Buy The IPO Or Just Say 'No'?

Hi everyone,

The ride-sharing service provider, Lyft, went public on Friday. This means you can buy shares of the company if you want to own an equity stake. Even if you exclusively use Uber, you have likely heard of Lyft as it is the second-biggest player in the industry behind Uber. The two companies have combined to render the yellow cab industry obsolete.

Which leads me to the question you may be asking…

Should I buy shares of Lyft?

My answer ranges between “no'“ and “I have no idea”. My rationale for saying no is based on the fact that there is no price history (unless you consider 1 day to be enough). For how we analyze stocks and funds we need to be able to assess some amount of price history — ideally a minimum of a few years.

Let’s set aside this rationale, because there are other ways to evaluate an investment and you may want to buy it regardless. An alternative rationale is to buy because you feel positive about the business fundamentals. On that basis, I really have no idea whether Lyft is a good investment or not.

And odds are, neither do you.

The reality is, most of the time someone wants to buy into a company that is going public, it is due to the sex appeal of, well…. simply the fact that the company is going public. The more you hear about it in the media, the more intrigued you become. This can lead to a fear-of-missing-out. You feel so compelled to buy it because, otherwise, you might miss out on owning a piece of the next Google.

Thing is, no matter how you end up at the point of buying a newly public stock, you are just guessing. If you disagree, then let me ask you:

  • Do you understand the company’s financials? More importantly, do you even know what to look at and what matters?

  • Do you know the company’s risks that could hurt growth and the future share price?

  • Do you know the company’s opportunities that could boost growth and the future share price?

  • Do you understand the company’s market share within its industry?

  • What is the future outlook for the industry as a whole?

And I have not gotten to my most important point, which is that if you plan to “get in on the IPO”, you actually are not. Unless you are able to obtain shares in the primary offering (highly unlikely) you are simply buying shares once they hit the secondary market. Meaning, once those initial owners — the ones who actually did get in on the IPO — turn around and sell those shares to you and the masses in the secondary market.

To be clear, you are buying through the secondary market when you log in to your account at TD Ameritrade, Fidelity, Schwab, etc. to buy shares. Even if you had bought first thing on Friday when it went public you did NOT get in on the IPO. I highlight this because you are likely going to pay significantly more per-share when you buy on the secondary market than you would if you were actually buying through the IPO.

If you are ever interested in buying shares on the secondary market in a newly public company like Lyft, let me know. As mentioned, we rarely look to buy companies that are going public, but we are happy to discuss.

In The Market...

The S&P 500 gained +1.2% last week. Let's look under the hood:

(price data via

A nice bounce-back week for stocks, which had tumbled to end the prior week. The S&P index gained +1.8% in March, which marks the 3rd-straight monthly gain to start the year. As far as last week is concerned, we wanted to see the S&P finish above 2,825, which was the closing value/high from two weeks ago. It did, ending the week at 2,834.

Home values slide yet again: Home prices fell -0.2% in January. Seattle homes declined for the 7th-straight month, down -0.3%. Year-over-year, home prices remain roughly +4.0% higher nationwide. Most major cities hover around that mark, with only Las Vegas still experiencing double-digit annual growth (up +10.5%). We have yet to see a city turn negative on an annual basis, although San Diego is close (up just +1.3% in the past year).

The leveling-out of home prices that I anticipated 18 months or so ago has reached its full extent of what I expected. It will be interesting to see if the Spring season boosts demand, and subsequently prices, or if prices will fade further. My sense is that we will see a modest uptick in the coming months.

Here is a complete city-by-city look of the Case-Shiller housing data:

Portfolio-wise we made some moves among portfolios that own individual stocks, but did not make any major allocation changes regarding the diversified funds we own.

In Our Portfolios...

What's New With Us?

We celebrated our daughter’s 2nd birthday on Sunday. Of course we delayed her opening presents until after the Duke-Michigan State game had ended. Priorities… (kidding). We took her to the zoo on Saturday as well, which was a lot of fun.

Have a great week!

Brian E Betz, CFP®

What To Make Of The Recent Decline In Home Values

Hi everyone,

With tax day quickly approaching, so too is the deadline for making Traditional IRA and Roth IRA contributions for 2018. This video explains the contribution limits for various types of retirement accounts.

If you have any questions regarding whether you qualify for a Traditional IRA or Roth IRA, please ask. If you plan to make either type of contribution (or both) you will need to do so not only before April 15th, but before you file your 2018 tax return.

Home values slide in December: The average home fell ever-so-slightly, down -0.1%, in the latest S&P/Case-Shiller home price index report. Seattle homes fell for the 6th-straight month, as home price appreciation slowed throughout the second half of 2018. The average home is up +4.7% annually, which is more in-line with historical averages but still a bit of a shock compared to the +7% to +8% growth we saw not much more than a year ago.

If you were reading this blog 18 months ago, this is exactly what I predicted would happen. I think this is perfectly normal, but as always, it helps to gain historical perspective before drawing any conclusions about what is next. Here is a look at the rise in home prices dating back 30 years.

(source: FRED Economic Data, via S&P/Case-Shiller HPI)

You can see how real estate has leveled-off as of late, so much so that you might argue a bigger decline is forthcoming. I am not so sure about that, but whatever happens, one thing I am pretty sure of is that the stock market will lead the way (for better or worse). Stock prices are the leading indicator that influences both hiring and real estate values. If company values rise, more people are employed and investor confidence rises, which directly boosts housing demand. If company values fall, the opposite occurs and housing demand will weaken.

Proof of this is what occurred last Summer. It is no coincidence that housing prices started to slow around June/July, just a few months after the S&P 500 had fallen roughly -10%. I can say with confidence that the shock of seeing stocks drop caused homebuyers to pause a bit in their housing pursuits. If you disagree I would be curious to hear what you think.

Here a complete city-by-city look at the latest housing numbers:

 In The Market...

The S&P 500 gained +0.4% last week. Let's look under the hood:

(price data via

It was another constructive week for the stock market, despite modest gains. The individual sectors were a bit mixed but the week ended strong, which is what we like to see. The S&P 500 finished the week just above 2,800, which many think is an important level for the index to hold given it represents the previous high from both November and December — instances where stock prices fell sharply soon thereafter. Will this time be different and see the rally continue into March?

Our cumulative analysis would suggest yes. However, there are two momentum indicators that give us pause, which were the same problems that occurred back in November and December when the S&P failed to hold above 2,800. These are shown in the chart below, which illustrates how Relative Strength (RSI) and the percentage of stocks that are above their respective 200-day moving averages are both lower compared to when the S&P 500 index hit its previous two highs back in Jan. 2018 and Sept. 2018. Take a look…

(chart created via

The large chart in the middle shows the actual price movement of the S&P, including the recent rally to start 2019. RSI is shown in the chart above that, where you’ll notice it is fading despite these price rallies. RSI compares the size of gains in periods when price rises and compares it to the magnitude of losses on days when price falls. The above is a weekly chart, so each period being considered is one week. The important takeaway is that we want to see RSI rise — or at least remain elevated — when stock prices rise. When RSI stalls or fades amid a stock market rally, it indicates that price momentum is weakening and a reversal may be near.

Additionally, the percentage of stocks that are above their 200-day moving averages is lower compared to those previous highs from 2018. Today, 61% of stocks in the S&P index are above their 200-day moving averages. That ratio was much higher during 2018. This measure of what is called market “breadth” statistically represents how well the stocks that comprise the S&P 500 are moving in unison or not. We would like to see this percentage higher, not lower. If the S&P 500 is rising, but this percentage is falling, it indicates that a few big companies are doing all the heavy lifting, which often is not sustainable.

While we remain bullish short-term, I wanted to highlight these two indicators as factors that we are closely tracking, as they influence our buying and selling decisions.

We were pretty inactive on the portfolio front last week. The bond market took a sharp negative turn, which may result in reallocating some of those positions in the coming days. We sold our Municipal Bond fund (PZA) for a modest gain within accounts that owned it.

In Our Portfolios...

What's New With Us?

It was a fairly relaxing weekend. The weather was nice, so I was able to get outside and do some yard work. I had to cut up a tree that had fallen last month as a result of the snowfall. The tree was decaying and the weight of the snow was its final blow. Luckily it did not cause any other damage, but it did take some time to saw it apart.

Have a great week!

Brian E Betz, CFP®

Context, Context, Context

Hi everyone,

There is a narrative from this past week that I can’t let slide. I saw headlines Thursday afternoon praising the fact that January was the best month for the stock market in 30 years. Whether technically true or not, the reference lacks context. A more appropriate narrative would be something to the effect of:

“The S&P 500 is nearly even since the end of November, down -1.5% over that time.”

No doubt January was a strong month, but usually when we hear the “best” of something happened, we assume that great things are to come.

Is this the case? Will stocks zoom higher in February? No one knows for sure. But the story of January, in which stocks rallied more than +8.0%, cannot be told without realizing that stocks fell -10.0% the month before. Context matters. More discussion on my stock market outlook below.

