Category Archives: Investing and fiduciary requirements

Quarterly Economic Update

U.S. stocks rollercoastered in Q3 2013, but the S&P 500 ultimately gained 4.69% in three months and celebrated another record close on September 18 (1,725.52). The Federal Reserve refrained from tapering its stimulus effort, a move cheered in financial markets worldwide. Global investors sighed with relief as diplomacy headed off a major geopolitical crisis in Syria, and sighed with frustration as bipartisan sparring threatened to shut down parts of the U.S. government and threaten its ability to pay debt. Assumptions of higher mortgage rates didn’t exactly reduce demand for homes; foreign stock benchmarks rose, and so did prices of precious metals.1,2


Mirroring Q3 2012, the big economic move of Q3 2013 came in mid-September. A year after rolling out QE3, the Fed unexpectedly announced it would hold off on reducing the amount of its monthly bond purchases. Fed chairman Ben Bernanke mentioned that the central bank could be open to a taper later in the year; Kansas City Fed president James Bullard thought it might happen in October.3.4


Turning from Wall Street to Main Street, the jobless rate fell to 7.3% in August, down 0.3% from June and down 0.8% in 12 months. Even so, 37.9% of those unemployed in August had been out of work for 27 weeks or longer. Consumer inflation – as gauged by the headline Consumer Price Index – was minor, increasing 0.2% in July and 0.1% in August. The University of Michigan’s consumer sentiment index hit a 6-year peak of 85.1 in July, but slipped to 82.1 in August and 77.5 in September. In June, the Conference Board’s consumer confidence index was at 82.1, the highest in 5½ years; in August, it was 81.8, but in September it fell to 79.7.5,6,7,8


Consumer spending increased 0.2% for July and 0.3% for August; consumer incomes increased 0.2% and 0.4% in those respective months. Retail sales figures were similarly decent: up 0.4% in July, 0.2% for August. In September, the Bureau of Economic Analysis made its final estimate of Q2 GDP – 2.5%.9,10


On the factory front, the Institute for Supply Management’s manufacturing PMI chronicled a healthy expansion during the quarter, averaging 55.8 (55.4 in July, 55.7 in August, and 56.2 in September). ISM’s non-manufacturing index also reached impressive heights, coming in at 56.0 in July and 58.6 in August. Overall hard goods orders slid 8.1% in July, but managed a 0.1% gain in August; minus transportation orders, they fell 0.5% in July and 0.1% in August. The Producer Price Index settled: after June’s 0.8% rise, it was flat for July and up 0.3% in August, when annualized wholesale inflation was running at 1.4%.9,11,12,13


Wall Street and Main Street tracked many other news developments in the quarter. In July, the Obama administration chose to delay one part of the implementation of the Affordable Care Act; the requirement for businesses with 50 or more employees to furnish health insurance plans was pushed back until 2015. Still, online health care exchanges for uninsured individuals opened on October 1 as scheduled. In August, President Obama called for the phase-out of Fannie Mae and Freddie Mac, proposing to replace them with a new system reliant on private sector purchases of mortgages from lenders, with private capital bearing the bulk of any losses. The quarter ended with a partial shutdown of the federal government looming due to an impasse over the federal budget – a partisan dispute that resulted in the first such shutdown since late 1995.14,15,16


When Secretary of State John Kerry stated that Syria’s government had used chemical weapons against its own people in late August, the threat of American military intervention in the conflict between rebels and pro-Assad forces rocked global stock, bond and commodity markets. President Obama said the U.S. would only intervene with the approval of Congress; before that vote could take place, Russia offered a plan to disarm Syria’s chemical weapons stockpiles, one the U.S. accepted. While that conflict eased, global investors certainly had plenty of other headlines to consider.17,18,19


Manufacturing growth appeared to be sputtering in both China and India. HSBC’s factory sector PMI for China was but 50.2 in August, and 50.1 in July. India’s HSBC PMI was 49.6 in August; it had been 48.5 in July. The Asia Development Bank estimated China’s 2013 GDP would be 7.6%, and India’s just 4.7%.20,21


In better news, the eurozone recession was over: its economy had grown for the second straight quarter in Q2 (0.3%), albeit with the euro area jobless rate averaging 12.0% by August. Unfortunately, Italy’s fractious coalition government threatened to come undone at the end of Q3 when five ministers belonging to former prime minister Silvio Berlusconi’s center-right party quit their posts over a tax hike. This left analysts wondering if Italy would face a credit downgrade, and possibly an emergency election.22,23


