happened. Our investment-grade bond position has benefited from this recent Treasury rally, as it possesses similar investment characteristics to Treasuries.

In Our Opinion...

A couple people called asking how the President Trump/Russia investigation might influence the market in the weeks ahead, especially as stocks fell nearly -2.0% on Wednesday after the news broke.

A friendly reminder: Ignore it. As I have written at-length, it has very little impact on long-term market movement. Binary events like this investigation can certainly influence the market in very short-term stretches (days), but they do not over the course of weeks and months. Everyone is entitled to their opinion, but in the same vein that Trump is not the reason the market rallied post-election he would not be the reason to explain a potential sell-off. To assume as much would be to conclude that every investor is thinking squarely about this investigation when they buy or sell securities. They are not.

In Our Portfolios...

Stocks: We sold our Consumer Discretionary fund (XLY) within many client accounts. My intention is to sell it for every client account. Some accounts are in the process of transferring from Scottrade to TD Ameritrade, which means those that own XLY will have to wait until such transfers are complete. Technology and Industrials remain the two sectors we are most likely to buy in its place.

Bonds: We sold our preferred stock fund (PFF) within many client accounts. (This is the same situation as just mentioned regarding transfers.) We will likely buy either investment-grade corporate bonds or long-term Treasury bonds in its place, depending on the specific account.

Q&A / Financial Planning...

I encourage you to read my latest blog post: Your Most Important Job Before Retirement. I outline 10 financial planning areas that you should prepare for if you are getting close to retirement.

  1. The Nest Egg
  2. Retirement Spending
  3. Retirement Income
  4. Social Security
  5. Health Care Costs
  6. Long-Term Care Insurance
  7. Investing Needs In Retirement
  8. Housing Plans
  9. Managing Debt
  10. Life Insurance

What's New With Us?

If you electronically signed your TD Ameritrade account transfer request this week, your account(s) should migrate over to TD sometime next week. Some accounts have already made the move. I will provide everyone with specific login instructions soon. You should also receive login instructions in the "welcome letter" you receive by-mail. So I would recommend that you not immediately throw away that letter when it arrives.

Let me know if you have questions about this transition. I appreciate your cooperation in advance for any hiccups we might experience along the way during this process.

Have a great weekend!


Brian E Betz, CFP®

Worst Week Of 2017... What's Next?

In The News...

If the past year has taught us one thing, the narrative matters. Lets use last week as an example:

The market had its worst week of the year, sliding -1.3%.


The market slipped a little more than -1%, just the third weekly loss of 2017.

Two opposing ways to explain last week. Each portraying a different story. When we want or expect something to turn out a certain way, that anticipation shapes our evaluation of it. I say this because people continue to wait for the market to face-plant. A number of clients and non-clients have said as much to me over the past month. So when the market strings together a few losing days the chirping becomes louder and angst rises.

Here is the reality: It is common for the stock market to fall ~10% (or more) at some point every year. Keep that in mind, especially coming off a week when the market was down roughly -1%. I have said for a few weeks that I wouldn't be surprised to see the S&P 500 flatten out, but that does not mean the sky is falling.

In The Market...

The S&P 500 was down -1.3%. Let's look under the hood:

(data source: Yahoo! Finance)

It was a crummy week for most stock sectors, evidenced by the sea of red above. Utilities, arguably the most defensive sector, were up more than +1% and is a sector that I would like to add in the near future (some portfolios already own it).

Remember what I said in my last post about how long-term interest rates behave after the Federal Reserve raises short-term rates? If you don't, here is a reminder... What I showed was how long-term interest rates actually fell the previous two times the Fed raised rates. Sure enough, following the Fed's third rate hike rates declined yet again due to increased bond demand.

Bonds had a nice week as a whole. This often occurs when stocks are down because investors sell stocks and buy bonds (hence the increased bond demand). It is also a bit ironic that Financials were the worst stock sector, considering that financial stocks would seem to benefit most by the Fed rate hike, but lets not beat a dead horse...

In Our Opinion...

The market is essentially always open, Monday through Friday, when you consider overseas markets and the trading activity that happens within the U.S. market outside of normal hours via the "futures" market that opens at 5 p.m. PST. I bring this up because the U.S. market opened this new week nearly -1% lower than it finished last week, and with it came references connecting the market loss to investor fear surrounding health care reform and the latest bill that flamed-out last Friday.

Simply put, that is B.S.

It is a nice alibi, but it is wrong. To my earlier point, any potential market declines that occur in the near future may just be due to the fact that the market does not go up 100% of the time. If you are positive about the market then any declines might present a good buying opportunity. If you are negative about the market then you certainly did not arrive at that conclusion because of the vote surrounding a health care bill (I hope).

Bad news travels faster than good news, so be prepared for big, scary headlines if the market remains choppy here for a bit. There will be all sorts of explanations that try to reason with what occurs. This is not to say that we won't feel the need to sell or become more defensive. But it does mean that we will rely on our disciplined approach in making such decisions, tuning out the noise and allowing our analysis to guide the way.

In Our Portfolios...

Stocks: No changes last week.

Bonds: We added preferred stock (PFF) to certain accounts. Due to the risk characteristics of preferred stock, we treat this asset class as a bond for portfolio allocation purposes because it tends to be a happy medium between common stock and more conservative types of bonds.

Q&A / Financial Planning...

I had an interesting conversation last week with my friend & colleague Phil Painter of North Pacific Mortgage. Phil has come across an increasing number of new clients who have interest-only mortgages or lines-of-credit. We speculated why this is and arrived at two conclusions:

  1. Many interest-only mortgages/debts were the result of challenges posed by the 2008 recession.
  2. Conversations about interest-only loans are resurfacing over concern that the string of recent Fed rate hikes will cause these adjustable rates to balloon.

Even if the second conclusion does not materialize, do not be lulled to sleep by your mortgage, particularly if you are in an interest-only loan. We preach that financial goals are unique, but paying off your mortgage - for most people - is one that deserves a plan. If you are only paying interest then it becomes tougher to build equity (unless you are effectively leveraging your money by investing funds elsewhere, which few actually do). More importantly, you may delay the principal pay-down into retirement, a time when most want to limit expenses to accommodate other things, such as health care or travel.

It is easy to overlook the bigger picture. Life gets busy and we get into routines. If you own an interest-only loan, even if it is a smaller line-of-credit, tackle it head-on today. If you want a professional opinion, I highly recommend Phil Painter. He is a great guy and someone I trust immensely. Contact us if you would like an introduction, but at the very least explore your options to learn how a refinance could benefit your long-term financial plans.

What's New With Us?

We will begin migrating to TD Ameritrade in early/mid April. Gale or I will be in touch regarding the forms we'll need to complete. We will make the transition as smooth as possible.

Have a great week everyone!


Brian E Betz, CFP®