Housing prices flatten: Real estate values were essentially unchanged nationwide in November and are up roughly +5.0% in the past year. Growth rates continue to level off, especially on the West Coast where homes in Seattle and San Francisco (both down -0.7%), as well as Portland (-0.5%) and San Diego (-0.6%) were all negative in the month.

Whereas Seattle and San Francisco used to lead the nation by a considerable margin in terms of annual appreciation, housing in both cities are only up roughly +6.0% in the past 12 months. I believe this is the fifth-straight monthly price decline for Seattle real estate. Here is a complete city-by-city look at this latest S&P/Case Shiller housing data:

In The Market...

The S&P 500 gained +1.6% last week. Let's look under the hood:

(price data via

Stocks up. Bonds up. All is great, right?

We are still not out of the woods. Here is the same long-term monthly chart of the S&P 500 index that I shared at the end of December. Stock price history over the past 6 months resembles three different points in time. These are the areas highlighted on the chart. Notice how in two of the three instances, stock prices fell a lot further in the months that followed. In the third (and most recent) instance, prices floundered a bit before starting a new, big rally.

(chart created in

No predictions here, just emphasizing the longer-term picture in terms of how recent market behavior plays into it. At the end of December, the market outlook was very negative. If we are to believe that is still the case, then January was just one big counter-rally inside of a larger downtrend. I will say that the short-term stock market outlook looks neutral-to-positive. New uptrends have to start somewhere, so there is a possibility that this is it. I would not count on that just yet, but certainly conditions have improved since one month ago.

Portfolio-wise we were really only active with our individual stock positions, for those accounts that own both stock funds and individual stocks. We captured a very nice gain selling Twilio (TWLO) and absorbed a modest loss on Microsoft (MSFT).

Heading into next week, the Software segment within the Tech sector continues to look strong. Health Care continues to look the best among all major sectors, while Real Estate (VNQ) made a big jump and is showing up on our radar as a potential breakout sector.

On the bond side, we will likely add Preferred Stock (PGF) sometime soon, as that asset class looks poised to continue its recent rally.

In Our Portfolios...

What's New With Us?

Going into Super Bowl Sunday I was really excited for what I thought was going to be a great game. I left being more excited about the fact that it had snowed 2 inches here, our first snow this Winter. I can appreciate a good defensive game, but it felt as much sloppy as it did a defensive struggle.

Have a great week!

Brian E Betz, CFP®

Seattle Housing Streak Comes To An End

Seattle's run is finally over.

For the past few years Seattle real estate has consistently ranked #1 in terms of annual price growth. That remarkable run ended when Las Vegas knocked Seattle from its perch in the latest S&P/Case-Shiller housing report. Homes in Vegas rose +13.0% year-over-year, compared to the +12.8% growth in the now second-ranked Seattle. San Francisco sits in third, up +10.7%.

On average, home values increased +6.0% in the past year nationwide, including +0.8% in the most recent month reported (June). Here is a full city-by-city look at the housing data:

Real estate continues to chug along, although the market here in Seattle does not seem as hot as one year ago. There are fewer homes for sale and those that are seem to be on the market longer than in 2017 and 2016. If we fast-forward one year I would anticipate we will see home values settle in to a +5% or so growth rate. So, slightly lower than what we see today.

In other news... here is something I never thought I'd see...

The ride-sharing service Lyft is reportedly preparing to go public in 2019, ahead of its rival, Uber. This seems crazy. Uber has become brand-synonymous, like Kleenex is to facial tissue. Uber has become a verb, like "Googling" has replaced "searching". Uber is much larger, both in terms of revenue and market share. Uber's most recent capital raise from Aug. 2018 valued the business at $71 billion. Lyft's most recent capital raise from June 2018 valued its business at $14.5 billion.

For Lyft to IPO before Uber it must be betting that it will continue to eat into Uber's market share in the coming years. Uber has had a slew of problems in recent years, which has opened the door for Lyft to carve out a bigger slice of the market. Whether Uber's problems have delayed its own IPO process is unknown. I believe so.

While most focus on Uber vs. Lyft, I have long contended that Amazon remains the biggest threat to both companies. I am not sure if Amazon will ever decide to enter the ride-sharing market, but if it does it would mean serious problems for both Uber and Lyft.

In The Market...

The S&P 500 gained +1.0% last week. Let's look under the hood:

(price data via

So much for seasonality? The S&P climbed higher for the third-straight week and fifth-straight month, rising +3.2% in August. The ascent to new all-time highs ran counter to the poor seasonality typically associated with August. Most sectors were positive this past week, which was a quintessential "risk-on" week with the growth sectors leading the way and the more conservative ones lagging.

Looking ahead, stocks appear primed to rally. Here are 3 reasons why:

  • The new record high for the S&P 500 is bullish because, well, new highs are bullish.
  • Market strength is well distributed across all 10 sectors, as 70% of the 500 companies in the index have prices above their respective 200-day moving averages. This is a very important metric to us. The ratio is 10% higher (69% vs. 58%) compared to the number of stocks that traded above their 200-day moving averages back when this rally started in April.
  • We are quickly approaching the fourth quarter, which is seasonally the strongest period of the market year. Given the contrary nature of how August just behaved this reason may seem less valid, but historically Oct/Nov/Dec. sees the best gains for stocks.

Of course, nothing is guaranteed so we will see. But right now the outlook is pretty good.

In Our Portfolios...

What's New With Us?

We stayed around Seattle this past weekend. We went to a bbq and took our daughter to the zoo. I did some work around the house, which included 4 or 5 hours fixing an issue with our refrigerator. The good news is I think I fixed it.

Have a great week!

Brian E Betz, CFP®

The First Company To Reach $1 Trillion In Value Is...

There were so many interesting stories and reports that popped up this past week that I am going to quickly share them all.

Apple hits $1 trillion. Following its quarterly earnings release, Apple became the first company to reach a $1 trillion valuation. This is based on its market capitalization, which is the share price multiplied by the number of shares outstanding. Amazon is the next-largest company, but still sits roughly $100 billion behind Apple, followed by Google ($850 billion) and Microsoft ($830b).

Man rigs McDonalds Monopoly game. An absolutely crazy story about a guy who rigged the McDonalds Monopoly contest back in the 1990s. It is a long article, but if you have 30 minutes it is worth reading. Not soon after this came out, Ben Affleck and Matt Damon announced they will turn it into a movie.

Another solid month for housing. Homes rose by +6.5% on average across the country in May. Seattle maintained its lead on the rest of the country, with prices rising +2.2% during the month and +13.6% in the past year. Las Vegas (up +12.6%) and San Francisco (up +10.9%) held on to the second and third spots. Here is a complete city-by-city look:

What the heck is "blockchain"? Have you been wondering what "blockchain" means and is all about? Here is a good explanation, in basic language.

Capital gains tax change? The Treasury Department is weighing a change to capital gains taxes that would radically alter how investors calculate long-term capital gains. The proposal involves allowing investors to increase their cost-basis by adjusting it for inflation.

Here is roughly how it would work. So let's suppose you invest in something today for $100,000 and sell it in 6 years for $250,000. The capital gain would be:

($250,000 - $100,000) = $150,000 capital gain

Under the proposed change, the "cost-basis" (essentially the purchase price) is adjusted higher for inflation. Let's say inflation is 3% per-year. Your cost basis would increase from $100,000 to roughly $120,000. This reduces your capital gain by $20,000. So, instead of owing taxes on $150,000, you would owe taxes on $130,000.

More bad news for Wells Fargo. Following up on what I wrote a couple weeks ago, more and more details are coming out about the bad business practices that have occurred at Wells in the past decade.

Federal Reserve says "no change". The Fed decided to hold its target lending rate, the Federal Funds Rate, at 1.75% following its most recent committee meeting. It is likely the Fed will raise rates once more before the end of the year, pending stock market behavior.

The Fed Funds rate is the benchmark that banks use to lend more to one another and it is ultimately the rate that trickles down to consumer banks that you and I use when investing into short-term CDs or money market funds.

Unemployment back below 4.0%. The unemployment rate improved to 3.9% in July as +157,000 hires were made during the month. Unemployment remains right near the previous lows from 2000. Take a look...

In The Market...

The S&P 500 gained +0.8% this past week. Let's look under the hood:

(price data via

The S&P index rose for the 5th-straight week, while most sectors finished in the green. Real Estate made a big move, rising more than +3.0%, while Energy was the main loser, down -1.8%. Both of our sector positions performed nicely, with Health Care (XLV) rising another +2.1% and Technology (XLK) rebounding +1.2%.

July gains: The S&P climbed +3.7% in July, marking the 4th-straight monthly gain. Health Care (XLV) was the biggest winner, up +6.6%, while Tech (XLK) gained a little more than +2%. Including the early-August gains, the S&P 500 is still -1.0% below the previous high.