Gains were prevalent in the quarter, boosted further by the mid-September announcement that the Fed would not yet taper. Some notable Q3 advances: Shanghai Composite, 9.88%; Hang Seng, 9.89%; Nikkei 225, 5.69%; Asia Dow, 4.33%; Kospi, 7.17%; Europe Dow, 15.56%; STOXX 600, 8.93%; CAC 40, 10.82%; DAX, 7.98%; FTSE 100, 3.97%; TSX Composite, 5,43%; Bovespa, 10.29% … and lapping the field, more or less, Argentina’s MERVAL rose an astonishing 60.73%. Among the big global indices, the Global Dow gained 9.57%, the MSCI World Index 7.68% and the MSCI Emerging Markets Index 5.01%. The Jakarta Composite lost 10.43% in Q3, the IPC All-Share 1.08% and the Sensex 0.08%.1,24


After a disastrous Q2, precious metals rebounded on the COMEX in Q3: gold gained 8.4%, silver 11.5%, platinum 5.4% and palladium 10.1%. Oil futures rose 6.0% in Q3; natural gas was nearly flat for the quarter, RBOB gasoline lost 3.0%, and heating oil rose 3.9%. This has not been a good year for key crops so far: the worst quarter for corn in 17 years and the worst quarter for soybeans in four put those respective futures at -36.8% and -9.6% YTD. Wheat was down 12.8% YTD at the end of the quarter; at least rice stood at +1.8% YTD.25,26,27,28


Existing home sales were still up 1.7% in August, the National Association of Realtors noted, with buyers scrambling to lock in rates after a 6.5% gain for July. New home sales fluctuated – down 14.1% in July, but back up 7.9% a month later. As for new residential construction, it was hard to spot a trend – the Census Bureau reported housing starts up 0.9% in August, and building permits down 3.8% (although permits for single-family construction were up 3% in August to the highest level in 5½ years). Pending home sales fell 1.4% for July and another 1.6% for August. Home values – as measured by the S&P/Case-Shiller Home Price Index – had risen 12.4% in a year by July. 9,29,30,31


Contrary to the assumption of many, mortgage rates actually declined in the quarter. Eyeing Freddie Mac’s June 27 and September 26 Primary Mortgage Market Surveys, we see the following descents: 30-year FRM, 4.46% to 4.32%; 15-year FRM, 3.50% to 3.37%; 5/1-year ARM, 3.08% to 3.07%; 1-year ARM, 2.66% to 2.63%.32


The S&P 500 ended Q3 at 1,681.55, the NASDAQ at 3,771.48 and the DJIA at 15,129.67, finishes that lead to the impressive Q3 and YTD numbers seen on the following chart. The Russell 2000 closed at a new all-time high of 1,078.41 on September 26, rising 9.85% for Q3 to end September at 1,073.79; the CBOE VIX fell 1.54% in Q3 and ended the quarter at 16.60.1,2

THE 2 Biggest retirement misconceptions

While the idea of retirement has changed, certain financial assumptions haven’t.


We’ve all heard about the “new retirement”, the mix of work and play that many of us assume we will have in our lives one day. We do not expect “retirement” to be all leisure. While this is becoming a cultural assumption among baby boomers, it is interesting to see that certain financial assumptions haven’t really changed with the times.

In particular, there are two financial misconceptions that baby boomers can fall prey to – assumptions that could prove financially harmful for their future.

#1) Assuming retirement will last 10-15 years. Historically, retirement has lasted about 10-15 years for most Americans. The key word here is “historically”. When Social Security was created in 1933, the average American could anticipate living to age 61. By 2005, life expectancy for the average American had increased to 78.1

However, some of us may live much longer. The population of centenarians in the U.S. is growing rapidly – the Census Bureau estimated 71,000 of them in 2005 and projects 114,000 for 2010 and 241,000 in 2020. It also believes that 7.3 million Americans will be 85 or older in 2020, up from 5.1 million 15 years earlier.2

If you’re reading this article, chances are you might be wealthy or at least “affluent”. And if you are, you likely have good health insurance and access to excellent health care. You may be poised to live longer because of these two factors. Given the landmark health care reforms of the Obama administration, we could see another boost in overall American longevity in the generation ahead.

Here’s the bottom line: every year, the possibility is increasing that your retirement could last 20 or 30 years … or longer. So assuming you’ll only need 10 or 15 years worth of retirement money could be a big mistake.

