Happy Halloween

Sadly there are now no little ghouls or goblins living at our place any more but we'll wish all the others on our street a fun, and pleasant day today!

Happy Halloween to all the little ghosts, witches, Olafs and Elsas on Ashland Avenue and to everybody else as well!

****Long candy  And good times! 

College Debt

We've talked a bit this year about student loans and college debt.  Some of our most pertinent are  here, here and here.  Business Insider recently ran a column on six questions you should ask before you borrow that first dollar.  I'll give you the headlines but then I think you should go and check out the article linked down below.

* Have you considered all education options {i.e. investigate a public vs. a private university}?

* Can you cut room and board?

* Are you borrowing too much for your potential future income?

* How big a student loan payment are you willing to make once you're working?

* Are there other types of financial aid available?

* Can you get by without private loans?

These are the key points.  Now go read the article.

Link:  Business Insider:  "Six Questions to Ask before Taking Out Student Loans"

Chart Talk {10.26.17}

The US Treasury 10-year bond just reached its highest levels in six months the other day, attacking resistance at around a 2.40% yield.  Interest rates are up nearly 40 basis points {4/10th's of a percent} in about six weeks.  Folks, that's a pretty substantial move in a short period of time.  The good news about higher rates is they are indicative of a growing economy.  Rates generally rise as the demand for capital expands.  The other side of the coin is that higher rates ultimately act as a drag on the economy and the yields they generate become competition for stocks.  I think we're a long ways from that right now though.  Economic rates are still historically low and I think you have to see the 10-year at something north of 3% before they become competition to stocks.

Still it's something to watch.

Back early next week.

Link:  Zero-Hedge:  "10Y Treasury Yields Just Did Something Every Bond Bear Was Waiting For"

A Couple Of Interesting Notes

I had to rearrange my schedule today.  Charlie Bilello of Pension Partners has an interesting Twitter feed.  Here are some statistics he's noted about this current rally.  

* The S&P 500 has not traded 3% below its all-time high for 242 consecutive days, a new record.

* The S&P 500 has not crossed below its 200-day moving average since June 2016, the 7th longest run in history.

* 4.9% is the maximum intra-year draw down for the Nasdaq 100 some far this year.  If that holds it would be the lowest in history.

* We are on pace for the least market volatile October and least market volatile month in history.

* If the S&P 500 ends this month higher then it will have recorded 12 straight months notching higher gains.  That would tie it for first place along with June of 1949-May of 1950 and April 1935-March 1936.

Charlie does excellent statistical work and you might want to check out his twitter page here.  You can make arguments for the data in a couple of ways.  One way is to note the power of the current bull market, which currently shows no signs of abating.  BTW a pull-back or even a breaking of some of these statistical streaks wouldn't necessarily end the bull streak we've been on.  The bears could point to all these statistics and argue that these sort of things undoubtedly will lead to a correction at some point.  On that they are correct but they don't know the when or from what starting point it might occur.

One thing both sides can agree on is the power of this current market move since last November and the subsequent collapse we've seen this year in volatility.  At some point, irregardless of where we stand in the market cycle, volatility will return.

Back Thursday.

*Long in certain client and personal accounts positions related to the S&P 500 and the Nasdaq 100.  Short S&P 500 in a personal account as part of a separate individual strategy.  Positions can change at any time without notice on this blog or via any other form of electronic communication.

This Won't Make You Any Money

Barry Ritholtz over at the blog "The Big Picture" reposted this bit yesterday from the World Economic Forum.  They pose the question of whether the Japanese concept of Ikigai is the secret to a long meaningful life.  Barry seems to want the concept to be passed on so I'm going to oblige him today.

"What’s your reason for getting up in the morning? Just trying to answer such a big question might make you want to crawl back into bed. If it does, the Japanese concept of ikigai could help.

Originating from a country with one of the world’s oldest populations, the idea is becoming popular outside of Japan as a way to live longer and better.

While there is no direct English translation, ikigai is thought to combine the Japanese words ikiru, meaning 'to live', and kai, meaning “the realization of what one hopes for”. Together these definitions create the concept of 'a reason to live' or the idea of having a purpose in life."

This won't make you a dime but I thought it an interesting think piece for a drab Monday morning in Chicago with nothing more interesting to talk about.

Back Wednesday.

In The Things Are Getting Better Department

If you want an anecdotal point of reference on whether things are getting better in the economy then I'll give you this; the amount of media adds talking about companies looking for employees and signs saying "help wanted" around these parts seems to be on the rise.  Some examples:

Many small stores, restaurants and retailers around me have "Help Wanted" signs in their windows.  Interestingly many of these signs are also translated into Spanish.  Some are also in Polish.  