No-cost funds? Fidelity announced it will be rolling out some no-cost index exchange-traded funds (ETFs) in the near future. Fund creators are steadily lowering their fees as there is more and more competition. This move by Fidelity to a zero-fee fund is indicative of that.

ETFs are quickly replacing more traditional mutual funds, due to their reduced costs and greater tax efficiency. Mutual fund providers historically charged anywhere between 1% and 3% to investors for the ability to invest in their funds. Those costs have been driven down as ETF competition has provided largely the same level of performance at a fraction of the cost. Eventually, mutual funds will be very niche and few in number.

For context, we use ETFs that are either very low-cost to own, or, relatively low cost but carry no costs to buy and sell. I am happy to share more if you are interested.

In Our Portfolios...

What's New With Us?

I spent much of the weekend trying to locate and destroy a yellow jacket nest that is forming near the ground next to our house. I have learned more about bees in the past 72 hours than I ever cared to know. If anyone has a tip, I'm all ears. So far I have won a couple battles, but the bees are ultimately winning this war.

Have a great week,

Brian E. Betz, CFP®

Home Prices Plow Higher While Stock Prices Hit A Wall

As home prices surge, Seattle real estate clings to its lead.

Real estate appreciated by an average of +1.0% nationwide during the month of April and +6.4% over the trailing year. Seattle real estate blew away those averages, rising nearly +3.0% monthly and +13.1% annually. Seattle homes continue to lead the country, in what has been an impressive streak over that past couple years. But that streak may end soon as Las Vegas narrowed the gap even further, where homes have risen +12.7% yearly. San Francisco is back in the mix as well (up nearly +11.0%) and could reclaim the top spot.

All 20 major cities tracked in the Case-Shiller report were positive during the month. Here is a complete look at how home prices have changed across the 20 major cities:

This data is very encouraging considering that April is a telling month when it comes to home sales. There is a two-month lag on this data, so I am interested to see how the numbers look for May and June. An annual appreciation rate of +6.0% is nice and steady and just what we want to see. But with mortgage rates on the rise that growth rate is likely to come back a bit in the coming months.

In The Market...

The S&P 500 fell -1.3% last week. Let's look under the hood:

(price data via

The S&P index fell for the second-straight week. Only three of the 10 stock sectors were higher, with the defensive Utilities sector as the big riser. Half of the sectors lost more than -1.0% apiece on the week.

Bond values rose as well as interest rates have fallen in five of the past six weeks. After the 10-year U.S. Treasury Bond yield rose to 3.0% back in April it has gradually slid lower. In the long run I do think the 10-year yield will get back above 3.0% but this short-term decline is not a huge surprise following the spike that rates had gone through since the beginning of the year.

The S&P 500 gained +0.6% in June, which is good but the bigger picture remains pretty blurry. The losses over the past two weeks has resulted in a second failed attempt to reclaim the record high from January. I have circled these two instances in the following chart of the S&P 500:

(chart created in

The market has gone nowhere over the past five months. It is concerning that the S&P 500 has been rejected both times it has run up against those two price-points highlighted above. But perhaps more telling than this price movement is the fact that there are fewer companies whose individual share prices are above their respective 200-day moving averages. This is shown in the lower, smaller chart (red line). Entering this week only 55% of those 500 companies are above their 200-day moving averages. Should that percentage fall much further it could result in a much larger market sell-off. This was the case back in Aug. 2015, Sept. 2014 and July 2011.

It is too soon to know if history will repeat itself in terms of a sell-off. We did sell our Consumer Discretionary sector position last week (XLY) as our analysis indicated it could be topping a bit in the near-term. This frees up a bit of cash to take advantage of discounted prices, should the market in fact fall in the coming days/weeks.

In Our Portfolios...

What's New With Us?

I will be out of town this Thursday and Friday, but will be available remotely. I hope everyone has a fun and safe July 4th holiday!

Have a great week,

Brian E Betz, CFP®

The Real Estate Reign Continues In Seattle

First, it was the renewed fear of a trade war with China. Then there was fear that Italy would leave the European Union (EU) following political instability. Then there was fear of a different trade war following tariffs placed on Canada, Mexico and the EU.

All three of these major developments happened this past week, and yet, U.S. stocks moved higher. Another reminder that there are news events and then there is how investors act. The two behave independent of one another and this was another example of that.

Despite the weekly gain stocks didn't exactly hit the cover off the ball. Overall the market is still moving mostly sideways, but it is optimistic how resiliently most equity sectors have held up lately. More on this below.

Two solid economic reports were buried in the news. Unemployment improved even further in May, falling from 3.9% to 3.8%. I won't spend time discussing this, but will refer you to what I wrote last month about unemployment dropping to a 50-year low if you want to see some historical perspective.

The other encouraging report, especially for us West Coasters, was the latest Case-Shiller housing numbers. Home values gained nearly +1.0% nationwide in March, rising in all 20 of the major cities tracked. Homes have appreciated by an average of +6.5% over the past year.

Seattle housing lapped most of the field yet again. Seattle real estate gained +3% in March and +13% over the past year. Las Vegas, where prices have risen +12.4% annually, may be primed to knock Seattle off its perch in the coming months based on the momentum building there. San Francisco is still in the picture as well, where homes are up +11.3% year-over-year.

Here is a city-by-city look at the latest housing numbers:

There is a two-month lag to these Case-Shiller numbers, so I will be interested to see if housing remains as hot into the Summer. I sense they will level off a bit more, as interest rates have risen and made financing more expensive. Speaking based on the areas I observe around Seattle, there appear to be fewer homes for sale than in years past. While reduced inventory is nothing new, I have noticed that homes have not been selling as fast compared to previous Spring seasons. Perhaps that is limited to my neighborhood or perhaps I'm mistaken, but that is my sense.

In The Market...

The S&P 500 gained +0.6% this past week. Let's look under the hood:

(price data via

At the sector level you will notice that returns were fairly split. Energy prices bounced back following a horrible prior week. Technology surged and continues to be the most attractive stock sector on all time-frames we analyze. The trade war and European tensions may have taken a toll on Financials, which were the worst-performing sector as interest rates dropped. 

The S&P 500 gained +2.4% in May but remains -5.0% below its all-time high. So there is still work to be done. I have been saying for the past few months that I felt a Tech rally would be needed in order to spark an entire U.S. stock market rally. If this past week is any indication we might see that very soon.

For now though the broad market is stuck in neutral. I had speculated that stocks would move sideways for a while coming off the big drop in February and unfortunately they have. We continue to own the two sectors that appear superior to the rest -- Tech and Consumer Discretionary.

In Our Portfolios...

What's New With Us?

Joshua Baird officially joins the team on Monday. I am excited for his arrival and the many contributions that he will bring to our firm in the future.

Have a great weekend,

Brian E. Betz, CFP®

Seattle City Council Is Playing With (Amazon) Fire

For some companies, the cost of hiring is going up in Seattle.

The Seattle City Council, by way of a 5-4 vote, approved a "Head Tax" that would charge Seattle companies that earn more than $20 million each year a tax of $500 for every worker they employ. This would generate $75 million in yearly revenue for the city. Of that, $50 million would go toward the construction of "affordable housing", $20 million would go toward emergency shelters to improve the rampant homelessness problem and $5 million would go toward administrative costs.

Critics accuse the tax of being punitive on large companies like Amazon that employ thousands of people. Amazon has protested the tax by halting development on a particular downtown real estate project.

Interestingly, Mayor Jenny Durkan opposed the Head Tax in its original form. She prefers to cut the tax in half to $250 per-employee, but City Council quickly rejected that. The existing proposal can bypass a mayor's veto if it receives 6 votes (one more than the initial vote).

The City Council is playing with fire. The nerve its members have to push Amazon's buttons is pretty stunning. If you compare the South Lake Union area 10 years ago to what it is today you would think it was a different city altogether if not for the Space Needle. That is all due to Amazon.

I have many thoughts on the housing market here/around Seattle, but that is for another time. Regarding homelessness, instead of arbitrarily levying a tax why not work with Amazon, Starbucks, Zillow, etc. to create a plan and obtain funding?

This leads to the main issue I have with it, which is the lack of detail. When there is already a general distrust in how government will use its money, it is especially surprising to target its largest generators of economic growth without a coherent plan. The 500 companies that will be affected may think twice about where they hire in the future.

If Amazon were to scale back development or move its operations, how would that hurt businesses that have benefited from its presence? Construction companies, home contractors and other industries that touch commercial or residential real estate would be adversely impacted.

The City Council is due to vote soon to see if it can collect the 2/3 vote needed to overcome a mayoral veto and enact the Head Tax in its current form.

In The Market...

The S&P 500 gained +2.6% this past week. Let's look under the hood:

(price data via

No doubt last week was solid. Nearly every stock sector was positive and the bond market even finished in the green. The two sectors we have liked most -- Technology and Energy -- led the way, rising nearly +4.0% apiece on the week.