In 2010, the American Academy of Actuaries says that the average 65-year-old American male can expect to live to 84½, with a 30% chance of living past 90. The average 65-year-old American female has an average life expectancy of 87, with a 40% chance of living past 90.3

Most people don’t realize how much retirement money they may need. There is a relationship between Misconception #1 and Misconception #2 …

#2) Assuming too little risk. Our appetite for risk declines as we get older, and rightfully so. Yet there may be a danger in becoming too risk-averse.

Holding onto your retirement money is certainly important; so is your retirement income and quality of life. There are three financial issues that can affect your quality of life and/or income over time: taxes, health care costs and inflation.

Will the minimal inflation we’ve seen at the start of the 2010s continue for years to come? Don’t count on it. Over the last few decades, we have had moderate inflation (and sometimes worse, think 1980). What happens is that over time, even 3-4% inflation gradually saps your purchasing power. Your dollar buys less and less.

Here’s a hypothetical challenge for you: for the rest of this year, you have to live on the income you earned in 1999. Could you manage that?

This is an extreme example, but that’s what can happen if your income doesn’t keep up with inflation – essentially, you end up living on yesterday’s money.

Taxes will likely be higher in the coming decade. So tax reduction and tax-advantaged investing have taken on even more importance whether you are 20, 40 or 60. Health care costs are climbing – we need to be prepared financially for the cost of acute, chronic and long-term care.

As you retire, you may assume that an extremely conservative approach to investing is mandatory. But given how long we may live – and how long retirement may last – growth investing is extremely important.

No one wants the “Rip Van Winkle” experience in retirement. No one should “wake up” 20 years from now only to find that the comfort of yesterday is gone. Retirees who retreat from growth investing may risk having this experience.

How are you envisioning retirement right now? Has your vision of retirement changed? Is retiring becoming more and more of a priority? Are you retired and looking to improve your finances? Regardless of where you’re at, it is vital to avoid the common misconceptions and proceed with clarity.

Reeve Conover may be reached at 877-423-9990 or



This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of the presenting Representative or the Representative’s Broker/Dealer. This information should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information..,,


1 – [4/27/08]

2 – [10/23/05]

3 – [5/3/10]



Monthly Economic Update for August 2013

At the closing bell on July 31, the S&P 500 settled at 1,685.73 thanks to a 4.95% monthly gain – another triumph for a bull market that has overcome a host of challenges. This striking July advance came even as fundamental economic indicators sent mixed messages. The Federal Reserve said nothing definite about when it would taper QE3. Overseas, there were hints of a slightly better economic picture in Europe, contradictory signals out of China, and numerous stock market advances.1

July offered both encouraging and discouraging economic statistics. The Institute for Supply Management’s July PMIs seemed to show an economy gaining traction. ISM’s manufacturing PMI leapt to 55.4 compared to 50.9 in June, and its service sector PMI jumped to 56.0 from the previous 52.2. The Commerce Department said that consumer spending was up 0.5% in June, corresponding to the projections of economists surveyed by Reuters; consumer incomes rose another 0.3 on the heels of a 0.4% improvement in May. Unemployment declined to 7.4% in July, but the pace of hiring also declined. Non-farm payrolls expanded by 162,000 jobs (compared to 188,000 in June), with retail, bar and restaurant positions representing much of the additions. Durable goods orders had increased 4.2% in June, but they were flat with the volatile transportation category removed. As the quarter ended, the federal government issued its first estimate of Q2 GDP: 1.7%, indicative of the economy’s slow comeback.2,3,4,5,6

July also offered a mixed picture of consumer confidence. The Conference Board’s July poll came in at 80.3, 1.8 points lower than June’s reading and below the expectations of analysts surveyed by MarketWatch. The reading on the University of Michigan’s final July consumer sentiment index was better – 85.1, up a full point from June to its highest level since July 2007.6,7

Prices increased in June, but it seemed more an anomaly than a trend. The Consumer Price Index rose 0.5%, but a 6.3% leap in gas prices was a major factor; the core CPI was up just 0.2%, and annualized core inflation had increased just 1.6%, the smallest amount in two years. Wholesale prices jumped 0.8% in June, though the core Producer Price Index only advanced 0.2%. Retail sales were up 0.4% in June; there was a 1.8% gain in auto purchases and a 2.4% improvement in furniture sales.8,9,10