There is a lot of construction out our way right now, part of an apartment building boom in Oak Park.  Some of these sites also have job employment information posted out in front next to the safety information.

A friend of mine who works out at O'Hare airport sent out an email the other day that the company he works for is hiring.  He specifically mentioned the benefits package in terms of health care that they'd pay after a probationary period of employment.

A major hardware chain in the Chicago area is running radio adds on the sports station I listen to looking for employees in many different parts of their companies.  I've heard other adds recently for businesses looking for sales people.

Now I might dismiss one or two of these things, especially if I'd seen or heard them over the course of time and I'm also willing to say that perhaps I'm late noticing a trend that's already been in place for awhile.  However, it's struck me how all of these things seem to have hit at once.  Chicago is likely a lagging indicator against employment for the rest of the country but based on this anecdotal read, things here are still getting better.

Back early next week.

A Quick Thought

I'll be quick today.  Markets are in profit taking mode this morning  Don't be surprised by this.  Stocks are very over bought by our work and markets have been basically been going up every day since Labor Day.  Some profit taking ought to be expected at some point and today seems like it's the day, at least at the start.

Here's some perspective on what we're seeing so far.  The talking heads on TV are pointing out that so far we're seeing about a 1% drop in the markets.  That takes us back to where we traded about a week ago on most indices.  Stocks don't go straight up and they don't go up forever without some sort of pull back. 

Back tomorrow.

Compounding

If I could teach all young people one thing about money it would be for them to understand compound interest.  Compound interest is when you add the interest you've earned on an investment back into the principal sum.  Basically think of it as interest on interest.   For whatever reason this is a hard thing for a lot of people to grasp the basic magic of how it works, especially if you don't have business or financial training.  Now you can see how this works for yourself.  Go to this link and play around with the concept yourself.  You can just plug in some variables in the calculator and see how the concept works with real life examples.  It will give you some things to think about especially for those of you just starting out putting money away.  

Say for example you've just started working in the past year or so and you've built up $5,000 savings in your company retirement plan.  You are saving $250 a month and you're not going to retire for you estimate 40 years.  Let's also take a conservative number and assume your assets on average grow 4% a year.  That money, using those assumptions, would grow to over $320,000 by the time you'd be ready to retire.  Not bad for starting with five grand and adding $250 a month.

Anyway go play with the calculator or use it in your own retirement planning.  If nothing else it shows you the magic of compound interest.

Back Friday.

New Highs

The stock market has powered on to new highs almost every day since mid-September.    But then its quest for new highs has actually been occurring now almost from the moment Mr. Trump was elected President last year.  It is almost as if some invisible hand has been pulling it upwards.  This move higher has confounded the bears and frustrated traders.  The bears are confused because they see dysfunction in Washington, the situation in Korea, higher market valuations and the President's own bombastic personality as headwinds.  Traders are frustrated by the disappearance of volatility.  Stocks don't correct anymore, at least not in a way that allows them to profit from price declines.  Being short this market in 2017 has been a loser's game.  You have to go back months to find a day when the market corrected by over one percent.  

The reality of the situation though is that economic growth beats out all these other concerns.   For years the US economy limped along with subpar GDP growth.  It was something like 1.6% in all of 2016.  Preliminary reads of 2nd quarter US GDP growth this year were 3%.  That's long been pegged by economist as the magic number that leads to the kind of growth that creates jobs and grows wages.  Sure enough that seems to be happening.  For the first time in years as I look around, not just where I live and work, but in other places when I travel I'm seeing help wanted signs in windows.  Companies are also raising wages often ahead of minimum wage movements in states and local economies.  Some of this reflects a changing view of how employees perform in the market place but it also reflects a reality that's starting to seep into the economic discussion that the job market has become tighter.  Then again, with unemployment under 5% that should be expected.  Higher economic growth means more money for consumers to spend and they're doing just that, even if it's not in traditional ways we've all grown accustomed to.  Malls may be hurting for customers but on-line companies are growing like weeds.  Amazon's growing so fast it's scouring the continent looking for a place to build a second headquarters.  

Now look, stocks aren't going to go higher forever and even in a bull market we'll eventually experience a correction again.  Also a situation like Korea could flair up, it seems overnight,  into something potentially catastrophic.   Assuming that doesn't occur and assuming economic growth continues at something close to the same pace we've seen then longer term conditions are supportive of equities.  Yes, we'll have corrections and yes, at some point volatility will return but for now higher economic growth and corresponding higher earnings out of companies is trumping everything else.

