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March Update

Whiteford Wealth Management, Inc.
404 Broadway Street, South Haven, MI 49090
Tel: (269) 637-4400 Fax: (269) 637-4407

March 17, 2016
Market Update
Anyone that knows us at Whiteford Wealth Management, Inc. is already familiar with our brevity. We feel that it’s always important to be honest with ourselves and the markets that we have become so intertwined with. So far this year has been detrimental to the overall market and our clients’ savings. Let’s talk numbers.
Name of Index Dec. 31, 2015 (close) Mar. 16, 2016 (close) Percentage Change
Dow Jones Ind. Avg. 17,425.03 17,329.91 -0.55%
NASDAQ (IXIC) 5,007.41 4,764.78 -4.85%
S&P 500 2,043.94 2,027.22 -0.82%

As you can see, these numbers have been continually increasing from their previous lows, as illustrated in the next chart.
Name of Index Feb. 11, 2016 (close) Mar. 16, 2016 (close) Percentage Change
DJIA 15,660.18 17,329.91 10.66%
NASDAQ 4,266.84 4,764.78 11.67%
S&P 500 1,829.08 2,027.22 10.83%

Now let’s compare these figures to our foreign counterparts around the globe. We’ll do so by comparing the major indexes of Germany, China, UK, & Japan.
Name of Index Dec. 31, 2015 (close) Mar. 16, 2016 (close) Percentage Change
DAX (Germany) 10,743.01 9,983.41 -7.07%
SSE Comp. (China) 3,539.18 2,870.43 -18.90%
FTSE 100 (UK) 6,242.32 6,175.49 -1.07%
Nikkei 225 (Japan) 19,033.71 16,974.45 -10.82%

Source: Google Finance
Please also look to the following website for MCSI data on all countries listed (click the country tab about 1/3-way down). Look at the rolling 1, 5, and 10 year periods.
https://www.msci.com/end-of-day-data-search
You might notice that one country is doing far better than every other country—aside from small players such as Denmark & Belgium—that is on that list. Several years ago, we felt the same way. Despite fielding calls on a weekly basis about how JPMorgan, Fidelity, or whatever other big player was trying to convince us to “diversify across the markets”, it really did not make sense to us. We kept the course. We stayed, when it comes to the vast majority of client assets, invested in US Equities. Well things don’t seem to have changed much, and the last 10 weeks seem to agree with us.
Fixed-Income Producing Assets and a Return to the US Large Cap Dividend.
Well, there must be other ways of diversifying one’s investments to include fixed-income alternatives, one might say. We agree when it comes to larger net-worth clients. However, even in those cases we are required by law to refrain from placing certain percentages of client assets in such vehicles. For our smaller clients, we simply cannot ethically make those same allocations. This is because there have been only two types of fixed-income strategies that have been economically viable, in our eyes, in recent years. These two types of assets are (1) Fixed Index Annuity and (2) Private Real Estate Investment Trusts. While we agree that purchasing bonds are historically a great approach to realizing this prong of one’s investment strategy, the rest of the world has flooded our fixed-income markets and driven the prices to where these types of investments simply don’t make sense for the great majority of our clients. A yield-to-maturity of under 2% is, stated simply, rarely a suitable investment. Let me create another chart to help explain why US dividend paying equities are better long-term investments when compared to today’s bond market.
Aggregate Fixed Income Portfolio Individual Bond (10-years) US Equity Portfolio Oil & Gas Industry
Income (Coupon or Dividend Rate) ~2-3% ~2-3% ~2-3% ~4%
Value Change (Interest Rate Decrease) Increase Increase (But we would not advocate selling) Increase (Cheaper Debt=More Expansion) Increase (Same as US Equity)
Value Change (Interest Rate Stagnant) No Change No Change No Change (Other than Market-Related) No Change (Same as US Equity)
Value Change (Interest Rate Increase) Decrease Decrease (But we would not advocate selling) Slight Tightening of Debt = Current Expansion Stays Same as US Equity
Likely Value at end of 10-Years (Historic Avg.) Decrease No Change (Return of Principal) Increase Same as US Equity