Looking more broadly at the entire market as a whole, the S&P 500 has broken free above its recent downtrend, as shown here:

(chart created in

Notice how the price of the S&P index broke above the falling trend line (in pink). This is encouraging but not necessarily a guarantee that stock prices are off to the races. The index remains roughly -4.5% below its all-time high. I could see the rally persisting up until it starts to press against that high, at which point prices will likely hit some headwinds.

Coming into this week, Tech continues to look the best. We added a Tech sector fund to many accounts last week. We are looking to add either Energy or Consumer Discretionary sector funds in the coming days if prices continue to rise.

In Our Portfolios...

What's New With Us?

For those of you who actively login to Morningstar to view portfolio performance information, there is a new-and-improved site that you should use moving forward. The new site is:

This revamped Morningstar platform provides greater account detail, smoother navigation and a better overall interface. Let me know if you have any questions. It remains the place where monthly fee summaries will be posted.

Finally, happy belated Mother's Day to all you moms!

Brian E. Betz, CFP®

Zillow Breaks Ground As A Real Estate... Investor?

Zillow is breaking new ground.

The Seattle-based company serving as the largest online real estate database announced it will test its hand at real estate investing. Zillow's goal is to own between 300 and 1,000 homes by year-end in the Phoenix and Las Vegas test markets. Here is how:

  1. Zillow will make immediate offers to home sellers.
  2. Zillow will update/repair the home as needed.
  3. Zillow will work with a prospective buyer's agent to sell the home within 90 days from original purchase.

If you think this sounds a lot like flipping homes, you would be right. It represents a major pivot from Zillow's ad sales-based revenue model. It poses a lot of questions about what it means not just for the future of Zillow, but for real estate agents and real estate in general. CEO Spencer Rascoff justified the decision by repeatedly citing that the company's vast housing analytics supported the move.

Okay... But something seems off about this, or at least missing. Zillow revenues are growing +24%. Why deviate so sharply from the core business model? I appreciate creative thinking and applaud any business that is mindful of skating to where the puck is headed rather than where the puck is at. If this is the case, what are the bigger implications?

Rascoff highlighted two things: Initial feedback from real estate agents has been positive and home sellers want to complete the sale faster than the industry currently allows. I have no idea about the first part. I have not had the chance to chat with any agents about this news. The second part interests me more. In addition to saying that sellers want quicker closings, Rascoff said the following:

"There are people who are basically stuck in their home that would love to go buy another home but can't sell their home. We think that this is another additive to the real estate industry. This could provide the ability to un-stick people from their home."

Is this actually true? He is implying that current homeowners cannot sell their homes because either overall demand is weak or because they cannot pull off a contingency-based purchase (where buying the next home is contingent on selling their existing one). The former cannot be true, because if it were, that would mean the housing market is weakening and logically Zillow would not want to buy into a falling market.

If the latter is true -- that contingency-based deals are cumbersome -- then inserting Zillow into the market will only drive down real estate values. Zillow will be able to offer less than a traditional buyer would because they can offer something no one else can: an instantaneous closing. As a seller, Zillow would be able to still receive top-dollar, but how long will that last before Zillow-the-buyer systemically forces prices lower?

Perhaps that is the brilliance of the idea. Zillow can have their cake and eat it too. They can offer 90 cents on the dollar as the buyer and then tap the traditional sales channel as the seller to obtain the highest price possible. I just see this playing out in Seattle where Zillow buys a property for full-ask (or less) and then turns around and attracts a bidding war when they flip it.

All of this assumes that home sellers care about quick closings as much as Zillow says they do. It also assumes that an average bid from Zillow is competitive enough to entice the seller, rather than some low-ball offer.

An industry shift coming? I heard some feedback discussing that this is merely a step in the direction of where the industry is headed, toward more automated real estate transactions. I don't know enough about the industry or technology to say either way, but I do know one thing... the more complicated the process the harder it is to automate. Real estate transactions are complicated and rarely seamless, so whatever technological shift is happening will likely be a slow one. Then again, maybe this is breaking eggs to make an omelette.

How will it impact agents? Zillow says it will work with agents. For instance, an agent representing a seller could shop the house to Zillow as the interested buyer. Beyond that, I'm unsure exactly how this endeavor benefits agents to the degree that Rascoff implied.

The looming risk: Zillow will take on loans to make these purchases, just like any other buyer, which presents considerable risk if there is a housing market decline. Hence why Zillow is testing it out in a small scale first. The initial investor reaction was negative, as Zillow shares fell -7% Friday off the news.

I am learning more about this as it develops. If you think I've got it wrong I would love to hear your insight.

In The Market...

The S&P 500 gained +2.1% this past week. Let's look under the hood:

(price data via

The S&P 500 was up +2% this week but it feels like it could have been more than that. The market jumped higher to open Friday before gradually sliding lower throughout the day. But after all it was Friday the 13th...

Despite that, the week was largely positive. Eight of 10 stock sectors were positive. High-yield bonds had the best week since early February. This time a week ago it looked like the bottom might soon fall out if the S&P fell below its 200-day moving average. That did not happen and is sitting roughly 2% above that moving average. Stocks are not out of the woods yet, but there were positive developments for sure.

On that note, we purchased a Technology sector fund (XLK) for most client accounts. Like the rest of the U.S. stock market, Tech has see-sawed since late-January and remains roughly -7% below its previous peak set back in mid-March. This offered what I believe was a nice buying opportunity so we did just that. For those accounts affected it represents an allocation size ranging from 10% to 30% of your total account size.

Additionally, we purchased an Energy sector fund (XLE) for some select accounts. Energy prices broke higher this past week and I suspect that rise to continue, at least in the near-term. I will be looking to add Energy to other accounts as well over the coming weeks if this analysis proves correct. For now though, most accounts are fully invested so it is about opportunity cost.

In Our Portfolios...

In Financial Planning...

Tax day is Tuesday, April 17th! Let me or Gale know if you have any last-minute questions. If you plan to make a Traditional IRA or Roth IRA contribution for 2017 and your bank account is not already linked to your IRA, I advise you make the contribution by check and back-date it prior to April 17. If you date it beyond April 17th it will count toward 2018. There is not enough time to link your bank account and make a 2017 contribution before the Tuesday deadline.

What's New With Us?

Quick story about the value of Amazon Prime Now...

My wife was traveling for work this past week. While she was gone, our daughter ran a temperature so I had to pick her up early from daycare. We had run out of Infant Motrin and, in my haste, thought that I had bought the right one when I made a quick stop at the store. I didn't. Apparently Children's Motrin and Infant Motrin are two different things.

Upon realizing this back at home I knew I was stuck. I was not heading back to the store, with her being sick and all. This is where Amazon Prime Now came to the rescue. Within 2 hours I got the correct Motrin delivered to our door.

Amazon Prime is great, but Prime Now is a game-changer. Even though Prime Now is available in more than 30 major U.S. cities, it is far from mainstream adoption. Of course if Amazon starts delivering pharmaceutical prescriptions in the coming year that will change fast...

On a completely different note, I am going to my first Mariners game of the year tonight. It should be fun!

Have a great weekend,

Brian E. Betz, CFP®

If North Korea Goes Nuclear, Will The Stock Market Follow Suit?

In The News...

One story has dominated the headlines recently, both inside the market and out: North Korea.

So far it has only been a war of words between President Trump and North Korean leader Kim Jong-un, which, I'm sure most of you already know. Onto why it matters...

How does North Korea affect the market? No one knows. International conflicts tend to have more short-term than long-term impacts, but it is impossible to know how much events like these influence investors. The conversation immediately goes to the worst-case scenario of outright nuclear war, which is no doubt a scary proposition but also a pretty hasty conclusion when used to influence investment decisions.

Historical comparisons: Although there is no good comparison to a potential U.S.-North Korea conflict, here is some context. The S&P 500 fell -4% the day after Pearl Harbor (which occurred on a Sunday) and -20% in total before bottoming out. The S&P fell -5% the day the market reopened following 9/11 (market was closed for 4 days). It fell a total of -13% before bottoming just 10 days after those Sept. 11th attacks. Interpret these losses as you wish, but the point here is that they weren't as catastrophic as we might have presumed they would be. 

Conclusion: Nuclear war is clearly another level of potential disaster, which makes North Korea very concerning. But we as investors must keep a level head and stick to our process, particularly in the age of the 24/7 news cycle. Reacting to every statement, ad-lib or Twitter-post is a bad investment strategy and an even worse way to live your life. The long-term trend of the stock market has been rising for nearly 1 year and we will give that trend the benefit of the doubt until our analysis suggests it is otherwise broken.

In The Market...

The S&P 500 slid -1.3% this past week. Let's look under the hood:

(price data via Yahoo Finance)

Stocks: The bad news is, this was the worst week for stocks in nearly 5 months. The good news? The S&P 500 was only down a little more than 1%. I have mentioned how this is seasonally the worst time of the year for stocks and that appears to be taking shape. Nearly every sector was in the red, except Consumer Staples, which eked out a fractional gain.

