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Month: August 2019

Happy Labor Day

As you know, this holiday is for celebrating the Labor Movement and the contributions workers have made to our nation’s history. But in recent years, as our society has grown ever more automated and modernized, we sometimes think we forget how important labor still is.  

Each month seems to bring new stories about the latest innovations in artificial intelligence, robotics, or digital technology. But there are so many things we could not function without – things we often take for granted – that wouldn’t exist without laborers.  

As financial advisors, we work a white-collar job. Every day we rely on computers to do what we do best. And yet, we could not perform our job without labor. The roads we drive on to get to work are made by laborers. The food we eat is grown, harvested, and prepared by laborers. The clothes on our backs, the shoes on our feet, the roofs we live under – it’s all thanks to hard work and no small amount of skill.  

Laborers harness the power of the Earth, the sun, the wind, and the oceans to provide the energy we consume each day. They mine the elements that go into everything from streetlights to the smartphone in our pockets. They build, repair, and reuse. Laborers keep our cities clean and functioning smoothly. They even plant the trees we rely on both for oxygen and for natural beauty! We often don’t notice them, because they work behind the scenes, or at night, or even in faraway lands. But the fact remains that we still rely on the sweat and skill of workers around the world.  

As another Labor Day rolls around, it’s important to remember that. It’s important to be grateful for the things we take for granted. It’s important to remember that many laborers still work backbreaking jobs, in harsh working conditions, for very little pay. It’s important to remember that the labor movement – the cause to ensure workers are treated fairly, safely, and humanely – is still going on today. So, while we celebrate another Labor Day, let’s remember how important labor is and always will be. Our civilization would be nothing without it.  

On behalf of everyone here at Minich MacGregor Wealth Management, we wish you a safe and happy Labor Day!

Important information about your financial security

You probably remember that back in 2017, Equifax announced a data breach that exposed the personal information of 147 million people.  As one of the three largest credit reporting companies in the United States, it remains one of the most significant and far-reaching cyber attacks in history, putting millions of names, addresses, birthdates, Social Security numbers, drivers’ license numbers, and even some credit card numbers at risk.  

In this day and age of hacking, scamming, and phishing, it’s more important than ever that you take steps to safeguard your identity and your finances.  Fortunately, we have some good news.  Last month, Equifax finally agreed to a settlement with the Federal Trade Commission (FTC).  The settlement includes up to $425 million to help people affected by the data breach.

How do you know whether you are one of the people affected?  Simple: visit https://eligibility.equifaxbreachsettlement.com/en/eligibility and type in your last name and the last six digits of your Social Security number.  Then, this special website – which is operated by the settlement administrator, not Equifax – will tell you if you were impacted by the data breach.  

Go ahead and do it right now.  Then, come back to this article if you were one of the people affected.  We’ll wait. 

***

Still here?  Okay.  Just because you were one of the 147 million people we mentioned, does not necessarily mean your identity was stolen or your finances compromised.  It simply means that you need to take some simple precautions.  

As part of the settlement, you can now file a claim for FREE credit monitoring and identity theft protection services.  By filing a claim, you will receive up to 10 years of free credit monitoring. The free credit monitoring includes:

  • At least four years of free monitoring of your credit report at all three credit bureaus (Equifax, Experian, and TransUnion) and $1,000,000 of identity theft insurance.
  • Up to six more years of free monitoring of your Equifax credit report.

Now, you may have heard in the news that you could claim a $125 cash payment instead of free credit monitoring.  That is no longer the case.  Because so many people filed a claim, there just aren’t enough funds available for people to receive a cash payment.  But that’s okay, because, quite frankly, credit monitoring and identity theft protection is MUCH more important and valuable.  Want to know what you can do with $125?  Buy some top-of-the-line basketball shoes or fill up your car with gas once or twice.  Want to know what you can do with good credit and financial security?  

A lot more.

If, on the other hand, you actually did have your identity stolen or your finances affected in some way, you can file a claim for a cash payment of up to $20,000.  Again, note that this is limited only to people for people who lost money or suffered identity theft, fraud, or some other harm from the breach.  

In any event, as financial advisors, we strongly recommend you take sixty seconds to visit https://eligibility.equifaxbreachsettlement.com/en/eligibility and then file a claim for free credit monitoring if necessary.  