Source: http://news.morningstar.com/index/indexReturn.html
The primary difference between the first two columns is this: one’s a portfolio of bonds, so there is constant buying and selling as new money comes in/leaves the portfolio, bonds mature prompting reinvestment, etc. This drives the point that the bond portfolio will, very closely, follow the path of the Federal Reserve’s Fed Funds Rate. The individual bond, which we help purchase for some clients in some cases, is bought for the pure intention of receiving 2% income for 10 years and reinvesting the bond into a newer (hopefully higher rate in 10 years) bond once it matures. We DO NOT advocate buying/selling bonds at this point in time.
Row #4 deals with several different aspects. First, it assumes that stock prices during large rolling periods increase over time. Second, it assumes that interest rates will increase at some point in the next ten years which would lead to their devaluations. This leads us to our decision as to what type of asset class we recommend our clients purchase.
As most of our clients’ investment timeframes are longer (usually much longer) than 10 years, the choice should be relatively clear amongst these asset classes, as they all provide the same amount of income. For unlimited downside exposure, as interest rates can theoretically go higher than their historic norms within the next 10 years—which would already be a 250% increase from current levels—bond portfolios do not seem like wise investment decisions for most of our clients. Now, this is not a part of the “by-the-book” investment approach, we know. But, we will NEVER buy something just because everyone else in the industry is doing it.
Equity positions, as described earlier, tend to increase over large spans of time. For instance, we have only had four ten-year rolling periods—which is defined in terms of average annual return for the ten years prior the then current year—in which this trend is untrue (late 1930s & late 2000s)—it quickly reversed—so we feel comfortable in our clients’ assets earning similar rates as bond portfolios with much higher upsides over the long-term investment horizon.
Source: http://www.crestmontresearch.com/docs/Stock-Rolling-Components.pdf
So which type of equity portfolio should we buy?
The industry of oil & gas, in column four, is meant to give you an example of a large holding within many US Equity Portfolios. This industry segment, like much of the large-caps in the US economy, is much more streamlined than it was just a few years ago. Most of US market critics look to the price of the DJIA in 2007-2008 and compare it to today’s prices. This is simply not fair. Our reasoning that we have is that after the most major market crash that this country, the big guys have learned many lessons. They have fewer employees than they did eight years ago. They have less debt. They are more critical of growth opportunities. Plus, they are paying historic lows on their interest payments. Just think of what many of you have done in the past eight years. You have probably refinanced your home, saving thousands every year. You might have bought a new car with 1% or even 0.5% interest on the outstanding balance. You have consolidated credit card debt into rates that you yourself would have scoffed at in the late 1980s. Now imagine: what if you were a $300 Billion company and you were able to do all of those things and more? Sounds great, doesn’t it?
That is what is driving the numbers higher. It might be artificial so long as interest rates stay as low as they are now; however, the fact remains: US Large Caps are making more and doing so costs less than they ever have in the history of this country’s stock market.
Basically, if the Fed Funds Rate (and of course LIBOR) go up, bond portfolios will likely get killed and the growth prospects of US companies will get slightly deterred. This dilemma is rectified by the simple fact of deciphering *to what degree* these two asset classes would be impacted by such decisions by the Federal Reserve. Because most of the debt that has financed massive growth operations by US companies has already been locked in at current rates and only a small percentage is affected by interest rate changes, we feel confident in the decision that we have made: Dividend-Paying Large Caps are the way to go.
Oil and the Markets.
Now, to shift into a different topic, many people, especially those in the media, love harking on the fact that because oil prices are down, it looks bad for the rest of the economy. While this is true in many places in the world, as their chief source of income, on the governmental level, is some sort of commodity—many times it’s oil. However, as one of the largest consumers of oil in the world, US companies LOVE cheap oil. A good way to think about it is thusly: 90% of the S&P 500 are now paying transportation costs that mimic those they had 20 or 30 years ago when it comes to refueling their trucks, shipping their widgets, or purchasing raw materials from across the country (and the world). With the advent of newer technology that comes out every year—transportation/logistics is perhaps the largest industry in the world so it attracts the largest tech contracts—the only companies in this country that are unhappy about cheap oil are those that pull it out of the ground. Some of the biggest companies in the industry haven’t even been producing it for the last 18 months, as their refining, shipping, and storage arms more than pay the bills on time. These types of companies are still making billions every year even with the price of oil at $25 because of the vertical integrations across their industry.
Like what was stated earlier, though, is that cheap oil and the corresponding cheap commodities markets are not exactly helping the rest of the world. International business has indeed slowed because of it. The impact on our bottom line, however, might shock you. Less than 1% of the US GDP in 2015 was comprised of exports to other countries. This is one fact that you will never see in the news. When reports arise stating that exports to China are down 3-5%, it really sounds bad. But, really, the impact on our GDP is rather trivial. This is another reason why we are long on US domestics.

Stock Buybacks.
A little knowledge for you as far as definitions go: when a company owns stock in itself, it is commonly called “capital stock”. Well this sort of stock has been increasing at pretty exponential rates in the past few years. There’s really two key indicators as to why this is happening in our opinion.
First, interest rates are low! The average growth of the S&P 500 since it’s been around has been about 8%/year annualized if one accounts for dividend reinvestment. Well if you can get a corporate loan of 5% or maybe even 3-4%, then this seems like a great long-term investment for American companies.
Second, the managers of these companies see long-term growth within the companies themselves when taking current stock prices into account. This is the most important facet of the recent capital stock activity, as no matter how much technical analysis one does from the public data that is required to be published by these public companies, *nobody knows a company better than that company’s management*. If the managers are not only purchasing stock through the corporation, which is technically not insider trading, but also waiting until key public disclosures occur to buy these stocks with their personal funds, it seems to us to be a great indication of where the future of the US company is going. This is not something that we wholly rely on, of course, but it definitely doesn’t hurt the cause.
Conclusion.
Anyone that has been a client for a long time knows our unofficial motto: we don’t sell anything that we wouldn’t buy ourselves if we were in your financial/life situation. Well over 90% of the time, that means that we own the same exact assets—usually in different allocations—as our clients. We like to be in the boat with you. This is why we were one of the only firms that left the market midway through 2008. We did so personally. In 2009, we saw the market hit bottom. We got back in and advised our clients to do the same. We left the international markets in 2011; so did our clients. Those that stayed did based upon their own inclinations, which we will always respect their decisions as final. Well we really haven’t gotten back into the international arena save for about 5% of total client assets. While there are bound to be times ahead when we feel that the time is right, it just isn’t now.
Should this brief synopsis of our opinions—and these are purely opinions based on our own analysis of the data—stir any questions about the markets, about our service, or anything else for that matter, please feel free to reach out to us. It takes a great deal of trust to allow someone to manage your life’s savings. The fiduciary duty that arises out of our relationship is nothing compared to the ethical duty that we have to you and your families. It’s not something that we take lightly; so, until the next time we speak, we will be in the boat with you.