*Amazon is a component of several different ETFs we own in personal and client accounts although conditions can change at any time without notice.

Performance Year-To-Date {Market Sectors}

We will finish up our review of the  year-to-date performance covering different parts of the market based on our own unique view of asset allocation.  Today we'll finish up by showing various sectors and subsections that we think are representative of their various parts of the market.  Again this data is through October 4th 2017.  You can click on the chart above if you want to make it larger.  Performance chart is from Stockcharts.com, although the ETF selection is my own.  Also I believe the performance data shown above does not include dividends.  If I am correct then the total returns on these indices is actually better than what is shown above.

Once again we can see that growth and international exposure has been the world's fair in this year's market.  If you have both of these i.e healthcare and technology then you've outperformed.  Energy and its related components have been the losers.  Consumer staples have also been lapped in 2017 with the so called "Amazon effect" hurting some of these traditional names.  Concern with staples companies is that Amazon is hurting their margins by offering access to cheaper products.  More or less a market performer have been financials and this could potentially be an area to pay attention to as higher interest rates have the potential to help their bottom lines.

Back early next week.

*Long in client and personal accounts in some manner most of the sectors listed above with the exception of clean energy, transports and utilities.  Also Amazon is a component of certain ETFs we invest in for client and personal accounts.  Positions can change at any time without notice on this blog or via any other form of electronic communication.

Performance Year-To-Date {Total Return}

We continue today our year-to-date performance review covering different parts of the market based on our own portfolio programs and overall asset allocation process.  Today we're taking a look at various ETFs we have in our total return strategies.  Again these results are  through October 4th 2017.  You can click on both charts  if you want to make  them larger.  Performance chart is from Stockcharts.com, although the ETF selection is my own.  Also I believe the performance data shown above does not include dividends.  If I am correct then the total returns on these indices is actually better than what is shown above.

If international investments have been carrying the performance torch this year than strategies based on total return have been the laggard.  This should not be surprising as dividend and interest related investments often underperform in the face of rising interest rates.  Also many of these ETFs had done better than the overall market coming into 2017 so a period of outperformance by more broad based and growth oriented investment was at some point going to occur.   I'd also note that in most years the current return on these assets would be considered pretty decent.  However,  their return looks a bit subdued when compared to some of the higher flying areas of the markets.

No place can this be seen more broadly than in REIT assets or Real Estate Investment Trusts.  No is not a time to go into REITs in particular but just understand that higher interest rates hurt REITs because it raises their borrowing costs.  To compensate of course REITS have much higher dividend yields so it can pay to wait.

Another way to see the impact of higher interest rates is to view the performance of certain bond ETFs below.  Higher rates hurt these just like they do the overall return of regular bonds.  The exception of course is that bonds have a maturity date whereas funds do not.

*Long in client and personal accounts in some manner the indices listed above with the exception of the fixed income ETFs.  These are shown for illustrative purposes only.  Positions can change at any time without notice on this blog or via any other form of electronic communication.

Performance Year-To-Date {International}

We continue today our year-to-date performance review covering different parts of the market based on our own unique view of asset allocation.  Today we're taking a look at various international indices through October 4th 2017.  You can click on the chart above if you want to make it larger.  Performance chart is from Stockcharts.com, although the ETF selection is my own.  Also I believe the performance data shown above does not include dividends.  If I am correct then the total returns on these indices is actually better than what is shown above.

International has been the place to be in 2017 as it performance has clearly been better than that of the overall US indices.  Then again these markets have had anemic performance over the past decade so at a minimum a bit of catch-up was to be expected.  International still is more attractive on a valuation basis than the US but with foreign exposure usually comes heightened volatility.  Investors need to think about whether or not they can stomach the more pronounced peaks and valleys that comes with investing in this sector before they allocate assets.

Back Thursday.

*Long in client and personal accounts in some manner the indices listed above with the exception of Latin America.  Positions can change at any time without notice on this blog or via any other form of electronic communication.

Performance Year-To-Date {Value vs. Growth}

Today we continue our series of posts looking at year to date performance covering different parts of the market based on our own unique view of asset allocation.  Index performance is through October 4th 2017.  You can click on the chart above if you want to make it larger.  Performance chart is from Stockcharts.com, although the ETF selection is my own.  Also I believe the performance data shown above does not include dividends.  If I am correct then the total returns on these indices is actually better than what is shown above.

