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Durable Good Order Month over Month

New orders for US manufactured durable goods surged 0.8 percent from a month earlier in November 2018, following a downwardly revised 4.3 percent plunge in October and missing market expectations of a 1.6 percent advance. Transportation equipment drove the increase. Orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.6 percent in November, after a 0.5 percent gain in the previous month. Durable Goods Orders in the United States averaged 0.33 percent from 1992 until 2018, reaching an all time high of 23.50 percent in July of 2014 and a record low of -19 percent in August of 2014.


Throughout this recent correction, many reporting agencies had a common theme; fundamentals

“Still, most analysts expect that the recent decline in stocks will be short-lived given the solid economic and earnings fundamentals that have bolstered the case for owning stocks over the last year.”

A prime example of this is GM, take a look at the balance sheet of GM in 2008 compared to 12/31/2017.

The financials are night and day.

Please give us a call with any questions or comments regarding this post.



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

January 2, 2018
Market Update

Welcome to Whiteford Wealth Management’s Fourth Quarter 2017 Update. It has been quite a year. Domestically, we saw Trump’s first year in office go on with only minor economic hiccups. Most of these hiccups dealt with geopolitical strife, such as threats from North Korea, whether they were credible or unsubstantiated, or loosening confidence in forecasts related primarily to two things: interest rate movement coming from Federal Reserve actions and whether or not and to what degree the tax code would be changed. Overall, as many of you know, it was a great year for our clients. It was even better than we had forecasted which is saying quite a lot, as we had very solid expectations for 2017—especially the domestic markets for what we perceived to be very low risk at the beginning of the year. Like we said in prior updates, we simply felt that the risk was too great internationally to chase higher appreciation. Our risk/reward in having about 90% exposure to US equities and 10% exposure overseas played out to our satisfaction.
Here is an outline of this update:
1. Minimal risk has equated to above average returns;
a. Historic levels of low volatility;
2. Changes in the tax code;
a. International implications;
3. Real estate investments—where we were a few years ago and where we are now;
4. Oil & other natural resources; and
5. Bitcoin.

Name of Index Jan. 3, 2017 (close) Dec. 29, 2017 (close) Percentage Change
Dow Jones Ind. Avg. 19,881.76 24,719.22 24.33%
NASDAQ (IXIC) 5,429.08 6,903.38 27.16%
S&P 500 2,257.44 2,673.61 18.44%
CBOE 10-Yr (^TNX) 2.418% 2.405% -0.54%

Please be advised that the percentage change in yields in bonds do not necessarily represent a similar increase in value, it only serves to show you that a substantial change in interest rates has occurred—although it does in fact affect the values of outstanding bonds. Generally speaking, when interest rates rise, bond values fall. Also, many stocks of the DJIA and the S&P500 have dividends which are not included in the NAV’s percentage change on the associated index. Most NASDAQ companies have historically lower dividends but they are also not quantified here.
As illustrated in the next chart, we had a great year when considering last year’s lows that occurred just under two years ago.
Name of Index Feb. 11, 2016 (close) Dec. 29, 2017 (close) Percentage Change
DJIA 15,660.18 24,719.22 57.85%
NASDAQ 4,266.84 6,903.38 61.79%
S&P 500 1,829.08 2,673.61 46.17%
10-Year T-Bond 1.644% 2.405% 46.29%

It’s amazing to take a step back and think about the appreciations that we have seen from 2016’s lows! Lastly, 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 Jan. 3, 2017 (close) Dec. 29, 2017 Percentage Change
DAX (Germany) 11,598.33 (Jan. 2) 12,917.64 11.37%
SSE Comp. (China) 3,135.92 3,307.17 5.46%
FTSE 100 (UK) 7,177.89 7,687.77 7.10%
Nikkei 225 (Japan) 19,594.16 (Jan. 4) 22,764.94 16.18%
German Bund (DE10Y:DE) 0.310% 0.424% 36.77%

Like before, the percentage change in Bund value is not necessarily reflective of a similar change in value. Also, when interest rates rise, bond values generally fall. We still think that the European landscape is economically too risky for a very large apportionment of any of our clients’ savings because of what these rates imply.
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 YTD and the rolling 1, 5, and 10 year periods.
We seek to mitigate risk on behalf of our clients to the greatest extent without ignoring the need for appreciation, so we have remained generally unenthusiastic about the international arena. However, should certain events occur from our recent tax policy changes, we are looking to place more international emphasis back into our portfolios to a greater extent than our current allocations.