In early July, the Obama administration decided to postpone the Affordable Care Act’s employer health insurance mandate for a year. Businesses with 50 or more full-time employees won’t have to provide health insurance to workers until 2015; retail franchises and restaurant owners welcomed that decision. The move raised big-picture questions about whether all aspects of the ACA (such as the coming online health insurance exchanges) could be implemented on schedule. In mid-July, Federal Reserve chairman Ben Bernanke cited the need for a “highly accommodative monetary policy for the foreseeable future,” buoying financial markets. The central bank’s July 31 policy statement offered no hint as to when it would start to reduce its asset purchases, and it termed the current economic expansion “modest”, which seemed slightly less enthusiastic than its “moderate” assessment from June.11,12,13


Two closely-watched China manufacturing PMIs offered different estimates of the performance of the world’s biggest economic engine. The HSBC PMI came in at just 47.7 for July. The “official” PMI from China’s National Bureau of Statistics (which, incidentally, surveys a greater percentage of state-owned enterprises) rose 0.2 for July, showing a bit of expansion at 50.3. Still, this was nothing special. Neither was India’s July Markit manufacturing PMI reading of 50.1; Markit manufacturing PMIs for South Korea, Vietnam, Australia and Taiwan were all under 50 last month, with Australia’s dropping 7.6 points. HSBC and Markit service sector PMIs tracking Asian economies also moved lower in July; India’s showed contraction for the first time in 21 months at 47.9, and those for Japan (50.6) and China (51.3) showed slower growth.14,15

As mounting evidence of a slowdown came from Asia, another question emerged in Europe. Was the Eurozone recession coming to a close? The EU manufacturing sector grew in July for the first time since 2010 – the Markit PMI hit 50.5, up from 48.7 in June. Germany’s manufacturing PMI reached a 5-month peak of 52.1, France’s hit a 17-month high of 49.1, and Italy’s reached a 26-month high of 49.7. July also saw the fewest eurozone job losses in 16 months, and the German economy saw a net job gain.14,15,16

Big gains were the order of the month, especially in Europe. The FTSE 100 climbed 6.53%, the DAX 3.98%, the CAC 40 6.79%, the RTSI 2.97% and the STOXX 600 5.11%. In the Asia Pacific region, some losses crept in among the gains: the Sensex slipped 0.26% and the Nikkei 225 0.07%, but that was overshadowed by advances for the KOSPI (2.72%), the KSE 100 (10.98%), the Hang Seng (5.19), the Shanghai Composite (0.74%) and the Asia Dow (1.17%). On our side of the pond, the TSX Composite rose 2.95%, the MERVAL 12.82% and the Bovespa 1.64%.The Global Dow advanced 5.87% in July, the MSCI World Index 5.19% and the MSCI Emerging Markets Index 0.77%.1,17i COmposite : the TSX Composite (-2.30%), the  gan’


The price of NYMEX crude soared 9.15% in July. That put oil at $105.03 a barrel at the end of the month. Natural gas prices, on the other hand, descended 3.25%. Gold settled at $1,313.00 at month’s end, the culmination of a 7.46% monthly ascent. Silver went +1.45%, platinum +6.77% and copper +2.40%. As for crops, coffee lost 1.37%, but cocoa rose 4.74%, wheat 2.71% and sugar 2.48%. The U.S. Dollar Index lost 1.76% for the month.18,19


On August 1, Freddie Mac’s Primary Mortgage Market Survey had the average rate on a 30-year fixed home loan at 4.39%, up from 4.29% on July 3 and 3.81% on May 30.20


Existing home sales fell 1.2% in June, with tightening inventory being a factor; still, the National Association of Realtors reported a 13.5% yearly improvement in the median sale price. The May S&P/Case-Shiller Home Price Index recorded a 12.2% overall yearly rise in home prices across 20 cities. New home sales were up 8.3% in June, with a 38.1% year-over-year increase in the sales pace (the best on record since 1992).6,21

Not all the news was so impressive. Pending home sales dipped 0.4% for June, partly reflecting the shrinking inventory of existing properties on the market. As for building permits and housing starts, they both fell in June: building permits sagged 7.5% from May but were up 16.1% annually, while starts dipped 9.9% but were still up 10.4% in 12 months.6,22

The 0.58% rise in conventional mortgage rates across two months was mirrored by other types of home loans. Average rates for 15-year FRMs went from 2.98% to 3.43%; average rates for 5/1-year ARMs and 1-year ARMs were but 2.66% and 2.54% on May 30, yet respectively 3.18% and 2.64% by August 1.20

To broadly recap,  July ended with the DJIA settling at 15,499.54, the NASDAQ at 3,626.37, the S&P 500 at 1,685.73 and the Russell 2000 at 1,045.26 (it rose 6.93% for the month). Fear ebbed: the CBOE VIX fell 20.23% for the month, settling at 13.45 on July 31.1

Could Corporate Tax Cuts Promote Job Growth?