/SIGNED
Kevin S. Whiteford
President
Whiteford Wealth Management, Inc.

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through Cambridge Investment Research, Inc., a Registered Investment Advisor. Whiteford Wealth Management, Inc. and Cambridge are not affiliated.
This letter is not meant to solicit the purchasing of any equities, bonds, mutual funds, or any investment of any kind. Any direct mention of any investment is meant purely as a reference point in the analysis of the issues discussed in this letter.
These are the opinions of Kevin S. Whiteford and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Indices mentioned are unmanaged and cannot be invested into directly. Past performance is not a guarantee of future results. Diversification and asset allocation strategies do not assure profit or protect against loss.

Friendly Reminder

Take a look at some great uses of your tax return.
Always feel free to call us with questions 269-637-4400, and have a great day!
http://www.forbes.com/sites/financialfinesse/2013/02/20/7-ways-to-make-the-best-use-of-your-tax-refund/#2bb8143425e4

January Outlook

“US Automakers Ford & GM seem to be receiving a lot of negative attention from investors recently. This pales in comparison, however, to many of the fundamental changes that these two companies, Ford especially, have been undergoing and plan on bringing about in the coming years. Ford, for example, has partnered with Google in the application of a new “Smart Car”. It also wants to get directly involved in the “Car Sharing” programs that have been garnering nationwide (and worldwide) support lately. They want to have lots in larger cities–filled with Ford cars of course–that customers are able to utilize their credit cards to rent cars for however long a time period they choose.

On top of these fundamental shifts in US Automakers’ business models, their stocks have been relatively stagnant for quite some time and have in fact taken dips in 2015-6. They are now yielding twice the dividends of their average S&P 500 counterpart.

Ford sales are up. GM sales are up. Fiat Chrysler has actually had its best year in 90 years! The companies creating the consumer product that has so eloquently epitomized the American way of life, we feel, is a great analogy to the overall domestic stock market: at current prices, it’s trading at a bargain.

Like always, feel free to contact us to learn more about our viewpoints about the markets and how we can help you attain (or retain) your retirement through their use.

http://finance.yahoo.com/news/a-great-year-for-car-sales%E2%80%94but-a-lousy-one-for-gm-and-ford-stock-183828882.html”

HABITAT FOR HUMANITY

In September 2015, Kevin and Tom alongside with the Holland Young Professionals, assisted in constructing two homes in Holland Michigan.

The homes are constructed through Habitat for Humanity, and their mission is a valued one here at Whiteford Wealth Management, Inc.

An afternoon of sweat laughter and some aches, it always feels good doing something to make a difference in the community.

http://www.lakeshorehabitat.org/

Habitat for Humanity has locations all over the world, and most likely there is one in your backyard!
Habitat constructs homes for low-income families who have a steady income, but cannot afford safe, decent, and affordable housing on their own yet. However, by lowering the costs of construction through volunteer assistance, this goal is obtainable.

This is a major support system for families that would like to move themselves and their children away from a negative environment, but do not have quite enough funds to do this independently.

Each home has a monthly mortgage, and incentives to move the families towards financial Independence.
Habitat for Humanity has always been a strong proponent of ‘a hand up rather than a hand out.’ Houses are sold to qualified Homeowner Partners without profit, using affordable mortgages.

Homeowners also complete sweat equity hours as part of the partnership. Our homeowner partners are able to re-pay their mortgages over the course of 20-25 years.

These payments, together with donations, grants, and sales from our ReStore create a sustainable revenue model that supports the construction of more homes for future Habitat partners.

When Habitat families move from poverty housing into their own homes, they report better health, increased stability in the family, and children who do better in school.

Thank you for reading our post, and pass the message along; it takes a community to build a community.
-Whiteford Wealth Management, Inc.
HABITAT DAY PIC 1

HABITAT DAY PIC 2

New Website

Welcome to our revised Website!

Now you can check all of your stocks at every minute of everyday through our new software on our home page.

Enjoy! and please contact us with any questions.

-Whiteford Wealth Management, Inc

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