Volatility, History, & 2017 Returns

First, we must take a step back and realize that we have been hovering at near-historic lows of volatility for quite a few years now. In fact, these are the lowest levels since 1990 for the VIX, or volatility index of the S&P 500. You can go back further with different scholarly journals, but here is a chart since 1990 to keep it simple:
Set the chart to “Max” in the top-middle of the chart to see the data since January of 1990.
With that being said, we are very confident that volatility will increase at some point in the future, so we must brace ourselves for that by being mentally prepared for larger price swings going forward. For 2017, however, we estimated above average returns, historically speaking, for the US equity markets based on the following criteria—this is not an all-inclusive list.


1. Quantitative easing:
a. This is the elephant in the room. The supply of US Dollars around the world has sharply risen since 2008 at unprecedented levels. This went hand-in-hand with cheaper than normal debt financing for US company expansion domestically and abroad. Many people refinanced their home in the last 9 years to take advantage of low interest rates. Now magnify that across a wide range of industries with far more capital (and debt) than any of us. Many US companies saw a large increase to their profit margins because of low debt service expenses. This increase led to, chiefly, three things:
i. Greater net income leading to higher valuations based on Price/Earnings;
ii. Expansion, whether through mergers/acquisitions or organic growth; and
iii. Rising dividends for investors.
b. This alone led to greater relative price appreciation of our companies when compared to those of the rest of the world, because their central banks began doing the same at a later date and slower rate. Being a large contributor and quite possibly the catalyst of the 2008 crash, we were among the first to react with unprecedented currency creation that is now going on 10 years.

2. Streamlining of the costs of doing business in the aftermath of a global financial crisis:
a. This subject can be a controversial one at the dinner table if you and/or family members either took pay cuts, increased hours at no increase in pay, or were simply laid-off in the aftermath of 2008.
b. However, this fact remains: those companies that survived the financial debacle of 2008 are more streamlined than ever. They learned to operate with reduced costs to weather the storm and once the markets began to pick up—which they most definitely have—both new and existing operations saw greatly increased efficiency at the operational levels.
c. This increased efficiency led to greater profit margins which had the aftermath of 1(a)(iiii).


3. A Battered International Arena:
a. Most countries, in many instances because of 1(b), were much slower to recover from 2008’s debacle. Many have still not recovered.
b. The US’s recovery led to lots of cash, cheap debt, and a plethora of massively depreciated international assets. This is a formula for success on the part of US companies. The international arena, historically speaking, will recover eventually. Why then, coupled with an incredibly strong US Dollar, would US managers not purchase assets from struggling companies overseas at pennies on the dollar? Well that is precisely what they did.
c. Because of the massive international sprawl that US companies have achieved in recent years and the eventual comeback of international markets, US investors we feel should see a steady appreciation of US company-owned international assets. The additional profits that follow should eventually flow back to investors in those already profitable companies.
d. The technology space is the elephant in the room in this regard. Most of us realize that when times are good, riskier industries flourish. At the same time, when times are bad, those same companies are absolutely devastated. The technology industry is no exception. Once the economy domestically began to recover, our technology companies began buying severely crippled, if not defunct, tech companies overseas. Because of a lack of anti-trust laws in most of the world, as we predicted, US companies have begun taking over the entire global technology markets.
i. This is a chief reason for enormous gains in this space and why we greatly exceeded the benchmarks set by the larger players in our industry in prior years.