In the meantime, if you’d like more information about the data breach, the settlement, or how to file a claim, you can visit this handy website set up by the FTC: https://www.ftc.gov/enforcement/cases-proceedings/refunds/equifax-data-breach-settlement.  

When it comes to reaching your financial goals, protecting your identity is just as important as saving and investing.  Fortunately, even a few simple precautions can make a big difference.  Please follow the instructions above and let me know if you have any questions or concerns about the security of your finances.  We are always here for you.     

P.S. If you have any friends or family who you know should look into their own identity protection, please feel free to share this with them.  Thanks!  

Check out other articles 

Important notice from the Minich MacGregor Wealth Management TeamLet’s talk about records
Indicator? What indicator?Look for the Helpers
Inverted Yield CurveLots of market news, good or bad depends on how you look at it.
It’s not about action or inaction, it’s about whyMaking Good Financial Decisions
It’s not quite as exciting as the work of a fighter pilot, but we do see some similarities.Making Sense of the 2020 Oil Crash

Minich MacGregor Wealth Management Expands Advisory Team in Saratoga Springs, NY

The move follows a decade of sustained growth for the wealth advisory firm and will bring new insights to client portfolios.

Saratoga Springs, New York — August 14, 2019

Minich MacGregor Wealth Management, an SEC-registered investment advisor with offices in Saratoga Springs, NY and St. Augustine, FL, is pleased to announce the addition of Mark Landau to the firm’s wealth management team.

Mark has been working in the financial industry for more than 15 years and spent most of his career with AYCO, a division of Goldman Sachs. While at AYCO, he served as Vice President and Wealth Advisor and was responsible for managing three financial analysts and one administrative assistant. With a focus on serving high net worth families and business owners, he brings a holistic approach to wealth management that addresses his client’s accumulation, tax, philanthropic, and estate planning needs.

“It’s a privilege to join the team at Minich MacGregor, and I look forward to continuing the work that Jason and Jim started ten years ago. From the first meeting, it felt like the right fit, and it was clear that the team at Minich MacGregor cares deeply about the best interest of their clients,” said Mark Landau about the move.

“We’ve grown a lot here at Minich MacGregor, and we have done that by focusing on our client’s long-term financial challenges and goals. With Mark joining our team, we will be able to help more and more families in the Saratoga Springs area,” said Jason MacGregor, who co-founded Minich MacGregor Wealth Management with Jim Minich in 2009.

For more information or to discuss career opportunities with Minich MacGregor Wealth Management, please connect with Michele Tellstone at 866-998-7331 or michele@mmwealth.com.


About Minich MacGregor Wealth Management

After 20 years of service with Morgan Stanley Smith Barney, James Minich and Jason MacGregor founded Minich MacGregor Wealth Management, an independent Registered Investment Advisory firm (“RIA”), in 2009. Since then, they have worked hard to assemble a team of specialists with over 100 years of collective financial services experience.


Inverted Yield Curve

If you ask an economist what makes them toss and turn at night, chances are they’ll tell you, “Fear of missing the warning signs of a recession.”  After all, for anyone who studies the economy for a living, few things could be worse than a sudden economic slump catching you by surprise.  

That’s why many economists rely on certain indicators to predict if there’s rough weather ahead.  Historically, one of the most reliable indicators is the inverted yield curve.  This is when the yield on long-term bonds drops below the yield on short-term bonds.  Why does this matter to economists?   Because an inverted yield curve has preceded every recession since 1956.1

Long-Term Bond Yield Hits Record Low2
Stocks Skid as Bonds Flash a Warning

The Wall Street Journal, August 14, 2019

On August 14, the yield on 10-year Treasury bonds dropped below 1.6%, officially falling beneath the yield on 2-year Treasury bonds for the first time since 2007.4  That’s an inverted yield curve.  The markets responded the way children do when a hornet gets inside the family car – they panicked.  The Dow, the S&P 500, and the NASDAQ all fell sharply, with the Dow plunging over 700 points.3  

The obvious question, of course, is “Why?”  