Today I want to continue showing a theme that growth has been doing better than value related ETFs.  Again this makes sense in a year where technology and international investing has been some of the best places to be.  One of the best places to look at this is the S&P 500 vs the Vanguard Growth ETF {symbol VUG}.  The S&P 500 is up nearly 15% through October 4th but VUG has outperformed that by nearly seven percentage points.  All across the board in terms of the indices we follow growth has thumped value in 2017.

Back Tuesday.

*Long in certain client and personal accounts SPY and VOT.  Short S&P 500 in a personal account as part of a separate individual strategy.  Positions can change at any time without notice on this blog or via any other form of electronic communication.

Performance Year-To-Date {Broad Indices}

We are going to do a series of posts over the next week or so looking at year to date performance covering different parts of the market based on our own unique view of asset allocation.  Today we're kicking off looking at broad market indices through October 4th 2017.  You can click on the chart above if you want to make it larger.  Performance chart is from Stockcharts.com, although the ETF selection is my own.  Also I believe the performance data shown above does not include dividends.  If I am correct then the total returns on these indices is actually better than what is shown above.

A lot of performance comparisons usually is against the S&P 500.  If you just owned that you'd be sitting pretty this year with an almost 15% return as of October 4th.  Using that index versus those I've shown above would actually put you in about the middle of the pack in terms of performance.  More growth oriented indices, such as those on the Nasdaq have significantly outperformed as have those companies in the mega cap space.  It's been a year where growth and international exposure have done particularly well and the nasdaq and mega cap world surely reflect that.

*Long in client and personal accounts in some manner the indices listed above.  Short S&P 500 in a personal account as part of a separate individual strategy.  Positions can change at any time without notice on this blog or via any other form of electronic communication.

Bloodless

I was asked several times yesterday why in the face of what to the ordinary person seems like a horrendous weekend for news did stocks power to new highs yesterday.  This would seem counter-intuitive to most and I appreciate that sentiment.  The best way to understand why markets were all in the green yesterday is that they are bloodless.  The market's guiding star for the most part is economic growth and future earnings, not the flesh and blood everyday occurrences that mark most human lives.  

There is no doubt that Las Vegas is a horrific national tragedy.  Talk show host Jimmy Kimmel probably expressed the feelings of most in his tearful opening dialogue last night and it's not like the people who buy and sell stocks don't have feelings as well.   However, markets, and the underlying instrument they trade, are themselves bloodless without a moral compass.  Investors and trader may look and weep at the tragedy that has occurred in Las Vegas.  They send contributions and perhaps volunteer to help out the victims of hurricane in Texas and Florida.  They send money to Puerto Rico.  However, they also weigh in on how those events impact forward US growth prospects.  If the events bring uncertainty or can be extrapolated as a negative then stocks will go down.  If it is seen as an event with little to no impact on the broader economic outlook then more likely than not stocks will shrug it off.  Las Vegas is seen by the markets as a moral tragedy but not an economic brake so stocks went higher as good economic news outweighed the events there.  You may be troubled by this but understand that all investors, whether they know this or not are in on this.  We are all complicit in weighing the cost of certain events against the economic backdrop, whether we invest money for others or you do it on your own.  In the act of investing money "this is the business we've chosen" and those are the rules....like it or not.

Remember this when either you or somebody you know scratches their head in wonderment on why markets are higher under the Trump Administration, for it's the same principle.  Investors don't have to like the President to appreciate economic growth and they don't have to like all of his policies or what many see as a  coarsening of the national dialogue to be happy with higher stock prices.

Back Thursday.

Rest in Peace Tom Petty.
                       "I wanna free fall out into nuthin"
                       "Oh I'm gonna leave this, this world for awhile"
                              Tom Petty, "Free Fallin", {Full Moon Fever- 1989}

Sadness

These are some of the things that happened over the weekend:

Catalonia and Spain are at loggerheads after Catalonian independence referendum descends into chaos.

President Trump squabbles with the mayor of San Juan over the progress on hurricane relief.

President Trump continued to ratchet up the verbal pressure on North Korea.

There were terrorist attacks in Canada and France.

50 killed and over 200 injured when a gunman opens up with what seems to have been automatic weapons at a Jason Aldean concert on the Las Vegas strip.

In spite of all that stock futures are higher.  I just don't know what to say except sadness.  Sadness for not only what has happened, but what I think is coming.  We are going to have to become a much more security conscience world.  I think you're going to be screened and go through metal detectors or some such thing much more in the coming years.  I also think you're going to have to surrender much more information about yourself than we've ever had to in the past.  In the process I fear certain liberties and freedoms of movement that many of us take for granted will be curtailed.   It may be necessary, but it is sad.  

We'll get back to talking about the markets tomorrow.  Today we'll pray for all these innocent victims around the world.