4. All three of these aspects led to, to a great extent, the most powerful US Dollar that the markets have seen in decades. Of course, this continues to compound all three aspects perpetually.
a. A great example that we like to discuss was when the UK was finalizing the Brexit vote. Because of this vote coupled with prior pressures, the British Pound fell by nearly 40% when compared to the US Dollar just a few years prior. Imagine: a stable, developed market that just received a 40% discount to American investors!
As indicated earlier, this is not a comprehensive list of why we felt that the risk/reward to investing in US equities was quite attractive. These aspects simply provided us with the incentive to feel very relaxed leading into 2017 with the expectations of above-average returns linked to below-average risk. Why invest anywhere else when given such an opportunity?
Tax Code Changes and Their Implications

This is the topic at the tip of everyone’s tongue in recent months. What in the world would Trump’s administration hope to accomplish with both the House of Representatives and the Senate under Republican control? Which aspects would need to be muted in order to have a consensus on a tax plan that could be instituted at the start of 2018? What would everything mean for not only some of the largest companies in the world but also the average investor and all other stakeholders in this country?

We will take this time to provide a very brief overview:
1. Corporate Tax Rate Change
2. Itemized Deductions and the New Standard Deduction/ Individual Tax Rates
3. Repatriation Tax Changes
Let’s begin:
1. Corporate Income Tax Rate Changes:
a. “Corporate Income Taxes

The federal corporate income tax was first instituted in 1909 when income above $5,000 was subjected to a one percent tax rate. Since then it has changed approximately 35 times, with the current top rate at 35 percent.

Additionally, many states levy corporate income taxes of their own. Economists have long understood that corporate income taxes are double taxes, since the same income is taxed once as profit, and once as individual income when distributed as dividends to shareholders.

Contrary to popular misconception, the ultimate burden of corporate income taxes doesn’t fall on corporations, but is instead borne by workers, shareholders and consumers.” – Tax Foundation (
b. Up until 2018 we had the third highest corporate income tax in the world and easily the highest among all developed countries. Some insight:

i. This led, to a great extent, to a lot of the outsourcing that we have seen in recent years, especially for the relocation of corporate headquarters. The UK, for instance, recently lowered their corporate tax rates to 15%.
ii. Many S&P 500 companies actually had effective tax rates above 40%.

iii. As a widely undisputed fact among economists, this burden, as stated above, has been borne by employees, shareholders, and consumers of their products. So, any reduction of that rate, economically speaking, will be passed on to those three prongs in varying relative amounts. We have already begun to see this at the end of 2017.
c. Lowering our Federal corporate tax rates to 21% from prior levels, in the very least, simply makes our markets more competitive with the rest of the world. We thought that we should go further, but the substantial change is still well-appreciated.

2. Changes to Itemized and Standard Deductions/Individual Tax Rates: Overview:

Details of the Conference Report for the Tax Cuts and Jobs Act

a. There are a plethora of changes to how standard deductions and itemized deductions will be handled until 2025.
b. These new rules directly affect every single one of our clients to varying degrees, with self-employed individuals operating pass-through entities being the most affected.
c. Without getting too specific, we will tell you our take:
i. Anyone making less than $55,000 or so (the median household income), generally speaking, is going to see a large increase in Federal tax savings. This accounts for approximately half of the American population immediately.
1. This is because the standard deduction, coupled with child credits (assuming a family of four), of a household that earns the majority of their income from W-2s, will hardly pay anything in Federal income taxes.
ii. Every single tax bracket saw a decrease in their marginal rate aside from outliers that fell somewhere between some of the higher marginal rates.
iii. Anyone that has more than $10,000 in State taxes that has been able to deduct that amount from Federal income taxable income will be made worse off.
1. Other tax policy changes create a break-even or a net benefit according to our calculations for these individuals.
2. Many States are scrambling to pass legislation to aid these individuals, so the long-term detriment might in fact disappear anyways.
d. The individual healthcare mandate has now gone away.


