Patsy Nodilo, CEO of Pathlight Investors, explains in this short video how media and other factors contribute to agitated market conditions.
The following is an excerpt from our recent research piece "U.S. Energy Boom: What it Means for the World, the United States & Investors." The full report can be found here: www.pathlightinvestors.com/us-energy-boom-what-it-means-world-united-states-investors
Most people I speak with are aware that the United States is undergoing some sort of energy boom. They seem to have heard that previously inaccessible treasure troves of trapped natural gas can now be accessed through technological feats with few rivals. Most people don’t seem to know however, that it’s not just about natural gas. In fact, the U.S. is now drills more for oil than gas.
How this oil and gas is being extracted is lesser known and the economic opportunities it presents, not just for the energy sector, but for manufacturing, U.S. exports, and job creation are not well understood either. Seemingly better known are the environmental risks which I will stay neutral on, rather only highlight a few issues presented by those on both sides of the argument. Nonetheless, this global energy revolution has the potential to alter our way of life, which is why we at Pathlight wish to provide an elementary education on this exciting topic.
The following is an excerpt from our recent research piece "Housing Boom 2.0 (aka Housing Headwinds)" which can be found here: www.pathlightinvestors.com/housing-boom-20
In most cases, your home is your largest financial asset. In the best of times, it represents shelter, security, equity, and flexibility. In the worst of times, it can become the proverbial albatross and decidedly narrow one’s options. Over the last roughly 15 years, we have experienced both of these feelings in the U.S. We saw great wealth creation stemming from home prices rising fast from the late 1990s through 2005, and we have also lived through the bursting of that housing bubble and subsequent Great Recession.
One of the main reasons why the Great Recession was so severe was that housing was at the epicenter. Housing is directly linked to consumer confidence, and because we are a nation of consumers, housing is also tied to consumer spending and the health of the overall economy. When home prices rise, one feels wealthier and, thus, feels more comfortable spending on other things. Conversely, when home prices fall, consumers pull back and begin to delay purchases, even though the equity in their home is simply on paper and not “real” money. In fact, according to Home Depot management, underwater homeowners spend an average of $1,000/year in their stores, while homeowners that have equity spend on average $3,000/year. At 3-to-1, that’s a very powerful dynamic.
Pathlight Investors President, Adrian Larson, discusses the recently released May Employment Report.
Pathlight Investors’ Top Recommended Reads - June 2013
Ready for more great articles? Here's some of the best we've found around the web during the last month. Enjoy!
US tax reform – Roll Call highlights how the two most important people in Congress when it comes to tax matters, Rep. Camp and Sen. Baucus, have committed to working on the issue. “Where they seem to be heading is a model like the historic 1986 tax overhaul that lowered the top individual rate from 50 percent to (effectively) 33 percent and the corporate rate from 48 percent to 34 percent, closing dozens of loopholes to accomplish the feat” (http://goo.gl/cUvNs). (recall over the weekend the Washington Post wrote about how Republicans were doing to deemphasize entitlements going forward and instead focus on changing the tax code http://goo.gl/pAFdt).
Bonds vs. stocks – is the great rotation finally happening? "We've been waiting for the great rotation out of fixed income… everything we see in fixed income is all risk and no return - people are starting to wake up…. I think they're [investors] coming back to their senses, which is one of the reasons we're seeing that great rotation - these large asset allocations out of fixed income into equities - look for that to continue going into the rest of the year” – CNBC http://goo.gl/3i3NC
Don’t fear tapering – “On Second Thought ... Maybe Fed Tapering Won't Be So Bad” – “The Fed's eventual throttling back on the liquidity injections might indicate a much stronger economy—and that could be good for cyclical stock” – CNBC http://goo.gl/7HVnn
Mortgage rate increase could actually help housing – “Surge in U.S. mortgage rates could force buyers off the fence” – CNBC http://goo.gl/OIx43
Rising economy shifts ’14 election landscape. The backdrop could benefit Democrats and challenge Republicans. Politico http://goo.gl/lgpCS
Debt ceiling debate is likely going to be pushed to Sept or Oct as a result of higher Fannie/Freddie payments – Politico http://goo.gl/Pvpsp
Central banks – big overview article in the NYT looking at the Fed, ECB, BOJ, and BOE. All the world’s central banks have embarked on massive rounds of accommodation but growth so far remains tepid. The article’s tone was dovish, implying that the Fed would be slow to withdraw its easing while other banks, such as the BOE, are looking at doing more. The ECB has been among the most cautious of the big global CBs although it too is looking at ways to help spur growth. The article on the whole doesn’t have a ton of incremental information although it does highlight the limits of central bank power. NYT http://goo.gl/F6vYo
