@theMarket: Record Highs and More to Come?
The Dow and the S&P 500 Indexes made record highs this week. That's right, we broke the levels of January and we closed out the week holding these new higher levels. So much for the bear's prediction of a 5-7 percent pullback.
Over two weeks ago, when I published my last column, I wrote that most of the Wall Street community was expecting a pullback. I warned readers "that when the pack is leaning one way, you should be looking the other way. I say stay invested, look beyond a month or two, and prosper by the end of the year."
OK, in hindsight, that was sage advice, but now what? You aren't paying me the big bucks to tell you about the past. Do we continue to move higher, or do we fail right here? I think stocks have some traction now that we have broken key resistance. We could move up to 3,020 or so on the S&P 500 Index before all is said and done.
There's plenty of reasons to hope for the best, despite that wall of worry I mentioned in my previous column. The tariff tiff between Trump and the rest of the world is slowly becoming old news. More and more economists and trade experts are coming to the same conclusion that I did over a month ago. When you add up all the tariffs and counter-tariffs, the economic impact is equivalent to a hill of beans.
An atmosphere that is long on rhetoric, but short on impact, equals higher stock prices, at least in the short run. And rather than reduce forecasts for economic growth, many economists are pushing up their growth estimates for both the U.S. and the world economy. The unemployment rate continues to decline here at home, and more and more workers feel confident enough in their job prospects to search for better-paying jobs.
The Fed is still on course to raise rates again. And the bond market is going along with the moderate rate increases since the inflation data continues to remain under control. At some point, that scenario will change, but until it does, there appears to be a floor under equities.
There are negatives, however, and any one of them could throw a monkey wrench into the positive scenario that I have presented. At this point, the mid-term elections are less than two months away and it doesn't look good for Republicans. Recent polls indicate that the GOP could lose the House and there is even some talk of losing the Senate. If so, we could see a paralysis in government over the next two years.
President Trump's political problems seem to be escalating on a weekly, if not daily, basis. It appears that many of the President's closest allies have not only found themselves in hot water, but are now willing to provide evidence against him to save their own skin. These investigations have plagued Trump since the election. They appear to be occupying more and more of his time and energy. A situation that I suspect will only escalate if the Democrats gain additional power in Congress.
Historically, October has been the worst market month of the calendar. That doesn't mean a down market is a sure thing. There have been plenty of times in the recent past where old market adages have not worked. But even if we do get a pullback, I wouldn't sweat it. Stay invested and wait it out.
The Independent Investor: Dogs and Their Cars
Pet ownership in America is well over 50 percent. Nine out of 10 of these owners view their pet as part of the family. As such, dollars spent on traditional pet ownership areas such as food, veterinary needs and boarding have expanded to include things like exercise and travel. For more and more Americans, that trend has grown to include what cars we purchase.
This hit home for me recently when my wife and I began discussing our next automobile purchase or lease. In times past, our decision may have been based on what vehicles provided the best fuel mileage or winter safety in snow and ice conditions. But this year, it was all about what car would be most appropriate for our 10-year-old Labrador retriever, Titus.
Over the years, from time to time, I have written about Titus while examining topics such as the growing cost of owning a pet to the reasons everyone should purchase pet insurance.
Now, Titus has reached an age (like his owners) where he is slowing down. Arthritis in both shoulders, a back operation last year, and just wear and tear from retrieving way too many balls has made it increasingly difficult for our guy to leap into the back of an SUV. It appears we are not alone.
Seventy-seven percent of dog owners say the option of having pet-friendly features available would impact their decision on which vehicle to purchase the next time they are in the market to buy a car. That number increases to 89 percent for millennials.
In a recent 2018 auto trends report published and conducted and published by Google, the internet company found that the average American was 36 times as likely to search for pet-related items like a dog car seat or dog hammocks than the average person in Germany, and 10 times more likely than the average person in Japan.
Back in the day, when you went on a road trip, Fido stayed at the kennel or with friends or relatives. Today, no road trip would be complete without man's best friend tucked safely in the back. Problem is that what constitutes safety for a Chihuahua may not be safe for a 90-pound Rottweiler. Popular wisdom says, "the larger the dog you have, the bigger the car you need."