It’s a smart question!  To the average investor, the term “inverted yield curve” probably doesn’t sound very scary.  So, why does it have the markets freaking out?  Let’s break it down by answering a few basic – but also smart – questions.

1. What’s a bond yield, again?  

A bond yield is the return you get when you put your money in a government or corporate bond.  Whenever an investor buys a bond, they’re agreeing to loan money to the issuer of that bond – the government, in the case of Treasury bonds – for a specific length of time.  Typically, the longer the time, the higher the yield, as investors want a greater return in exchange for locking up their money for years or even decades.  That’s why the yield on long-term bonds is almost always higher than on short-term bonds.  When these trade places, we have an inverted yield curve.

2.  Okay, so why have bond yields inverted?  

Bear with us here, because we are about to get a little technical.  

Bond yields have an inverse relationship with bond prices.  That means when prices go up, yields fall, and vice versa.  

What do we mean by price?  Well, investors must pay to buy bonds, of course, and when more people buy them, the price of these bonds goes up.  (It’s the basic law of supply and demand: When the demand for something increases, so does the price.)  When that happens, yields drop.

Investors often see bonds as safe havens of sorts, especially during economic turmoil.  Stocks, on the other hand, tend to be seen as “higher risk, higher reward” investments.  In this case, investors are selling their stocks and plowing more and more money into long-term bonds, pushing prices up and yields below that of short-term bonds.  (Supply and demand again: As the demand for these bonds goes up, the price goes up, too – and the issuers can afford to the fact investors are doing this suggests they’re not optimistic about the near-future health of the economy and are seeking safe places to park their money.      

3. Why are investors so worried about the economy?

On the home front, it’s largely because of the trade war between the U.S. and China.  As the two nations engage in an ever-growing battle of tariffs, the fear is that businesses in the U.S. will have to raise prices, thereby hurting consumers.  On August 13, President Trump decided to delay the most recent round of tariffs until December, saying he didn’t want tariffs to affect shopping during the Christmas season.5  Previously, Trump predicted tariffs would not hurt U.S. businesses, so this sudden about-face suggests even he is worried.  

Investors are also worried about a slowdown in the global economy.  Two of the world’s most important economies, China and Germany, have both shrunk.  Put all these things together and it’s not hard to see why investors worry about a recession in the near future.  

Fears the recent news about inverted yield curves will only stoke.  

4. So is a recession imminent?

As we mentioned earlier, inverted yield curves have preceded every recession since 1956.  This includes the Great Recession of 2008.  But does this mean a recession is just around the corner?  

No!  

There are two things to keep in mind here.  First, a brief inverted yield curve is not the same thing as a sustained one.  While inversions have preceded every modern recession, inversions do not always lead to a recession.  Think of it this way: You can’t have a rainstorm without dark gray clouds.  But dark gray clouds don’t always lead to a rainstorm.  Make sense?  

You see, correlation does not equal causation.  By this we mean that while inversions and recessions are often seen together, one doesnot actually cause the other.  An inverted yield curve is like a sneeze: It’s a symptom, not the disease itself.  And while a sneeze can mean you have a cold, it doesn’t lead to a cold.  Sometimes, we sneeze because we got pepper up our nose.  

Second, let’s assume for argument’s sake that this recent inversion is a warning sign of a future recession.  That doesn’t mean a recession is imminent.  Some analysis suggests that it takes an average of twenty-two months for a recession to follow an inversion.1  That’s a long time!  A long time to save, invest, plan and prepare.  

5. So does an inverted yield curve even matter, then?  

We’ll put it simply: It matters enough to pay attention to.  It doesn’t matter enough to be worth panicking over.  

Make no mistake, we’re in a volatile period right now.  There’s a lot of evidence to suggest that volatility will continue.  But while comparing the markets to the weather has become something of a cliché, it also makes a lot of sense.  When storm clouds gather, we pack an umbrella or stay inside.  We don’t run for the hills.  

The same is true of market volatility.  

Remember, an inverted yield curve is an indicator, not a prophecy.  Economists can toss and turn about such things, but we are focusing on something much less abstract: your financial goals.  More important than any indicator, more important than the day-to-day swings in the markets, is the discipline we show.  If you think about it, market volatility is really a symptom, too – a symptom of emotional decision making.  Investors see a good headline, and they buy, buy, buy!  That’s a market rally.  Investors see a bad one, and they sell, sell, sell!  That’s a market dip.  