Bonds: Stock market pain was the bond market's gain. Treasuries rallied for the second-straight week, which is the silver lining this week given that most accounts own Long-Term Treasury bonds (TLT). Perhaps most concerning for stocks is that both High-Yield bonds and Preferred Stock were each down over -1%. High-yields, in particular, often serve as a beacon for what is in store for stocks.

In Our Opinion...

Do stocks have a case of bad breadth?

If recent stock market losses are more than merely the seasonal volatility we see around this time of year, there is one indicator that may tip us off: The percent of stock prices above/below their respective 200-day moving averages. Also referred to as "breadth".

I track this ratio for the entire S&P 500, as well as for each of the 10 major U.S. stock sectors. The 200-day moving average is, for my money, the best long-term price indicator there is. When the price of a given stock, sector or index is above its 200-day average, that is bullish. If the 200-day average is rising (rather than flat or falling), that is doubly bullish. The opposite is true too. If the price is below and/or the slope of the 200-day moving average is falling, those are more bearish scenarios.

Here is a sector-by-sector look at where each breadth ratio stands (also included are the two major indexes we track -- the S&P 500 and Nasdaq-100):

(percentages via

Currently, 68% of stocks in the S&P are above their 200-day moving averages (the second column of percentages). This is the lowest ratio since Jan. 2017, yet it is still above 50%, which is the threshold where problems start to occur (and fast).

I included the breadth ratios from the most recent high back in late-February (first column of percentages), when 82% of stocks were above their 200-day moving averages. The S&P has risen roughly +5% since that time, despite breadth falling across every major sector. This type of divergence between rising prices and falling breadth is potentially a signal that momentum is waning. Whether it results in a significant decline from here, or presents another buying opportunity instead, time will tell.

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...

Buy or Build? That is the question...

I have spoken with more than a dozen clients and friends in the past few months who have undergone, or are considering, a home remodel. Some of the reasons include a growing family, the desire to make certain modifications, or simply having more money and real estate equity today to play with.

A home renovation makes a lot of sense, but is it preferable to selling and buying a different home?

The short answer is to "do you". In other words, do what fits you. Some of us are more inclined to go through a remodel than others. The same can be said of moving. Before you decide, consider these questions first...

Home Remodel:

  • How extensive are the renovations you need and want? The more there are, the more it might make sense to sell and buy something else.
  • If you will be displaced from your home, how long will that be? How might that affect your calendar of events during those weeks/months?
  • What are the risks that your remodel runs over-budget or past-deadline? The former is a financial problem. The latter is simply annoying.
  • Which renovations will add value to your home (e.g. increased square footage) vs. those that are purely for personal pleasure? Be realistic when it comes to added value...
  • How much could life change post-remodel that might necessitate further renovations?

I believe remodeling makes sense if you are determined to stay in your home for a prolonged period (more than 10 years). Or, if there are certain aspects of your existing location that you cannot live without, such as the specific block you live on, your view or the nearby schools.

We have never personally remodeled, but nonetheless, I would recommend starting with a small project and expanding from there. So many people blow their budget, which is understandable when you start rationalizing tens of thousands of dollars.

"Well we are already spending $30,000... what difference does it make if we spend $35,000?"

Those dollars add up even if they seem arbitrary. This means either more debt or less cash/liquidity in the bank.

Sell & Purchase:

  • How does current financing compare to your existing mortgage? If rates have gone up so too will your interest payments.
  • How do the non-house-specific factors compare? Such as neighborhood, schools, growth potential, proximity to work, crime, etc...
  • If you use most/all of your existing home equity toward the next home, your liquidity worsens even though your net worth stays the same.
  • If you are moving a good distance away, are there life factors that may necessitate you move back in the future?
  • How emotionally tied are you to the house? This may sound silly to some, but the less emotional you are about the property the easier it will be to list it.

There is no right or wrong answer here. It is all case-by-case. Notice I did not tackle the third option: Purchase a new home and rent-out your existing one. This carries greater complexity than the two other options. I am happy to discuss this with you if you plan to buy and keep your existing home as a rental.

What's New With Us?

Some of you have noticed that you still have an active account with Scottrade, reflecting a zero balance. This is not an error. All Scottrade accounts will be dissolved by mid-October. There is nothing that you need to do, as account information such as tax data was transferred to TD Ameritrade at the same time we moved account funds. If there are specific Scottrade records you want, such as old 1099 tax forms, let Gale or I know.

Have a great weekend!


Brian E Betz, CFP®

Seattle Real Estate Sizzles Heading Into Summer

In The News...

In light of the 4th of July holiday I opted not to send out a recap last week. So I'll play a bit of catch-up and touch on some things that occurred over the past two weeks.

Housing Prices Hum Along: The housing data has become redundant the past few months. I say that in a good way, particularly for us in the Northwest. Homes appreciated by an average of +5.5% in April, which reflects the trailing 1-year gain. Seattle widened its gap over the rest of the country, rising +12.9% annually. This growth more than doubles the national average and is nearly +4.0% better than the next-closest city (Portland).

Here is a city-by-city look at both monthly and annual price changes:

There is not much to add that I have not said before. Yearly growth of +5% is stable. It does not reflect the bubble that so many continue to preach. Whether Seattle-area homes are overpriced is a different discussion, though I believe this market to be strong.

Different markets will have their time in the sun as the ebbs and flows of hiring occur, as Seattle does now and as San Francisco did in recent years. I suspect growth to remain strong along the west coast, which includes when it eventually comes down from double-digits into the 5% (or so) range. If I had to say I'd think we are a year away from that. But do not mistake slowed growth for falling home values. They are nowhere near the same.

In The Market...

The S&P 500 was up +0.1% this past week. Let's look under the hood...

(price data via Yahoo Finance)

Stocks: The first half of 2017 came to an end with a whimper. The S&P 500 did gain nearly +3.0% in Q2 but absorbed a bit of a sell-off at the end of June. Through the first half of 2017 the S&P was up +9.0%, tracking nicely above its long-term historical average for a six-month period.

On a sector basis, Technology and Health Care have been the best performers year-to-date. Only the Energy is negative for the year among the 10 major stock sectors. This past week Financials continued to rally, while dividend-paying sectors (Utilities, REITs) again lagged.

Bonds: Just as dividend-paying stocks have struggled recently it has been a tough couple weeks for bonds, specifically the more conservative flavors like Treasuries and Investment-Grade Corporates (both of which we own). I swear I am not only saying this now, but I suspected this rough patch might happen based on analysis I did two weeks ago following the tear that bonds had been on during May and June. We do not react to small timeframes, particularly when the longer-term, weekly view still looks good for bonds.

No bad breadth: One thing that has helped stocks combat a big sell-off this year has been the technical concept of "breadth" that I often reference. Specifically, the ratio of companies whose share prices are above their 200-day trailing averages. The 200-day moving average is a good indicator because it reflects the long-term price trend and we do not like to fight long-term trends. The higher the ratio of collective S&P 500 companies above their respective 200-day moving averages the more the market is rising together, which is good. The lower that ratio the more the market is falling together, which is bad.

Right now, 71% of the 500 companies in the S&P 500 are above their 200-day averages. This is stable, if not strong. If that ratio falls below 60% I may begin to worry, but breadth has held above that threshold for well over a year. We do not look at this in a vacuum, but it does help supplement other analysis.

In Our Opinion...

Have you ever heard someone say something along the lines of...

"Stocks are expensive."
"The market is overpriced."

"This is definitely a bubble."

I certainly have and am not much of a fan. But what do these statements mean?

They all imply roughly the same thing: The stock market is not worth buying because a drop is coming. Sometimes this premise is based on something statistical, like a price-to-earnings ratio. Sometimes it is based on nothing more than what they heard someone else say (i.e. coworker, friend, neighbor, TV talking head).

Most often it is rooted in nothing more than fear, which is damaging when it begins to stifle your investment decisions without just cause. I have no problem with someone saying the market will skyrocket or crater, so long as there is a measurable, process-based reason for the claim. I will find reason at some point in the future for believing that the market will fall. But I track market conditions daily and use what I believe are consistent and sound methods. I also avoid hyperbole because I realize that no method is perfect and the market has a way of humbling you very quickly if you become too presumptive.

Be careful to distinguish noise from knowledge because loud, unsubstantiated claims are easy to come by.

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.)

Financial Planning/Q&A...

My wife called me last Thursday freaking out.

She received a voicemail from the IRS informing her that she had committed tax evasion for the years 2010 through 2015 and was going to be arrested within 72 hours. The recording was detailed and when she returned the call the representative on the other end was thorough articulating the "crimes" she had committed.

Moments into her explaining this via text, I quickly interjected to say it was a scam.

These types of calls are apparently way too common. If you ever get a call from someone saying they represent the IRS, do not provide any personal information and certainly do not provide any payment information. If you receive a letter in the mail, scan and email me a copy of it before you do anything. Scammers have gotten very good at mailing out what appear to be legitimate IRS-issued notices requesting payment. Bottom line: If you receive such a notice, do not do anything until you have consulted either myself, Gale or your CPA.