Germany is embracing deficit spending – according to Der Spiegel, Berlin is shifting its tone re austerity and increasingly is looking for ways to drive growth throughout Europe. "If we don't act now, we risk losing an entire generation in Southern Europe," say people close to German Fin Min Schäuble. Merkel and Schäuble are willing to abandon ironclad tenets of their current bailout philosophy. In the future, they intend to provide direct assistance to select crisis-ridden countries instead of waiting for other countries to join in or for the European Commission to take the lead. http://goo.gl/arqCm
Fed issued warnings – a group of bankers that advises the Fed (the “Federal Advisory Council”) has issued warnings over farmland prices and student loan debt balances. “Agricultural land prices are veering further from what makes sense… members believe the run-up in agriculture land prices is a bubble resulting from persistently low interest rates”. “Recent growth in student-loan debt, to nearly $1 trillion, now exceeds credit-card outstandings and has parallels to the housing crisis” – Bloomberg http://goo.gl/KXeRQ
Demographics – positive Barron’s cover story – the Millennial generation could help drive economic growth and higher stock market prices. The Millennials aren’t as hopeless as many fear and over the coming years will be saving more (which will help drive stocks higher) and forming families. The Millennials total ~86MM and are ~7% larger than the Baby Boom generation. http://goo.gl/iyTeT
And On A Lighter Note…
Businessman pays $398,500 for Belgian racing pigeon: http://goo.gl/o5vq
Below is an excerpt from our recently published research piece "The Income Conundrum" (aka The Great Bond Heist). The full report can be viewed at http://pathlightinvestors.com/income-conundrum
Low interest rates are fantastic for home buyers and refinancers, but there is a large class of individuals who are being severely punished by these depressed rates—The fixed-income retiree. Imagine working your entire life, saving, investing, and being responsible. Then the day comes to retire—the day which, in theory, your investments should shift to less risk, and focus on income generation. The safest income option has traditionally been U.S. government bonds. However, to the dismay of many investors, engineered low interest rates make this option a very poor one. In fact, it would require more than $5,400,000 invested in 10-year U.S. government bonds to generate $90,000 in annual income. Yes, $5.4 million in 10-year Treasuries will provide only $90,000 income per year.
Expert's Corner - Top 5 Budgeting Mistakes
During my 10 years as a professional budget coach, I've had the privilege of working with families of all income levels, ages, and lifestyles. Although everyone is different, there are certain problems that I see again and again. I'm calling these my Top 5 Budgeting Mistakes. Any of these sound familiar?
Issue #1: Multiple checking accounts
If you have multiple checking accounts and you cannot clearly define what each one is being used for, you have too many. Money should be simple and straightforward so think of multiple checking accounts as clutter.
Solution: Close the extra accounts
Streamline! Fewer accounts result in less work for you, freed up mental energy and more awareness. You may even make better decisions when you can see all your spending activity in one account.
Issue #2: One spouse handles all the finances.
A husband and wife don’t need to pay bills or balance the checkbook together, but the person who is not responsible cannot be completely uninvolved either. Sometimes I see a couple for their first visit and the disconnect is considerable. For example, the wife is stressed about their financial situation yet her husband had no idea there was a problem.
Solution: Step up the communication!
If you handle the bills, make sure you're sharing small achievements with your spouse and not only involving him/her when something goes wrong. Try sitting down with your spouse monthly. You want to ask the question, “What are we doing with our money this month?”
Issue #3: Saying “need” in place of “want.”
A better cell phone, a landscaper, a new car, nicer clothes, the list goes on and on...
Solution: Change your choice of words and your mindset will follow.
You can have all the things listed above and even more, but realize they are wants and not needs. Ask yourself, “What is it that I truly need?” Your level of appreciation for everything else will soar!
Issue #4: Paying bills late.
This is an expensive habit; I've seen people spend over $100 monthly on late fees. Most of the time, they had the money to pay the bill, but simply forgot or weren’t paying attention.
Solution: Make a list and check it twice.
Make a list of your bills, the amount, and their due dates. Sort the list in order of when the bill is due. Check the bills off as you pay them each month. It doesn’t have to be an elaborate system; remember, simple and straightforward is the best!
Issue #5: Not paying attention.
When was the last time you looked at your cable bill or other monthly statements? It’s common for my clients to save thousands of dollars per year simply by canceling services they don’t use or even realize they had.
Solution: Pay attention!
You don’t have to look at every bill every month, but you should be reviewing all of them a few times each year. Your credit card statement is one that should be reviewed each month to ensure all of the charges were made by you.