President Obama returns to an idea he introduced in 2012.

presented by Reeve Conover

What if corporate taxes were 7% lower? Specifically, what if the corporate tax rate was reset to 28%, 25% for manufacturing companies? As a tradeoff for this tax cut, what if multinational corporations based in the U.S. paid a one-time fee on accumulated overseas earnings? Finally, what if the resulting one-time revenue was spent on job training, education and infrastructure projects with the goal of reducing unemployment? That is what President Obama proposed on June 30, reviving an idea he talked about last year.1,2


Would it be “a grand bargain for middle-class jobs”? Given the possibility of a fall stalemate over federal budget negotiations, it is understandable that President Obama returned to his vision of a grand bargain. The odds of the bargain being struck appear long, however. The proposal already faces stern opposition from congressional Republicans.2


Detractors of the proposal say it isn’t a true tax cut – just a drop in corporate tax rates unequally counterweighed by measures to expand the tax base, such as the one-time fee on overseas profits and new limits on accelerated depreciation. They see a plan to fund a stimulus, not true tax reform.2,3


Voices in the small business community would like to see broader change. About 75-80% of American small businesses are pass-through entities subject to individual tax rates. They would get no tax break under the proposal, and some of the deductions and credits they count on could be reduced.4,5

While President Obama’s “grand bargain” seemingly has little chance of being realized, it isn’t the only tax reform idea in front of Congress right now.

Other proposals are on the table. The media hubbub over the President’s speech obscured some of the other efforts at tax law revision underway on Capitol Hill, which may significantly affect small businesses and start-ups.


The Senate Financial Committee (which is chaired by Montana Democrat Max Baucus, a key player in the tax reform debate) has mentioned an idea that might lower costs for investors in R&D firms and make the fundraising process easier for those companies. The proposal would let investors carry forward “any losses from investments in research-intensive small businesses and use them to offset gains for tax purposes in the future.” Ernst & Young projects that this could generate $10.3 billion more in such investments per year.6


Another proposal making the rounds in Congress would permit a new owner or acquiring company to tap net losses for a small, pre-profit company to offset their taxable revenue. As Inc. notes, researchers think that tax break may boost start-up investments by $5.5 billion a year and lead to approximately 85,000 new jobs.6


Lastly, there is a bill circulating in the House that calls for enlarging the capital gains exclusion pertaining to qualified small business stock. The proposed legislation would permanently boost the limit on that exclusion to $150 million in assets for eligible firms, widening the range of possibilities for investors. Ernst & Young researchers believe that if this tax law adjustment occurred, more than 350,000 new jobs would be generated.6


Reeve Conover may be reached at 877-423-9990, or


This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.



1 – [7/31/13]

2 – [7/31/13]

3 – [7/30/13]

4 – [7/30/13]

5 – [7/30/13]

6 – [7/31/13]



Putting the recent bond selloff in perspective

Long Term Treasury Yields have risen from 1.63% on May 2 to 2.74% on July 5.  Rising interest rates are always bad for bond-holders, and this time period was no exception.  Bond Mutual Funds have shown negative numbers (you noticed that in your monthly statement, didn’t you?) of recent.

Most of our clients have elected to move into “low-duration” bond funds, which are funds of bonds that have less interest-rate sensitivity.  But “Less” is not “None” and there is most certainly more pain coming in this arena.   According to an article on the NY Federal Reserve Site, they identified 31 sell-offs in the bond market since 1961 (a little more than 51 years).  Some were very short (16 days the shortest) and one lasted from April 1967-November 1970.  Our recent sell-off compares well to the sell off of 1994 and 2003, although much steeper (meaning it happened quicker).

In Bill Gross’ article this month, entitled ” Bond Wars,” he tells the story of the Battle of the Somme, the most likely the bloodiest one-sided battle in history.  And, lets face it, he is a bond genius (PIMCO Total Return) – and his point is about failing to adapt.  He urges adapting to changing times, and makes a case that his firm PIMCO is “going to win this war!”

Following his analogy is a very involved and technical description of how complicated the process is – and a good example of why choosing the right managers is so important, and what I focus on.  But lets keep this in its proper perspective:

This was only the 13th worst sell-off in the last 50 years.  It is important to remember that it is not over – there is clearly more to come as interest rates rise, and as Quantitative Easing is “tapered off…”  And it could well be a much long lasting pain…


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Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA. - SIPC - Brokercheck