Here is information pulled directly from the IRS website. Note the four things that the IRS says it will never do, but which scammers attempt to pull off.


Luckily for us, my wife did not provide any information and promptly hung up when I texted her to do so. Crisis averted.

What's New With Us?

Quick reminder... To access your monthly fee statements you must login to the Morningstar Client Web Portal. You should have already set up your access, but if you have not, I can re-send you instructions. One of the benefits of adding Morningstar is the ability for us to automate fee summaries. So when you receive an email from Morningstar each month, it likely pertains to the fact that I have posted your latest fee summary for your viewing purposes.

Have a great weekend!


Brian E Betz, CFP®

Accord-Cutting: Trump Withdraws U.S. From Paris Agreement

In The News...

I learned something new this past week.

I learned that there is an international pact called the Paris Agreement, in which member nations band together to promote climate change and combat global warming. I had never heard of this accord until a few days ago when President Trump made the controversial decision to withdraw the U.S. from it.

All in favor: As best I understand it, those who favor the Paris Agreement believe it reflects a necessary, joint commitment to fight the scientifically proven fact that ongoing pollution causes the Earth's temperature to gradually rise, threatening both global economic growth and the lives of future generations.

All opposed: Those who agree with Trump's decision to ditch the Paris Agreement believe it will help the U.S. economy by preserving domestic jobs in industries that produce fossil-fuel based energy, such as coal. In Trump's case, there is debate over whether this is more about him believing the Paris Agreement simply represents a "bad deal" that he will later renegotiate, versus a staunch disbelief/disregard of global warming.

I have never really taken time to research global warming. I have tapped a number of people on both sides and most seem to accept global warming due to scientific evidence. I plan to learn more about it, but in the meantime cannot offer much opinion until I do. My thoughts on how this topic relates to the work financial advisers do in the Opinion section below.

Seattle for the win: Seattle housing led the nation in price growth for yet another month, and the gap is widening. The latest S&P/Case-Shiller report shows Seattle homes were up +2.6% in March and +12.3% over the past year. That double-digit annual growth not only laps the rest of the nation, which grew +5.8%, but is +3.0% higher than the next-closest city (Portland).

Here is a complete city-by-city look at the 20 major housing markets:

Why Seattle? The Pacific Northwest, particularly Seattle, continues to benefit from a few factors.

  1. Housing prices became so hot in areas of California, namely the Silicon Valley, that businesses (and consequently their employees) have migrated north.
  2. Seattle was a hotbed for innovation before any Silicon Valley migration.
  3. Seattle is tech-heavy but not tech-dependent, which is something often overlooked. There is great commerce balance, considering non-tech giants like Starbucks and Boeing are based here.
  4. Globalization continues to "flatten" the world, so it is not as daunting for younger workers to move to an isolated area like the Pacific Northwest (stigmas and all).
  5. Finally... Amazon (enough said).

As I have said before, at some point Seattle will level off similar to San Francisco. But for now the housing wave remains strong for existing homeowners and becomes more challenging for first-time homebuyers.

In The Market...

The S&P 500 climbed +1.0% this past week. Let's look under the hood...

(source of price data: Yahoo Finance)

Stocks: Another strong week for stocks, as only Financials and Energy were in the red. Every other sector was up at least +1.0%, which is bullish. We continue to hold Utilities (XLU) across all client accounts. We also own either the Nasdaq-100 fund (QQQ) or S&P 500-index fund (IVV) as well, depending on account size. Real Estate (VNQ) is a fund that larger accounts or more aggressive accounts continue to own. We have yet to see the rally I had anticipated in that sector, but Real Estate was up like most sectors last week, which is positive.

Bonds: Another week where bonds were unshaken despite a stock rally. Most accounts continue to own Investment-Grade Corporate Bonds (LQD) as well as High-Yield Bonds (HYG or JNK). On Friday, Long-Term Treasuries (TLT) rallied more than +1.0%. Treasuries may be primed to rally further in the weeks ahead, as I have written at-length in the past few months. I have said I thought that interest rates would fall and so far they have. But conditions can change quickly, so no time to dwell on history.

Did investors "go away" in May? Not so much... The S&P 500, when including dividends, gained +1.4% in May while the Nasdaq-100 was up nearly triple that, rising +3.9%. I mention the Nasdaq-100 because it tends to be more reflective of "risk-on" investor behavior, meaning investors are showing greater risk appetite. The Nasdaq-100 is predominantly comprised of stocks in the Tech and Consumer Discretionary sectors, two areas that are more cyclical (meaning they rise more compared to the overall market during positive periods and fall more comparatively when the market is down).

2,400 and gone? Excluding dividends, the S&P 500 index surpassed 2,400 on its third attempt in late-May and appears poised to rally further. Take a look...

(chart created via

The dashed line reflects 2,400 on this daily chart (each candle on the big chart represents a day). I am interested to see whether this rally sustains into the summer months, especially into August, when volatility often picks up. Right now, stocks continue to look good based on our technical analysis.

In Our Opinion...

It is okay to say I don't know.

I do not give uneducated or inauthentic answers to questions relating to investing or financial planning. So when I am asked what impact leaving the Paris Agreement will have on the market or economy, I cannot give an answer.

As mentioned I have taken no time to learn about global warming, so I am not ashamed to admit I had no idea an international agreement even existed in the first place. In fact, I would still have no idea had headlines not erupted following Trump's decision to remove the U.S. from participating in it. Yet, in 2017 it seems we are supposed to have an immediate and steadfast opinion on matters like this.

Unfortunately, I don't. At least until I learn more. If someone says the agreement is bad "because it will kill jobs" without providing employment stats, or says it is good "because it's science" without detailed scientific evidence, I am not going to naively choose either side.

The same thing applies to investing and financial planning. For example, two questions I received just this past week that are difficult to answer:

  • I hear gold prices are going to skyrocket when the economy tanks. Should I sell and buy gold?
  • Snapchat just went public. Should I buy it?

The first question is tough to answer, although I know a lot about gold. It is tough because this specific question, which I get from time to time, often comes from a place of cynicism. The person is usually very pessimistic and believes the world is going to implode (gold prices usually rise when stock prices plunge, which is the logic here).

Part of my job is to assuage such fear. We would not be in this business if we felt the market was constantly on the verge of collapse. But some people simply believe each year will be 2008, despite any rationalization provided to the contrary. With that mindset being as strong as it often is, sometimes nothing can be said to overcome those concerns.

The second question, relating to Snapchat, is impossible to answer. Our investment approach relies on past price history and Snapchat, like any company that goes public, by definition has no price history. I get why people like IPOs -- the media attention makes them sexy to invest in. Plus, a lot of people think every tech company that goes public will be the next Google (a dangerous mentality to have). So while I could give an opinion on Snapchat, the responsible thing to do is say "I am not sure" when asked if it is a smart investment. As price trends develop over time, only then will I feel comfortable voicing my opinion.

So if you ask me a question that I am not educated on, I will likely research it and get back to you. It is okay to say I am not sure or I don't know.

In Our Portfolios...

Stocks: Purchased the Nasdaq-100 fund (QQQ) for accounts above $50,000 and the S&P 500 index fund (IVV) for accounts below $50,000. For accounts that own individual stocks (certain portfolios above $150,000), we sold Oracle.

Bonds: Purchased the Long-Term Treasuries fund (TLT) for certain accounts and will look to add this for additional accounts into next week.

Q&A/Financial Planning...

If you are a parent or grandparent to young kids, I thought I would share a decision that my wife and I personally made this past week. We opened a 529 college savings plan for our infant daughter, Brooklyn. We chose the Utah Educational Savings Plan (UESP) due to its low cost structure, strong Morningstar rating and flexibility for me to manage the account. (Most plans have a "set it and forget it" approach that automatically shifts from stocks to bonds as the child nears age 18, but our situation is obviously unique in that I am capable of managing the funds and desire to do so.)

529 plans provide two chief benefits when saving for college:

  1. Account earnings grow tax-free, meaning you are not taxed if used to fund future college expenses. If you start early enough and contribute a lot, earnings can comprise a big chunk of the eventual balance, which means big tax savings.
  2. Such plans provide a defined structure, which instills good savings discipline/behavior if proper financial planning is conducted at inception.

There is some flexibility too. For instance, if there are multiple children and the designated child does not go to college, you can change beneficiaries to another child that does go to college.

There are some distinct disadvantages, or at least pitfalls to know:

  • If funds are withdrawn for uses other than college expenses, all earnings are not only taxed as ordinary income but penalized 10% as well.
  • If you do not properly plan and save the right amount over time, you can quickly fall behind as your child ages. This means you diminish the tax advantages and the overall point of having the plan.
  • If structured incorrectly, particularly with grandparent-owned 529 plans, you could face adverse tax and financial aid consequences in the future (which I won't detail here, but contact me for more).