Regardless of our financial situation, it's easy in our hectic lives to stop paying attention to the little money details. It's those little things though that add-up. Pay attention to these details and soon you'll find that you will start managing your money instead of the other way around. If any items on the list above caught your attention, set aside a few moments this week to optimize your personal finances. Your bank account and blood pressure will thank you!
Kelsa Dickey is a Financial Coach with Fiscal Fitness Phoenix and can be contacted at 480-788-4588.
The views and opinions expressed are not those of Pathlight Investors and are intended to be for educational purposes only. Pathlight Investors cannot vouch for the accuracy of the information presented. Please contact the author of the article to determine how this information pertains to your specific situation.
Pathlight Investors’ Top Recommended Reads - May 2013
If you're like us, you're always on the lookout for great information or a valuable insight. The articles below are pieces that we felt were worth sharing with our clients, friends, and partners. Enjoy!
This month's top reads:
Europe is backing away from austerity – NYT article but it provides an overview of how Europe is dialing back its prior focus on fiscal consolidation in an effort to help spur growth. NYT http://goo.gl/0fpNC
China manufacturing – the WSJ notes how int’l manufacturers increasingly are shifting production out of China due to rising costs (inc. and esp. higher wages). WSJ http://goo.gl/gCsZy
Republicans will deemphasize entitlements and instead focusing on reforming the tax code in upcoming talks w/Democrats according to the Washington Post. Entitlement reform remains a key goal of the GOP but senior leadership feels targeting the tax code makes more political and practical sense at the moment. Washington Post http://goo.gl/pAFdt
US fiscal policy – oped in the Washington Post from Bowles/Simpson. “A grand bargain is still possible. Here’s how”. Washington Post http://goo.gl/UAaeo
Fannie/Freddie’s involvement in the commercial mortgage market is fueling concerns of the GSEs inflating another real estate bubble (just as they were accused up doing in the residential real estate market back in the ‘00s). Some in Washington wonder if the commercial portion of the GSEs can be privatized but plenty of vested interests promise to stand in the way of such a move. FT http://goo.gl/MRwYV
Housing market heats up” – WSJ pg. 1 lead – nothing too incremental – highlights how housing prices are rising materially across the board (in some markets by double digits). A lack of supply is helping squeeze prices higher. “For now, recent data suggest home-price gains are likely to continue”. WSJ http://goo.gl/Qp5fc
Texas oil & gas industry doing much better than California’s – Article discusses the different approaches to the oil and gas industry in Texas and California. http://online.wsj.com/article/SB10001424127887324695104578416871045535226.html?mod=trending_now_1
Eurozone officials optimistic – light can be seen at the end of the tunnel. "All the skeletons are out of the closet," said one senior official who has spent much of the past three years working on the crisis. "There are no more major issues in the pipeline." Reuters http://goo.gl/dZegp
Commodities – very negative WSJ article – “Wheels Come Off the Commodities Supercycle” – commodities have been in a bull market since ’98 but that “golden age” environment appears to be coming to an end. Massive amounts of new supply is coming online, growth is slowing, growth is coming more efficient (i.e. each $1 of GDP is requiring less raw material input), and growth is changing (in particular in China where the government is shifting away from infrastructure build towards encouraging individual consumption). WSJ http://goo.gl/bIYjO
On a lighter note:
Retired racehorse finds calling as abstract painter: http://goo.gl/IoswE
Red panda shows off its strength with pull-ups: http://goo.gl/JoUEX
Pathlight Investors President, Adrian Larson, discusses the recently released April Employment Report.
The following is an excerpt from our recent research piece, The Great Rotation--Are investors finally turning back to stocks and away from bonds, which can be found at http://pathlightinvestors.com/great-rotation%E2%80%94are-investors-finally-turning-back-stocks-and-away-bonds
Since the financial crisis of 2008, investor appetite for stock mutual funds has waned while bond funds have become all the rage. According to the Investment Company Institute, which tracks mutual fund flows, since June 2008, retail investors have withdrawn roughly $516 billion in assets from stock mutual funds and poured close to $1 trillion, $993 billion to be exact, into bond mutual funds.
It hasn’t seemed to matter much that U.S. stocks have enjoyed strong performance since March 2009, with the S&P 500 up roughly 130% from March 5, 2009,through March 31, 2013. Retail investors simply didn’t want to own these risky assets for fear of another 2008-style meltdown. In fact, investors pulled roughly $290 billion out of stock mutual funds from March 2009 through December 2012. But it would appear that something has changed, and retail investor anxiety over equities may be beginning to soften.