Investing based on emotion leads to one thing: Regret.  Regret that we bought into the hype and bought when we should have waited for a better deal.  Regret that we fell into fear and sold when we should have held on longer.  We invest by being disciplined enough to buy, hold, or sell when it makes sense for your situation.  

That’s the best way to stay on track toward your goals.  That’s the best way to not toss and turn at night.  We don’t make decisions based on predictions.  We make decisions based on need.  

We will keep watching the indicators.  We’ll keep doing our best to explain the twists and turns in the markets.  And we’ll keep doing our best not to overreact to any of them.  In the meantime, please contact us if you have any questions or concerns.  We always love to hear from you!

1 “The inverted yield curve explained,” CNBC, August 14, 2019.  https://www.cnbc.com/2019/08/14/the-inverted-yield-curve-explained-and-what-it-means-for-your-money.html

2 “Long-Term Bond Yield Hits Record Low,” The Wall Street Journal, August 14, 2019.  https://www.wsj.com/articles/bond-rally-drives-30-year-treasury-yield-to-record-low-11565794665

3 “Stocks Skid as Bonds Flash a Warning,” The Wall Street Journal, August 14, 2019.  https://www.wsj.com/articles/asian-stocks-gain-on-tariff-delay-11565769562

4 “Dow tumbles 700 points after bond market flashes a recession warning,” CNN Business, August 14, 2019.  https://www.cnn.com/2019/08/14/investing/dow-stock-market-today/index.html

5 “U.S. Retreats on Chinese Tariff Threats,” The Wall Street Journal, August 13, 2019.  https://www.wsj.com/articles/u-s-will-delay-some-tariffs-against-china-11565704420

Tweets & Tariffs

When Twitter first launched back in 2006, its creators probably never imagined that a single “tweet” could make the stock market plunge. But that’s exactly what happened on Thursday, August 1, when President Trump tweeted the following:

…the U.S will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%…”1

Before the tweet went out, the Dow was up over 300 points. The S&P 500 was also having a good day. By the late afternoon, however, the Dow ended up down almost 300 points.2 That’s quite a swing. 

Of course, it wasn’t really the tweet itself that made the markets dip, but the news it contained. As usual, the markets reacted to the announcement of more tariffs with a fit of violent sneezing. So, investors must now ask themselves, “Is this just a brief allergic reaction…or the first symptom of a market cold?” 

Let’s break it down. 

The “what” and “why” of tariffs

Here’s a quick review of the basics. A tariff is essentially a tax on imported goods. The business doing the importing will pay the tariff, usually as a percentage of the goods’ total value.

Many economists believe, however, that it’s consumers – people like us – who end up paying the cost of tariffs. For example, back in 2018, President Trump placed a tariff on imported washing machines. One study found that consumers “bore between 125 and 225 percent of the cost of washing machine tariffs”, mainly because the companies that sold the machines ended up charging far more for them to make up for what they lost in tariffs.3

So, why impose tariffs at all? Some economists argue there are lots of reasons. For instance:

Protecting domestic industries. When imports are more expensive, the thinking goes, consumers – both individuals and other companies – are more likely to buy from domestic companies that produce the same goods at a lower price. For instance, the U.S. has put tariffs on sugar imports dating all the way back to 1789!4

Revenue. Historically, tariffs were once one of the nation’s largest sources of revenue. However, tariffs-as-revenue have largely been replaced by other taxes, especially income and payroll taxes. 

Geopolitical negotiating. Tariffs – or at the least, the threat of them – can sometimes be used to drive countries to the negotiating table. That’s probably the single biggest reason President Trump has relied on tariffs so much, as he has persistently used them to persuade countries like China, Canada, and Mexico to negotiate more favorable trade deals. 

So, are tariffs good or bad? It’s unclear. Some economists claim they’re worth the cost. Others believe tariffs aren’t effective at doing what they’re supposed to do and just end up hurting consumers far more than they help. And since the American economy is based largely on consumer spending, these economists believe tariffs ultimately do more harm to the economy than good. 