I generally recommend 529 plans, but only for motivated parents and grandparents who execute on the savings behavior required to achieve their goal. For us, we plan on saving to accommodate 3 years of college education for our daughter (while using other funds, potential scholarships or student debt to pay for the fourth year). Among the other mathematical factors that went into determining how much we need to save, I based it on a tuition cost of $25,000 per-year (in today's dollars), a 5% college inflation rate and an annual 7% investment growth rate over the next 18 years.

I am happy to share why this math is necessary. Let me know if you have any questions on 529 plans, or college savings in general.

What's New With Us?

For those of you who receive monthly performance summaries via Morningstar, please know that the May summaries will be delayed. Due to the migration from Scottrade to TD Ameritrade, I am working through a project to merge account histories within Morningstar. Once that project is complete I will send out May summaries. If you have not previously received a monthly performance summary and would like to begin receiving them, just ask.

Have a great remaining weekend!


Brian E Betz, CFP®

Something To Know About Mortgage Refinancing And Something To Forget About Stock Prices

In The News...

Another month in the books in 2017.

The U.S. market, per the S&P 500, gained +1.0% in April. It was a nice bump higher considering stocks had been slipping over the six-week stretch from March 1st to mid-April. The last two weeks was a nice bounce that helped the market finish positive for the month.

Seattle housing laps the nation: Home prices rose slightly in February and by an average of +5.8% annually, according to the latest S&P/Case-Shiller housing report. Seattle continues to dominate real estate, where prices are up +2% month-over-month and +12% over the past year. Seattle housing growth has doubled the national average in recent months and maintains a sizable lead over the #2 housing market, Portland, where prices have risen +9.7% annually. Here is a complete city-by-city look at the 20 major markets:

(source: S&P/Case-Shiller Home Price Index)

Seattle has thrived thanks to the success of Amazon and Boeing, the reemergence of Microsoft and the ongoing technology migration. I would suspect that home values will level off a bit next year, meaning a slower pace of price increases. That would channel a pattern already experienced by San Francisco, where prices led the nation for a very long time before the pace of growth began to slow a bit in late-2016.

In The Market...

The S&P 500 gained +1.4% last week. Let's look under the hood...

(data source: Yahoo Finance)

Stocks: Stocks sprang higher to start last week and held those gains the rest of the way. Health Care, Technology and Consumer Discretionary led while only Real Estate lagged.

Bonds: High-yield bonds and preferred stock steadily rose again. Treasury bonds sold off, causing interest rates to jump. Despite last week's decline, I actually believe we may see interest rates fall again here in the next few weeks. If you are interested in knowing why, let me know -- I am happy to share my analysis.

Earnings bonanza! As of Friday, April 28th, roughly half (58%) of the 500 companies in the S&P index had reported quarterly results. Both revenue and earnings growth are the highest since 2011, as sales and profits are up +7.5% and +12.5%, respectively (per Factset). Sales and profits have risen across all 10 stock sectors, which reflects broad market strength rather than leadership by a few, concentrated sectors. Forty percent of S&P 500 companies have yet to report, so while impressive, these numbers are still preliminary.

In Our Opinion...

Stock price does not matter. Let me explain.

Amazon stock price recently surpassed $900. A lot of people would consider this expensive. To think that $900 would only get you one Amazon share does not feel as worthwhile as buying a bunch of shares of a much cheaper stock.

All else being equal though, price does not matter.

Instead of buying Amazon, let's say you use $900 to buy 10 shares of Kraft (currently priced around $90). If the price of Kraft goes up 10% to $99, will you earn more or less than if your one share of Amazon goes up by 10% from $900 to $990?


A 10% gain is a 10% gain, regardless if you own one share that costs $1,000 or 1,000 shares that cost $1 apiece. You will cumulatively earn the exact same dollar amount. I prefaced this with "all else being equal" because, clearly, no two companies are alike. Amazon and Kraft are entirely different businesses whose stock prices have separate supply and demand characteristics.

"Yeah, but what if the higher-priced stock splits and I double my shares?"

That is fine, but on paper there is no benefit to a stock split. Your equity does not change. The stock price proportionally adjusts to the size of the split.

2-for-1 split? The share price is cut in half.
3-for-1 split? The price is slashed by one-third.

There is some merit to believing that a lower stock price will enable and encourage more investors to buy the stock, which increases demand and subsequently its price. While that may be true in theory, it is pure speculation. If you buy a stock in hopes that it will split, or continue holding it for only that reason, you may want to rethink your decision.

We put zero emphasis on a stock's price in terms of the number of shares that can be purchased. Neither should you.

In Our Portfolios...

Stocks: No changes this week.

Bonds: We bought an investment-grade bond fund (LQD) for our conservative and moderate accounts.

Q&A/Financial Planning...

I am helping a client refinance their home mortgage, which will allow them to lower their interest rate, as well as lock in a fixed percentage and dispose of their current, variable rate.

We often think about refinancing as "saving money". On the surface this is true. If you go from a 5.0% 30-year fixed rate to a 4.3% 30-year fixed rate you are saving on interest once you get passed what I call the break-even date. Since it costs you something to refinance, I like to calculate the number of months it will take to make that money back through interest savings. I find the break-even date by dividing the interest dollars saved per-month into the cost to refinance.

But there is another thing to remember, especially the closer you are to retirement. If your new loan term is longer than the remaining years on your existing loan, your loan payoff date gets pushed out. This is quite common, as many people will be 5 or 10 years into their existing mortgage and choose to refinance into a 30-year fixed loan. It has been especially popular the past few years, as interest rates have fallen and homeowners have recovered equity post-2009.

Pushing out your payoff date is not a problem if you have the right plan. It is something to be aware of, particularly if your goal is to pay off your mortgage by a certain date. If you are refinancing then presumably your monthly payment is going down (unless you are taking on a shorter-term loan). You want to be responsible with the newfound "savings". Consider using that extra money to do one of the following:

  1. Make an additional, lump-sum mortgage payment each year
  2. Pay off other debts - either non-productive debts (e.g. credit cards) or those with higher interest rates compared to your mortgage
  3. Invest the extra cash to help save toward retirement, which also enables you to make a greater lump-sum mortgage payment in the future
  4. Sock it away as cash to build up a cushion for emergencies

Let me know if you have questions. Our friends at North Pacific Mortgage can help if you are interested in refinancing. I always advocate considering what options are available to you, but it is equally important to understand the ramifications before doing so.

What's New With Us?

We have begun setting up accounts at TD Ameritrade. Once most accounts are established, I will send you a second round of Docusign forms to e-sign. This will include the account transfer request, as well as a form for making contributions or distributions (if applicable). Let me know if you have any questions about this process. My goal is to have most accounts transferred by the end of May.

Have a great week!


Brian E Betz, CFP®

Home Prices Keep Rising. Homeownership Keeps Falling. Huh?

In The News...

How valuable is real estate exactly?

Like anything else, real estate is only as valuable as what someone else will pay for it. I mention this because I am helping a client of ours value their business, and in doing so, discussed the value of real estate in 5 to 10 years time (when they plan to sell their business). These business owners rent their building space, which they think could prevent them from getting top-dollar upon sale.

Hold on, I said. That may not be a bad thing. If they owned the property they would struggle to find a buyer to pay 100 cents on the dollar for it, as it is commercial space and the purchasing company would likely integrate them into their existing operations, conducted elsewhere. That was my initial reaction. My second reaction relates to this:

(image via YahooFinance)

Yes, that is a vending machine mounted into what used to be a department store entrance inside of a shopping mall. More and more retail spaces are vacating as consumers purchase online (Amazon, etc.). Our client does not operate within a mall, nor do they own a retail store. But that may not matter. Property owners will feel the impact as online expansion has a trickle-down effect. If you have heard the phrase "a rising tide lifts all ships", this is the opposite. Commercial real estate growth will slow as brick and mortar businesses shrink their collective footprint.

As a result, owning the property might present greater challenges to our client in the event of a sale, particularly if they have debt attached to it. So not only would they struggle to get full value for the property, but their equity at-sale would be further reduced by any residual mortgage debt (if present).

Seattle real estate leads the nation (again): Residential real estate holds steady. The latest Case-Shiller housing report shows home prices were up nearly +6% year-over-year, as of January-end. Seattle was tops among major U.S. cities, up an impressive +11.3% annually, which nearly doubled the national average. Take a look at the price breakdown by major market:

Where have all the homeowners gone? Despite the nice rebound in housing prices since the 2011 bottom, homeownership has not recovered with it. This next chart is confounding, as it shows the decline in homeowners, which started over a decade ago:

Only 64% of Americans own homes, down -6% since 2005 and rivaling lows not seen since the 1960s. I discuss why this might be in the Opinion section below.

In The Market...