3. Changes to the Repatriation Tax:
a. History:
i. In the 1980s, the US passed legislation to both incentivize international investment by US companies and disincentivize their bringing profits back home. This led to a great equalization of US and European interests—think: this was a key driver to placing the final nails into the coffin of the USSR and the Cold War.
ii. Most countries that followed suit in reciprocity weaned off of similar policies and, until recently, the US was the only developed country with such a comprehensive repatriation tax.
iii. This tax rate was recently 35%. That means that US corporations, after paying taxes on all income, were then penalized another 35% if they wanted to bring the money home.
1. The famous, recent case involving Apple, Inc. highlighted the ridiculousness of the tax. Apple saved billions of dollars by simply borrowing money instead of bringing foreign profits home. The Congressional hearing led to some fire and brimstone speeches with Apple’s management simply replying along the lines that they were not accountable to the US Government; they were only accountable to their shareholders.
b. Liquid asset (cash, cash equivalents, etc.) are now able to be repatriated at a penalty rate of 15.5%.
i. Good, but still insane in our opinion.
c. Non-Liquid assets receive a decreased rate of 8%.
i. Better, but still 8% higher than the vast majority of the world.
d. Either way we slice it, the reduced repatriation tax will ultimately lead to increased domestic investment in one of three ways:
i. Increased domestic expansion;
ii. Increased wages; and/or
iii. Increased dividends.
e. Many companies are choosing to pay down debt with this overseas money. This of course leads to one or more outcomes as outlined above anyways.

As you can see, there are a plethora of beneficial outcomes related to the tax policy changes and they can potentially be substantial for not only investors, but American stakeholders overall. The most important change was to make our Federal corporate income more competitive with what has become a new international market from decades ago. Having a competitive corporate tax code, whose revenues pale in comparison to the individual income tax code, should, in our opinion, lead to a much larger “pie” so-to-speak. The larger pie will lead to increased tax base and increased revenues down the road, and, if anything, is simply the right thing to do at the end of the day for all Americans. We must remember that from 1776-1913, our country flourished with absolutely no tax on any income—aside from brief periods whereby very, very small subsets of Americans were taxed (usually temporary wartime tax provisions).


Real Estate & Associated Investments

We all know that prices increase over time because of inflation—the Federal Reserve prints more money every year and purchases US debt with it which flows into the monetary supply as the Federal Gov’t spends money. With that being said, let’s quickly analyze hard-asset investments from a historical perspective.
1. For this subsection, we will only analyze what we see from a domestic standpoint; there is simply far too much data to cover internationally.
2. The average historical rate of inflation is approximately 3.5%.
3. This means that the prices of all goods, on average, rise 3.5% each and every year. There are very few exceptions when looking at it historically. Some assets increase faster than others for given periods of time but then are outperformed, relatively speaking, in other periods.
a. Real estate, gold, consumer goods, and pretty much all commodities follow this simple rule.
4. So purchasing assets, whatever that asset is, should provide a steady, historic return of 3.5% with all else equal when it comes to price appreciation.
5. There is only one real way in which hard assets can be divided into two groups:
a. Those that produce income over time; and
b. Those that don’t.
6. Historically speaking, about half of the total return from income-producing assets is attributable to general price appreciation and the other half comes from the income produced by that asset.
a. Why then, when making a long-term asset purchase (that’s the only way we believe we should invest), would an investor purchase an asset that produces no income? It historically only has half of the total return!
b. Sure, there are rare times that some asset classes are simply TOO cheap to ignore, but we always prefer to invest for the long-term.
7. That being said, real estate is generally the easiest way for the average investor to purchase a hard, income-producing asset. Whether it is through that rental property or as a part of a Real Estate Investment Trust (REIT), we feel that it is normally a valid part of a balanced portfolio. We almost never advocate purchasing hard assets that produce no income. The reward is simply not worth the risk in our opinion.