Since we are financial advisors, not economists, we won’t come down on one side or the other. Far more pressing for us – and for all investors – is how tariffs affect the markets.

Tariffs and the markets

Since 2018, President Trump has announced new tariffs on Chinese goods on several occasions. Each time, a market drop has typically followed. You only have to look at the most recent announcement to understand why. 

As the President tweeted, the U.S. is imposing a new 10% tariff on $300 billion in Chinese goods. This new list includes everything from smartphones to toys to shoes.5 It’s no surprise, then, that the stocks sold off on August 1 were largely for companies that sell these products. As we just discussed, companies must pay more for the goods they need or sell, which can significantly eat into their profits. This, in turn, can lead to shipping delays, supply chain problems, higher prices for consumers, a resulting loss of business – you name it. All these issues, of course, are then reflected in the stock prices of the various companies affected. 

Despite this, each of the market drops we mentioned earlier tended to be mere blips on the screen. Some blips lasted longer than others, but in each case, the market sneezed, then moved on. (Or upwards, as the case has been.) The world we live in moves with astonishing speed, and for the markets, the next bit of news often seems to crowd out the previous bit. Those who have predicted doom and gloom with each new round of tariffs are still waiting. Since the overall health of the economy remains strong, it will likely take more than a few tweets, or even a few hundred billion in tariffs, to make the markets truly sick. 

The danger of complacency

All that said, there is a danger here. It’s the danger of becoming so accustomed to these here today, gone tomorrow blips that we forget to remember it’s the long-term health of the markets that matters. 

Every day, we’re bombarded with short-term news stories that cause short-term reactions. The fact that a single tweet can move markets is proof of that. But repetition often leads to desensitization. Sometimes we wonder if investors will become numb to events like we saw on August 1st. We sneeze, and when nothing else happens immediately, we move on. 

As always, though, the long-term is more important than the short. In this case, it’s possible we haven’t actually felt any long-term effects yet, just as we don’t usually feel the symptoms of a cold until the virus has been inside us for some time. Are there long-term effects to come? We don’t know – nobody does. It is important to note, however, that this round of tariffs is a little different than the previous ones. Older tariffs were largely on products like plywood and polyethylene. Important, but not very conspicuous. The newest tariffs President Trump has proposed involve more of the things we use on an every-day basis. Smartphones, for instance. Shoes. Clothing. Things we tend to notice and appreciate just a bit more. What happens if they go up significantly in price? Would that mean anything in the long run? 

It seems needlessly pessimistic to say that it definitely will. On the other hand, it also seems hopelessly naïve to say that it definitely won’t. 

It’s also possible that older tariffs will become more painful the longer they go on. Some data suggests that many companies have decided to eat the higher costs that come with tariffs rather than passing them onto consumers. But how long will that last? 

The point of saying all this, is not to suggest that these new tariffs, or tariffs in general, will bring a definitive end to the bull market we’ve enjoyed for so long. In fact, we think the chances are high that the markets will once again absorb the news, sneeze, and move on. Tariffs, as important as they are, represent only a small portion of the total economy – and the economy still looks strong. And of course, President Trump’s strategy could yet pay off and lead to a new, more favorable trade deal with China.

As financial advisors, though, we are adamant that we avoid feeling complacent about it. While it’s a mistake to overreact every time the markets dip, it’s also a mistake to stop paying attention. 
Our diagnosis, then: A sneeze is usually just a sneeze. And the August 1st market dip is likely just a market blip. But we will keep paying attention to everything we can – the markets, the economy, and yes, even Twitter if need be – in case a blip ever turns into anything more.   

As always, please let us know if you have any questions or concerns. We love to hear from you. 

1Twitter account of Donald J. Trump, August 1, 2019. https://twitter.com/realDonaldTrump/status/1156979446877962243?s=20

2 “Trump Threatens New Chinese Tariffs, Rattling Investors Across Markets,” The Wall Street Journal, August 1, 2019. https://www.wsj.com/articles/trump-to-impose-additional-10-tariff-on-chinese-goods-11564681310

3 “The Truth About Tariffs,” Council on Foreign Relations, May 16, 2019. https://www.cfr.org/backgrounder/truth-about-tariffs

4 “The Taxation of Sugar in the United States, 1789-1861. The Quarterly Journal of Economics. https://www.jstor.org/stable/1882993?seq=1#metadata_info_tab_contents

5 “Trump says he will go ahead with new China tariffs that would hit iPhones and toys,” CNN Business, August 1, 2019. https://www.cnn.com/2019/08/01/economy/new-china-tariffs-threat-trump/index.html

Politics & Finance

There’s a saying that you shouldn’t mix business with pleasure. Far less well known is the concept of never mixing personal finance with politics. 