The S&P 500 fell -0.2% last week. Let's look under the hood:

(data source: Yahoo Finance)

Since I didn't send out a weekly recap last week, I didn't get a chance to talk about quarter-end. The previous Friday was both March-end and the end of Q1. The first quarter was strong for stocks. Here are some highlights/takeaways from the first three months of 2017:

  • S&P 500 climbed nearly +6.0% in the first three months of 2017 (including dividends)
  • Nine of the 10 major stock sectors were positive in Q1 (Energy was negative)
  • Technology was the best-performing sector, up +10.7% (XLK)
  • Tech-heavy Nasdaq-100 index rose +12.0%, outperforming the S&P index
  • 79% of S&P 500 stocks were above their 200-day average price at quarter-end, which is bullish
  • Bonds were positive across the board, led by high-yield bonds and preferred stock
  • S&P was essentially flat in March, meaning all of the quarterly gains occurred in Jan/Feb.

That last point is important. A few weeks back I mentioned that the overall market might flatten out for a period of time and that is exactly what we have seen. Take a look at this chart of the S&P index and notice that since touching a value of 2,400 back on March 1st, the S&P 500 has not returned there since.

(chart via

More importantly, Relative Strength (RSI, the upper chart) has been falling. This is often a good leading indicator of future price. In this case, if RSI falls much further below 50.0 we likely will see stocks slide further in the near future. The long-term picture still looks bullish though, when looking out weeks and months. That is important because I believe it means investors are in "buy the dip" mode rather than "sell the rally" mode.

At the end of the quarter our primary stock holding is a Consumer Discretionary fund (XLY). We had previously held a Materials sector fund (XLB) up until two weeks ago. As a result, we hold a cash position across most accounts that we will look to reinvest in the near future.

In Our Opinion...

Continuing my earlier thoughts on real estate, how is it that home prices are rising but homeownership is not? Here a few reasons to consider:

  • We are evolving into a society of "renters" as much as "owners", whether by choice or by force. For example, 31% of people lease cars rather than buy them. This is up from 25% a few years prior.
  • The average worker changes jobs more frequently than ever, an average of 10 to 15 times in their career. This makes buying a home less appealing if the job change requires a geographical move.
  • Real estate prices have outpaced wage growth, making it more difficult to keep pace with home prices.
  • However, many prospective buyers simply have not saved enough to accommodate a 20% down payment, or an amount close to that.
  • Some people are still reluctant to buy due to fear that another housing crisis looms.
  • The average person gets married in their late-20s, as compared to Baby Boomers who wed in their early 20s. Marriage is the most common life event that precedes buying a home, which means there is a large pool of working 20-somethings who have yet to buy.

I'd be curious to know what you all think explains the rise in home prices and subsequent decline in ownership.

In Our Portfolios...

Stocks: We sold our Materials fund (XLB), which was owned within most client accounts. We will use the proceeds to most likely buy a Utilities fund (XLU) or a Nasdaq-100 index fund (QQQ).

Bonds: We sold a high-yield bond fund (ANGL) within accounts that owned it. We still own another high-yield bond fund (HYG) across certain accounts.

Q&A / Financial Planning...

This is your last week to make IRA contributions for 2016. If you wait past tax day you will lose the ability to contribute for last year, which matters if you want to deposit more than the following annual limits:

Under age 50: $5,500
Age 50 or older: $6,500

The annual limit applies across all IRAs you own, so while a 40-year-old could contribute $2,000 to one IRA and $3,500 to another, their combined contributions cannot exceed $5,500. However, if you already participate in a retirement plan through work beware of the tax deduction restrictions if you earn above a certain level. Contact Gale or myself if you have questions.

What's New With Us?

We will begin migrating accounts from Scottrade to TD Ameritrade this week. We will be in touch regarding the forms required. My hope is to make this a quick, seamless process. Again, I view this as a positive move for both you as clients and our firm as a whole.

Have a great week,


Brian E Betz, CFP®

Seattle Real Estate Leads The Nation In Price Growth

In The News...

Here is a list of the major U.S. cities where housing prices have grown by double-digits over the past year:

1. Seattle
2. Portland

That is the list.

Across the country home prices are up +5.8% annually, according to the national average supplied by the latest S&P/Case-Shiller housing report. Seattle and Portland have doubled that mark, up +10.8% and +10.0%, respectively. The West Coast has benefited most from the housing market recovery, thanks to a strong job market and technological growth. However, whereas cities like San Francisco have cooled off a bit in the past six months, the Pacific Northwest continues to surge.

Businesses, namely tech firms, have found Seattle to be a great supplement to comparably pricier areas in California. Google, Facebook and Salesforce are among those that have expanded north from the Silicon Valley, taking advantage of cheaper real estate. Add that to an already robust foundation created by Amazon, Boeing, Costco, Microsoft, Starbucks, etc. and any additional business migration is icing on the cake for the greater Seattle area.

As the housing market thrives in Seattle the question becomes: If the price-gap narrows between Seattle and metropolitan California, will Seattle real estate similarly begin to slow? One interesting statistic I found is that Washington is one of four states where the most common job title is "Software Developer". Not even California can say that.

(source: NPR)

Does this mean Seattle is more sensitive to a tech slowdown than other parts of the country? Sure. But notice that the most common job title is "Truck Driver" in the majority of states, so it might be an easier conclusion to draw if Truck Driver was exempted so that we could see the next-highest job classification in those states.

It is not news that Seattle and Portland real estate are strong. What is news is that these areas have consistently led the nation over the past few years and the gap between these cities and the rest of the country has widened. Here is a look at the complete list of 20 major cities.

In The Market...

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

The six-week winning streak for the S&P 500 came to an end. It was a worse week than the -0.3% decline implies, as the majority of stock sectors were negative. Technology led the way, while Energy and dividend-paying sectors lagged (Real Estate, Utilities).

If you recall my suggestion from two weeks ago that the bond market may be poised to break out, that clearly has not been the case. It was the worst week for the bond market in recent memory. I have a close eye on the bond market given our positions in both high-yield bonds and preferred stock. High-yield bonds often foreshadow what is to come within the stock market. If last week is an indication, it could be a bumpy couple weeks ahead for stocks.

In Our Opinion...

Investor sentiment worsened sharply last week. The percentage of respondents who feel positive (bullish) about the market looking ahead dipped from 38% to 30% in the latest AAII survey. The percentage of those who have a negative (bearish) market outlook spiked from 35% to 47%.

The 16% spread between the 46% who are bearish and the 30% who are positive is the largest negative gap in over a year. A bearish jump of that magnitude is pretty rare and is usually followed by a sell-off. I don't like speaking in absolutes, but the data bears that out pretty consistently when I look back at how the S&P 500 has reacted following similar spikes in Dec. 2015, Aug. 2015, May 2013 and May 2012. Then again, pessimism has helped fuel this rally dating back to last fall.

The AAII investor sentiment reading is just one subjective indicator. We do not emphasize it. Since respondents are effectively asked how they feel the market will perform in the future, the recent rally may provide context for them to assume the market is "due for a drop". (I intentionally use quotations because it is a common phrase I hear all the time.) Oftentimes though a rally has legs much longer than most realize. Market rallies tend to beget bigger rallies. So even if we do see a market decline in the near future, it could be short-lived.

Let's see how the next few weeks plays out.

In Our Portfolios...

Stocks: No changes.
Bonds: No changes.

Q&A / Financial Planning...

As I review 401k accounts for many of you and others this spring, one thing I see is misalignment between someone's tax needs and how they contribute to their 401k account (pre-tax vs. Roth). If your 401k plan does not offer a Roth option, this likely does not apply. But if it does, take a look at your contribution choices.

Pre-tax 401k salary deferral: Your contributions avoid taxes today. In exchange you defer taxes on those dollars, plus earnings, until you begin taking withdrawals in retirement. At that time you pay taxes on any distributions.

Roth 401k salary deferral: Your contributions are taxed today. In exchange, any earnings grow tax-free. When you begin taking withdrawals in retirement you pay no taxes.

On its face the Roth option seems like the better bet. No one likes paying taxes and tax-free is better than tax-later. But that is not necessarily true. If you are in a high tax bracket because you make a lot of money, it may be wiser to use the pre-tax/tax-deferred option. If your tax bracket will be considerably lower in retirement (an unknown, I know) it might make sense to avoid taxes today and instead pay them on the back end.

I mention this because I do see some people overload on the Roth option when their greater need is for tax reductions today. You can contribute up to $18,000 into your 401k ($24,000 if age 50), which is sheltered from taxation. Also, if you switch jobs or retire, you have the option of converting those tax-deferred funds into Roth funds. I often recommend this for clients who experience an unusually low income year because it allows them to convert at a lower tax rate, reducing their tax burden and providing tax-free growth from that point forward.

If you feel your 401k contributions may not align with your tax needs, contact Gale or myself. (Note that this applies if you own a 403b or 457 plan and a Roth option is offered. I just say "401k" for simplicity.)

What's New With Us...

As a reminder, if I haven't spoken with you about the change from Scottrade to TD Ameritrade, don't worry, I will be in touch soon.

Enjoy your week everyone!


Brian E. Betz, CFP®