Overall, we think that the US real estate has heated up quite fast from post-2008 levels. Construction costs are “trading at a premium” relative to their historic norms but not to the baffling levels that we hit pre-2008. That being said, we are not placing any new money into REITs or similar investments—and we haven’t for about 18 months—until the key indicators that we watch shift into the other direction. The best way to invest into hard assets is when those assets are trading at a discount and you hold those assets for extended periods of time. This is simply not the time to get into this subset of the market.
Of course, if you purchased a REIT or similar investment longer than 18 months ago—and those are typically non-traded, non-public corporations—we are confident that we purchased said assets during the tail-end of the industry’s discounts and will do well when they begin to liquidate.



Oil & Other Natural Resources/Commodities

Much that was said in the prior section applies directly to the upcoming conversation; however, we still want to segregate the two from each other.
The bottom line is that oil was trading in the $20 range not too long ago. The smaller companies in the industry were on the verge of bankruptcy if not insolvent and were purchased at pennies on the dollar by the larger players. The industry’s consolidation is akin to what happened internationally in the wage of the financial crises as defined earlier, whereas US technology companies greatly consolidated/monopolized the entire market. Only the strong, most efficient organizations that had the cash to weather the storm survive today. Now that the price of a barrel of crude is trading well above those levels—and it is important to remember that most surviving companies were profitable even during those times—the companies that were able to stay afloat are, in our opinion, poised to make massive profits from not only the increasing prices, but also the vast swaths of market share that was purchased in recent years.
The overall commodities market is a far different story. Since the financial crash of 2008, many commodities have plummeted from pre-2008 levels and largely stagnated from that point. This is due to many reasons, but we feel the chief reason was alluded to earlier in that the international market, leading to international demand, was absolutely crushed in the wake of the crisis. Lower demand lead to lower prices; it’s as simple as that. Now that demand has begun to tick upwards, the large market shares of different commodity markets that were purchased at pennies on the dollar during the last 10 years by US companies, in our opinion, will ultimately lead to a more favorable bottom line for them and us as investors.
So, either way you slice it, increased oil and commodity prices will ultimately lead to greater competition from foreign corporations; however, we believe that US companies and their shareholders stand to gain regardless.
Fun fact: Many studies—including this one—find that the United States has the largest oil reserves in the world.





We do not want to go into a great amount of detail when it comes to the #1 searched financial-related term of 2017. However, we feel compelled to at least mention our opinions about it and other cryptocurrencies in this update as it relates to our business model.
Cryptocurrencies have essentially marketed themselves as the alternative to government-backed monetary supplies which rely on a user-provided stream of debits and credits, commonly known as the block chain. The allure is profound to nearly every industry. But, that is in itself its greatest downfall: the concept is so good that anyone can create their own—and they have. Even some of the largest financial institutions in the world have begun to create their own block chain technologies in order to expedite their internal operations. So while many investors in, say Bitcoin, believe that they are purchasing a proverbial slice of that technology, they are in fact only purchasing block chain technology in that specific currency.
Now we aren’t saying that Bitcoin, Ripple, or Ethereum won’t be THE block chain technology that everyone utilizes one day. We are simply stating that these singular cryptocurrencies are competing against a much larger pool of competition than most people realize. On top of that, most cryptocurrencies are owned largely by very, very small groups of people known commonly as “whales”. These whales can own upwards of 90% or more of the entire outstanding currency. This means that every investor in that currency is at the ultimate whims of those whales. There has to be a lot of trust in that relationship. This is why the SEC and FINRA monitor and regulate disclosures when it comes to publicly traded companies. We, as investors, should know what we are purchasing shares in to at least a minimum standard and companies are incentivized to do so because it brings in outside financing from investors that believe in their business model.
Which horse will ultimately win the block chain race is unclear, as thousands of horses enter the race each day and we still do not know how long the race will last. The underlying fact remains though: we are not in the business of utilizing our clients’ savings to make wagers on horses.
There are a multitude of reasons why, beyond this one, we do not feel that we would be good stewards of our clients’ savings if we invested in such unregulated markets. Here’s a few more:
1. Hackers: This industry is lead and easily manipulated in countless ways by people who devote their lives to computer encrypting, software, and the like. Us placing money into this industry would be akin to bringing nothing but a pocket knife into the Wild West. We could make money if everyone is honest, of course. But, there are too many thieves to not go well-equipped into the market.
2. Regulation from governments: Governments can immediately cease all trading of cryptocurrencies in an instant. This relegates all holders of that currency within a country to holding nothing more than worthless code on a USB drive instantaneously. China has already done this. Many more could follow suit. Central banks are not very kind when it comes to competition.
3. Lack of regulation: We will never advocate for our clients to trade in over-the-counter stocks (“OTC” Equities). While many companies and financial institutions are moving to quickly establish offerings in cryptocurrencies, these currencies are still simply OTCs with no formal disclosure process nor do they have any sort of minimum disclosures.
By no means is this an all-inclusive list of the drawbacks associated with investing in cryptocurrencies. Similar warning bells should sound when a company that has a seemingly unrelated business model suddenly begins utilizing block chain technology. We agree that the technology has incredible implications, but by no means does that triple or quadruple the valuation of, say an ice cream or donut shop. Be careful out there and ask us questions if you have some.


