Wednesday, December 19, 2018

Time to Be Defensive

With the increase in interests by the Fed, there is a high probability there will be a recession soon. In 12 of the last 13 Post WWII times the Fed raised interests rates to cool the economy,  a recession followed.   So history says the is a 92% chance the Fed has gone or will go too far raising interest rates and cause a recession.

Knowing this, there are three actions I could take:

  1. Sell everthing and go to cash.   This would completely protect principal, but the challenge will the deciding when to get back into the market.
  2. Reduce equity exposure.  This keeps me invested if the market makes a sharp advance, but reduces the impact of a decline.  Also, cash is raised that can be reinvested when the market declines.
  3. Increase allocation in defensive stocks.   Find good dividend paying stocks or defensive sectors such as consumer staples or utilities.  The investments will go down, but not as much.  In addition, the dividends will create a stream of income if needed
For us, I will be using approach number 3.   Due to the recent market decline, there are a number of very good dividend paying stocks that experience signficant price declines.   Some of these stocks are paying 4, 5 or even 6% dividends.   

Here are some exmaples of the defensive stocks we own and are buying more:  AT&T (T), Williams Company (WMB),  Phillip Morris (PM),  Altria (MO), Exxon (XOM),  Coty (COTY), and Western Digital (WDC).

Disclosure:  At the time of posting, we own shares of T, WMB, PM, MO, XOM, COTY, and WDC.


For more on The Practice of Personal Finance, check back Wednesdays for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2018 Achievement Catalyst, LLC

Tuesday, December 18, 2018

All News is Bad News

Lately, it seems that any and all news causes the stock market to decline.  Probably what ever the Fed does tomorrow will do the same. 

  • Raise interest rates - This is the most likely scenario.   The stock market will view this as too aggressive since the economy is already slowing down and heading towards recession.   Even with a dovish 2019 forecast, an interest rate increase will be viewed as too hawkish.  Result - the market declines.
  • No change to interest rates - This is a possibility.   The stock market will view this as an acknowledgement the Fed has already raised interest rates too much and is concerned about causing a recession.   Result - the market declines.
  • Lower interest rates - This is unlikely.   The stock market will view this as a recession being imminent.  Result - the market declines significantly.
12 of the last 13 times the Fed raised interest rates, a recession occurred.  The market knows this and that's why all the Fed news tomorrow will be bad news for the stock market.


For more on Ideas You Can Use, check back Tuesdays  for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2018 Achievement Catalyst, LLC

Monday, December 17, 2018

Selling the Bounce

If a recession is forthcoming, as the stock market seems to indicate,  we are probably already in a bear market.  However, there can be significant rallies even in a bear market.  So as a precaution, I plan to sell a portion of our holdings with each market advance.   If I'm wrong, I will still have core holdings that will gain.  If I'm right, I'll be taking some profits that will offset the losses in the core holdings. 

I'll know by the end of 2019 if this was the right strategy, or if I should have just kept a buy and hold approach.

For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial or investment  advice. Please consult a professional advisor.

Copyright © 2018 Achievement Catalyst, LLC

Thursday, December 06, 2018

Opening a Roth IRA for our Daughter

This year, our daughter started her first job, reffing kid's soccer games.   The pay was good, about $15/hour.   Between reffing and plant watering, she earned $295 this year.

Since she has earned income this year, our daughter can contribute up to $295 to an IRA, either a Roth or Traditional (deductible) IRA.   Since her earnings are below the $1050 standard deduction for dependents and below $433 threshold for self employment taxes, our daughter doesn't not owe any income nor self employment taxes.  She also does not owe any state taxes.  Therefore, contributing to a Roth IRA is best since the earnings are tax free when withdrawn and there is no deduction benefit for contributing to a Traditional IRA.

To make the decision easy for our daughter, I will gift $295 to her to open the Roth IRA.  That way she can keep the money she earned and still start a retirement saving account. 

For more on Crossing Generations, check back Thursdays for a new segment.

This is not financial. investment, savings nor tax advice. Please consult a professional advisor.

Copyright © 2018 Achievement Catalyst, LLC

Wednesday, December 05, 2018

Group Contributions to Reduce Taxes

With the increase in the standard deduction to $12,000 single, and $24,000 married filing joint, many taxpayers will no longer need to itemize and, therefore, not be able to deduct charitable contributions.

If one makes significant, but not large enough to be deductible, contributions, a way to achieve deductibility is to group multiple years together and cover it with a contribution in one year.   Another way is to make a single large contribution to a charitable fund and then distribute it over the next few years.

For example, one could group 3-4 years for church contributions and make the contribution in a single year.  Or one could make a single large contribution to a charitable fund and distribute the annual amounts over several years.   In either case, the deduction would the full amount contributed in one year, to the fund or to the organization.

So in one year, the taxpayer would take a large charitable contribution deduction that puts them over the standard deduction threshold.  In the non contribution years, the taxpayer would take the standard deduction.

For more on The Practice of Personal Finance, check back Wednesdays  for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2018 Achievement Catalyst, LLC

Tuesday, December 04, 2018

What Will Cause the Next U.S. Recession?

This video by Gary Shilling shares that recessions are caused by either the Fed raising rates or financial shocks.  While Mr. Shilling doesn't see any major financial shocks, except perhaps emerging  market dollar denominated debt, he does think the Fed raising rates is a good possibility.