So, we have an SUV outfitted with a metal grill that sections off the baggage area. The space has been fitted out with a nice dog bed, towels, leashes and Titus' favorite toys. Most dog-friendly cars offer roomy interiors, seats that fold down, and has low ride height so that dogs can get in and out easily.
Who among us can forget Subaru's successful marketing campaign and website for their Forester wagon? It was built around (you guessed it) an aging chocolate Lab, declaring that their car was "dog-tested." Subaru's Dog Tested Facebook page even provided driver's licenses for your pets.
Toyota and Nissan, among others, have also jumped on the band-wagon. Nissan rolled out a new concept car, the "Rogue Dogue," based on its popular Nissan Rogue model. Among canine-oriented amenities offered are: a removable pet partition, secured leash-attachments, padded walls and floors, a 360-degree dog shower and dryer (I kid you not), spill-proof water and food dispensers, slide away loading ramp, a canine first aid packet, storage drawers and waste bags.
Before you get your hopes up, the Rogue Dogue is only a project vehicle and as such is not on the market yet. At some point, if there is enough demand, Nissan might enable dealers to add these features on an aftermarket basis.
As for me, I am hoping that Nissan does roll out the Rogue Dogue by next year. It sounds like the perfect car for our family, that is, if Titus approves.
The Independent Investor: How Prepared Are You to Sell Your Company?
If you are a small-business owner and are toying with the idea of someday selling your company, you should pay attention. Only one in five small businesses put up for sale result in a closing. How do you become one of those success stories?
Where I live and work, nestled in the Berkshire Mountains of Massachusetts, there are relatively few large companies. We are over-populated with "Mom and Pop businesses." As such, I meet and talk to plenty of these enterprise owners daily. An overwhelming number of these entrepreneurs have saved little or nothing towards their retirement.
Instead, they believe that at some point, someone would swoop in and buy their business, guaranteeing a financially secure retirement. Despite taking a hardline approach to the realities of running a business, most owners do not have a realistic sense of how to sell a business. The two are completely different animals.
I recently got an education in the difference by reading a book written by Allen P. Harris (owner of Berkshire Money Management where the columnist works) titled "Built It, Sell It, Profit." It's a slim book, well-written in layman's terms, which I suggest you pick up. In it, Harris addresses the big questions that need to be answered if you have even a hope and a prayer of selling your business.
The first question to ask is "What should I be doing today to build my business toward "maximum value?"
Harris would tell you that you will need to begin planning that sale for at least three to five years ahead of time. The things that you overlook in your day-to-day running of the business won't be overlooked by a potential buyer. Think of it in the same way you would approach getting in shape at the gym. You need a plan, and to figure out how the machines work and which ones to use.
In your firm, you will need to start documenting your workflows, your business procedures, hire the employees that will be needed, and in general, clean up your act before showing your business to any potential buyers.
"Think big," says Harris, "Strategic planning is a process of setting bold, long-range goals and then working backward to determine the steps needed to get there."
Another important question to ask is what your business is worth? You may know how much money you put into it, how much that new roof cost, or that line of trucks outside on the newly-paved blacktop but how much will a potential buyer be willing to pay for all that? Not to mention putting a value on the blood, sweat and tears you have invested in it over the years.
Most businesses need an independent valuation by an expert who can compare your firm to others in the same business. That's going to cost you and more than likely you won't take kindly to the answers. Unfortunately, most owners think their business is worth far more than it is.
The burning question I hear more than any other, is "If I were to decide to sell my business, would I get enough money so that I would be able to maintain my lifestyle and take the next step in life?" We will discuss that answer, as well as raise several other issues you might want to consider.
The Independent Investor: Should You Bury Yourself?
In today's world, the idea that you should prepay, or at least set aside some money to cover your funeral expenses is gaining traction. Given the escalating costs of paying for a loved one's funeral, it is no surprise.
Most of us don't want to face it, let alone discuss it. In some quarters, it is "bad mojo" to consider planning for your death, so pardon me for bringing up such a squeamish (some might say ghoulish) subject. But as your fiduciary in all things financial, I feel obligated to discuss prepaid funeral expenses.