Unless you’ve been living in some remote corner of the world without access to the internet, you’ve probably heard something about Robert Mueller’s testimony before Congress, the first round of Democratic primary debates, and other political developments. And no doubt you have an opinion on all these things, just like most people. We certainly do. But political opinions and financial facts rarely make good bedfellows. 

Here’s what we mean. Shortly before the midterm elections last year, a client asked us a political question. “Before we answer,” we replied, “are you asking us as your friends, or as your financial advisors?” 

You see, the answers are not the same. That’s because, as financial advisors, our job is not to manage your portfolio or financial plan with a political bent. There are two main reasons for this. First, let’s look at: 

Politics and the Markets

These days, most people tend to be very passionate about their political beliefs. But the fact is, neither party tends to have much impact on the markets compared to the other. Historically, the Dow has gone up an average of 9% every year a Democrat lives in the White House. With Republican presidents, the number is 6%.1 (Note, these numbers do not yet factor in President Trump’s time in office.) The difference between those two numbers is small and can be attributed to a whole range of factors, not just politics. 

Even major geopolitical events rarely have much effect on the markets. Or rather, they rarely have a sustained effect. 

For example, take the case of “Brexit”. When the United Kingdom voted to leave the European Union back in June of 2016, it took most investors by surprise. The day after the vote, the Dow fell over 600 points, and then another 250 points a few days later. 2 But before even a month passed, the Dow recovered – and even climbed to a new record high.3

Now, we are not saying politics do not influence the markets, because they do. The point is, politics tend to have far less of an effect than people think. In fact, if you were to make a list of things that consistently move the markets one direction or another, politics would be far down the list. 

For that reason, when listing all the reasons for making a financial decision, politics should be far down that list, too. 

Political Bias

It doesn’t matter whether you are liberal, conversative, or something in between. As human beings, we all have biases and blind spots. 

That’s the second reason why it’s unwise to mix politics with personal finance. You see, when we do that, we run the risk of becoming selective as to which facts and data points we consider. Without even realizing it, we often gravitate towards the ones that seem to confirm our existing beliefs. We rationalize why this bit of data matters – because it feels right, it must be right! – and why that bit of data doesn’t. 

To put it bluntly, making financial decisions based off biased or overly narrow information is dangerous to our long-term goals. You certainly wouldn’t want your financial advisor to do that. We certainly don’t want you to do that, either. 

Moving Forward

The reason we’re telling you all this, is because we are on the verge of moving into a new election cycle. That means we’re all about to be subjected to a dizzying assault of political news, analyses, and opinions. Everywhere you turn – from TV to radio, from Facebook to the yardsigns in your neighborhood – will be saturated with it. 

Of course, that’s not necessarily a bad thing. After all, we live in a representative democracy, and a democracy lives or dies by the participation of its people. So, as we enter a new political season, we encourage you to have opinions. Express them. Get involved. Just remember that your financial decisions should stand on their own, free of any angst or worry that politics might cause. Don’t make important decisions based on which candidates you think will win or should win. Base them on sound financial planning and actual financial facts. 

Most importantly, always remember that we are here if you have any questions or concerns. 

“How the Presidential Election Will Affect the Stock Market,” Kiplinger.com, March 1, 2016.http://www.kiplinger.com/article/investing/T043-C008-S003-how-presidential-elections-affect-the-stock-market.html

2 “Dow plunges over 600 points as U.K. ‘earthquake’ crushes global markets,” CNN Money, June 24, 2016.http://money.cnn.com/2016/06/23/investing/eu-referendum-markets/index.html?iid=EL

3 “Stocks have never been higher,” CNN Money, July 12, 2016.http://money.cnn.com/2016/07/12/investing/dowstock-new-high-record/index.html