The inversion for the yields of the 3 and 5 year treasuries my be the first indication of a Fed induced recession.  The good news is that a recession usually doesn't happen for about 24 months after this inversion.  So there is still time to reduce exposure to the stock market.

For more on  Ideas You Can Use, check back Tuesdays  for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2018 Achievement Catalyst, LLC

Monday, December 03, 2018

Waiting for the Yield Curve to Invert

A 2yr/10yr yield curve inversion has preceded every post WWII recession.  However, not every inverted yield curve was immediately followed by a recession.  Even so, a recession typically doesn't happen until 9-24 months after the yield curve inversion.

Basically, the yield curve inverts when the 2 year yield is higher than the 10 year yield.  This means that investors are expecting the economy to be better near term than in the long term, and therefore, are willing to take lower yields long term.

Here are couple articles on the phenomenon.   Inverted Yield Curve and How It Predicts a Recession  and Inverted Yield Curve? Recession? Not So Fast

Based on this indicator, I will assume market declines are corrections and not the beginning of a bear market, until the yield curve inverts.   Thus, I will maintain our core holdings and only trade the peripheral holdings.   However, once the yield curve inverts, I plan to sell and reduce our core holdings in preparation for a significant market decline.

At this point, the 2yr/10yr yield curve is flattening but still not inverted.  So we will continue to keep our core holdings while trading the peripheral holdings.

For more on Strategies and Plans, check back Mondays for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2018 Achievement Catalyst, LLC

Sunday, December 02, 2018

A December to Remember

"The market moves in the direction that causes the most pain." ~ Wall Street adage

To me,the most pain would if the market advances 5-10% or more in the month of December.   That would cause a lot of hedge funds, pundits and some individual investors a lot of pain.   Then the algos will likely kick in and add more fuel to the advance.   That would lead to the FOMO (Fear of Missing Out) advance before the market would reach a near term top.

I know of hedge funds and individuals that have either sold most of their equities or are short the market.  An advance of 5-10% in a month would cause enormous pain.  Similarly, a drop of 5-10% would cause elation among this group.

The setup is in place for a great December:

  • Seasonality - Historically, December is the third best month for stock returns, and well know for the Santa Claus rally.
  • Interest Rates -  The Fed is likely to slow down interest rate increase in 2019.
  • Trade Wars - Trump has announced a short truce in the tariff wars with China.

My target for the S&P is to reach 3000 sometime in December.  I'll even go out on a limb and predict a 2018 close for 3000 or more.

For more on New Beginnings, check back Sundays for a new segment.

This is not financial  or investing advice. Please consult a professional advisor.

Copyright © 2018 Achievement Catalyst, LLC

Saturday, December 01, 2018

Year End Rally? Or Not.....

In August 28, 2018, I posted an article that predicted the market would close higher by the end of the year.  The S&P was at 2897 on that date.  While a new high we achieved in September, the S&P is lower at 2760 at the end of November.   To close higher at the end of the year, the S&P would need to advance a minimum of 5% (140 points).      Here are my thoughts on the likelihood of a 5% or greater advance by the end of December.

Here are the key factors:

  • G-20 Meeting and China/U.S. Trade Negotiations.  President Trump's stance on the China/U.S. Tariff/Trade negotiations will have the most impact.   A hawkish view will cause the market to decline.   A deal making view will lead to a market advance.  The pundits are leaning towards a negotiated delay in tariff implementation, which would be a positive for the market.
  • Fed Meeting.  The December 17-18 meeting is expected to result in another quarter point interest rate increase.  However, the Fed is expected to reduce the number of increases in in 2019.  This would be a positive for the market.
  • Algorithmic Trading.  Depending on how computer algorithms react to the G-20 meeting, Tariffs/Trade negotiations, and the Fed Meeting, the market could move sharply up or down. I believe the algos will buy based on the positive outcomes above.
 Currently, there is a lot of pessimism about the market.  I know people that are mostly in cash or even taking bearish short positions.   If the market starts advancing, people will need to reverse their positions.

So right now, I still expect a year end rally and a new record before the end of the year.  Of course, that could change once President Trump tweets about the status of trade talks with China.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial or investing advice. Please consult a professional advisor.

Copyright © 2018 Achievement Catalyst, LLC

Monday, November 05, 2018

My Strategy for Election Outcomes

"Elections have consequences...." - President Barack Obama, three days into his first term.

I've been thinking about impact of possible midterm outcomes on the stock market.     Here are my conclusions for the scenarios in order of likelyhood:

  • Scenario 1:   Democratic majority in the House, Repblican majority in the Senate.  I expect the stock market to continue upwards since Wall Street will expect gridlock.   However, President Trump may use the opportunity to cut more deals with Congression Democrats, which will require more spending and increase the deficit.    That will lead to a signficant decline in the stock market.
  • Scenario 2:   Republican majority in both the House and Senate.    I expect the market will continue to volatile, but have a directional upward trend.    There will continue to be signficant uncertainty in economic and foreign policy.
  • Scenario 3:   Democratic majority in the House and Senate.   I expect an initial drop in the market, followed by short rally.   After that, the market action will depend on how intense the gridlock becomes.   Signficant gridlock will result in a signficant market decline.
Since I believe Scenario 1 is the most likely, I will be staying invested until 2019, using the tradable ralllies to take some profits and reducing our equity exposure for a possible decline/correction in early 2019.


For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial or investment  advice. Please consult a professional advisor.

Copyright © 2018   Achievement Catalyst, LLC