So what’s next for what looks to be a promising 2018?
1. Keep focus on US equities but watch valuations closely as changes in the tax code become more apparent and qualified by concrete evidence.
2. Look to international equities and their valuations as the fallout from the repatriation tax begins to show itself. We will want to increase international holdings when valuations become more attractive, but the risk/reward may still not outshine that of the domestic markets.
3. Keep a close eye on the bond market. Individual bonds are far more attractive to us than bond funds; however, we are not the only investors looking to “cash in” their accumulated appreciations from recent years. This could make yields, specifically yield-to-maturities (YTM), continue to be unattractive. Why purchase a 3.5% YTM 10-year bond when you have 10-12 years left on your mortgage with an interest rate of 3.5-4.5%? The choice should be clear.
a. For those debt-free clients, we have options that are constantly getting vetted.
4. Steer clear from new REIT purchases but continue to reap the rewards from previous purchases made at discounts.
a. Definitely don’t buy gold or other commodities. We’d rather own the companies in the industry than the products themselves when the timing is right.
5. Continually have and develop new contingency plans for odd situations that could arise from geopolitical risks which we feel are the greatest hazards currently associated with investing in the equity markets or any market for that matter.
a. Example: North Korean foreign policy.

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 we voluntarily assume because of our relationship is nothing compared to the ethical duty that we have to you and your family. It’s not something that we take lightly; so, until the next time we speak, we will be in the boat with you.
Thank you for your continued trust.
Kevin S. Whiteford
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.

Regarding the Equifax dilemma which occurred recently, here is a message from Cambridge Investment Research, Inc., our broker/dealer:
As you may be aware, the credit reporting bureau Equifax recently experienced a data breach that exposed sensitive personal information for a large number of people. While this breach does not directly impact your securities investment accounts, you may wish to review information about the breach on the Federal Trade Commission site, here:…/…/equifax-data-breach-what-do. This site describes the incident and your options for further action.

Helping out the community

Kevin, Scott, Tom, Mary and Reese from Whiteford Wealth Management, Inc. had a great time volunteering at the Casco Ultimate Mud Challenge yesterday morning.
We helped sponsor it as well.
Congratulations to all of the athletes who ran this fun 5k race!

This year’s big news will be what those new rates are going to be. Great news for investors in US Equities.

Imagine that. Don’t think that you pay enough in taxes? Norway has a solution for you. $1,325 was raised by the voluntary option last year.

Another great reason to use actively traded mutual funds.

PLEASE do not follow this woman’s advise. This article is for a bit of satire going into a great, long Independence Day weekend. We hope that you all enjoy yourselves with family and friends!
Note: If you pay your bills, we do not think that the universe will send you more because you have proven to it that you honor your bills.

Interesting article today. The industry is always changing!

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