photos courtesy of Gary Morrison

Continued Good News for U.S. Economy

by Steve on February 24, 2015

As they do each month, the Federal Reserve Bank of Chicago published its latest findings on the state of the U.S. economy earlier this week. Here is an excerpt from their press release:

“Led by improvements in production-related indicators, the Chicago Fed National Activity Index (CFNAI) edged up to +0.13 in January from –0.07 in December. Three of the four broad categories of indicators that make up the index increased from December, and only one of the four categories made a negative contribution to the index in January.

The index’s three-month moving average ticked down to +0.33 in January from +0.34 in December. January’s three-month moving average number suggests that growth in national economic activity was above its historical trend. The economic growth reflected in this indicator suggests modest inflationary pressure from economic activity over the coming year.”

It looks like the good news continues for the U.S. economy — growth above the historical trend line and modest inflation expectations. You can read the full press release and more about this important economic report at the Chicago Fed website.

Reflections of a Financial Blog Post Writer

by Steve on February 21, 2015

I’ve taken a break from writing blog posts for a few months because I was burned out. That’s right. Even I get tired of writing about personal financial matters. The press of client work, a State of Washington audit of our business (which occurs every few years), year-end tax planning with clients and a rush of client work at the start of the New Year overwhelmed me. That and the desire to have a balanced life too. A colleague of mine, Todd Tressider (www.financialmentor.com), turns down his activity during the summer on purpose. I may do the same.

However, those are excuses. The truth is that I don’t know what to think about personal financial matters right now. Consider this:

  • The price of oil has dropped by almost half since August 2014.
  • U.S. stocks, particularly large U.S. stocks, continue to grind higher in price (the S&P 500 index is up 12.85% in the last year).
  • The U.S. un-employment rate is 5.7%, which is down from 6.6% a year ago.
  • Compare that to un-employment rates of 9.8% in Germany, 8.8% in France and 8.4% in Spain.
  • Most world currencies have dropped in value compared to the U.S. dollar; for example, the Euro has dropped almost 20% in value against the U.S. dollar, which means you can buy 20% more in Europe today then you could a year ago.
  • The benchmark for bond yields is the 10-Year U.S. Treasury note. The current yield is 1.68%;  a year-ago it was 2.76%, which is almost a 40% drop. What this is saying is that if you loan the U.S. government money by buying one of its notes, you’ll earn 1.68% per year for your money!
  • The latest U.S. inflation rate is .8%; that’s down from 1.5% in 2013, about half as much.

Therefore, the question on my mind, and probably yours too, is this: how long can the good, no make that great, news last in the U.S.? Is this the top of the economic and investment cycle or is there more ahead? I don’t know and I’ll share my thoughts in the next post, which won’t take three months to write this time, I promise.

 

 

November Fed Indicators Show Strong U.S. Economy

December 22, 2014

The Chicago Federal Reserve Bank publishes a wonderful “state of the economic union” monthly. Their summary, published today, shows that the U.S. economy is purring along nicely. The three-month moving average of their indicators was above the historical trend. What this holds for the future is un-clear (seeing into the future is always impossible), but […]

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Six New SmartMoney Rules™

November 22, 2014

We created the basic six SmartMoney Rules™ that we encourage our clients to practice: Protect Yourself Tie goals to your values Use cash and debt smartly Invest wisely Know how much is enough for retirement Review regularly We have six more SmartMoney Rules™ to add to the mix. These are born out of our experience […]

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Investors Are Confused

October 23, 2014

The recent stock market volatility means investors are confused. One article I read stated it nicely: “The stock market’s volatility stems from confusion as to whether the economy is too hot or too cold—and it is worried about the Fed response.” –Bill DeShurko, CFP Add to this confusion the most recent Chicago Fed report that […]

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The Most Difficult Part of Investing

August 14, 2014

Over 20 years ago, in the book “Get Rick Slowly” William Spitz wrote that, “The most difficult part of investing is understanding and evaluating risk. ” This line struck me when I was reading this wonderful book recently.  The reason that understanding and evaluating risk is so challenging is that there are many types of  […]

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Four Reasons That Active Management Is a Bad Idea

August 12, 2014

Here is what we know about active investment management: 1. Active Management is expensive. The average expense ratio of actively managed funds is 1.29% vs. an average of .80% for all passive funds and .38% for all DFA Funds. ETFs are even cheaper. 2. Active Management doesn’t consistently work well. Over the last 5 years […]

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Predicting Investment Returns

August 7, 2014

We frequently tell clients that we can’t predict the future when it comes to investment return and no one can. However, while we have no idea what will happen to investment returns in the short-term, we can guess with a high level of accuracy about what will happen to investment returns in the long-term. This […]

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Every Dollar Has a Job

August 5, 2014

I read this line somewhere and we often repeat it to clients. The idea of giving each dollar a role or job to do is useful in several ways. It helps clients: 1. Be more aware of their money (“can’t have lazy dollars just sitting around doing nothing”) 2. Have specific purpose for their money […]

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Markets Are Very Efficient

July 31, 2014

Even skilled investment managers have a hard time overcoming the overall efficiency of the stock market, mainly because of transaction costs. Don’t believe me? Check out this chart of average annual returns for the ten-years ended in November 2013 of the legendary Warren Buffett Berkshire A Shares vs. the S&P 500 and the DFA U.S. […]

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