This year, I was introduced to this concept when my Mom died. She was 93 years old, bless her soul, and had a good life. Independent to the end, she secretly arranged for her own funeral expenses in 2000 along with specific instructions on what should happen at her passing. She wanted no fuss, no bother. Her remains were cremated, and everything was signed, sealed and delivered before I could make the five-hour trip to her home in Pennsylvania.
My mother turned out to be an astute investor when it came to her death. Funeral expenses during that time (2000-2018) increased by 75.74 percent, according to the U.S. Bureau of Labor Statistics. Her arrangement to prepay her expenses protected her from rising costs and provided a convenient and stress-free experience for me and the rest of the family.
However, there are pros and cons of pre-paying for your funeral. A prepaid funeral plan is an arrangement between you and a funeral home in which you make an upfront payment to the funeral home today. The agreement should state that the funeral home will administer funeral services in the future in return and cover all the costs. These funeral costs usually run somewhere between $10,000-$15,000 for basic services. They usually do not pay for cash expenses such as fees charged by the clergy or other services.
If you go this route, make sure the services and costs you specify are guaranteed in the contract. Watch out for terms such as additional payments for "final expense funding." It usually means that your beneficiaries will be required to pay any cost overruns.
There are other risks you take as well. For example, the funeral home may go out of business. What happens to your contract at that point? Have arrangements been made for another entity to take over your contract? What happens if you decide to move for example? Can your plan be transferred to another funeral home in a different state? Can you get your money back if you change your mind? Make sure that all of these "what ifs" are spelled out.
Some experts argue that there are better ways to pay ahead for your funeral. You could buy a life insurance policy with the proceeds earmarked for funeral expenses. Some suggest that you could also set up your own burial trust fund. It's called a "Totten trust" and is simply a regular bank account with a designated "pay on death" inheritor.
In this case, you open the account at your local bank or credit union. The money earns interest, you can close it at any time if you want, and could transfer the balance to a different bank if you want. When you die, the beneficiary collects the account balance and pays for the funeral.
Granted, prepaying your expenses via a funeral home is convenient and can insulate your costs from inflation if it is done right. Ask your financial planner what she thinks at your next meeting. It could not only provide you peace of mind but could also be a great gift to your beneficiaries.
The Independent Investor: Turmoil in Turkey
Turkey, a country that represents about 1 percent of the world's gross domestic product, has suddenly become a cause of concern for investors worldwide. Both developed and emerging financial markets have plunged over the last week as that country's currency plummeted. Fear that this tiny country's problems could somehow spark a global financial contagion has everyone on edge.
Those fears are unfounded. There will be no "contagion." What is happening in Turkey is truly a "Tempest in a Teapot" that bears little resemblance to the crisis in Greece several years ago. Yet, over the last week, Turkey's currency, the lira, fell to record lows, interest rates skyrocketed, and their stock market cratered.
Turkey's problems are nothing new. It is a classic case of a country that borrows abroad (in U.S. dollars) to leverage their economy's growth rate, which make the voters happy — until it doesn't. Investors have erroneously compared Turkey's woes to the Greek crisis of a few years ago. But there are big differences.
Turkey's economy is about 1 percent of global GDP, the 17th largest in the world. The country is not a full member of the European Union, nor does it use the Euro as its national currency. In addition, European banks have relatively little exposure to Turkish debt. Unlike Greece, where all the above were real fear factors, Turkey is more of a "corporate debt problem."
It has been companies, and not the government, that have gone on a borrowing spree. And foreign investors, searching for better returns that can be had in safer, more developed markets, were glad to loan Turkish companies' money for a double-digit return. Turkey is not alone in this trend; many other emerging markets have also been able to tap the debt markets in recent years.
The problem in this scheme is that the U.S. dollar has been strengthening all year. Projections are that it is likely to continue to gain against other emerging market currencies. Since Turkey's debt is priced in dollars, every tick up in the greenback makes their debt payments that much higher. At some point, that situation becomes untenable. Debt default could become a real possibility in that case.
And what could happen to Turkey, might also happen to other countries, such as Italy. A crisis in Italy would be a whole new ballgame, similar, but worse, than what happened to Greece. The "Italian Problem" has also been simmering for years, so it is understandable that investors would jump to conclusions prematurely.
And during this tempest, President Trump brought the kettle to boil by doubling tariffs on imported Turkish steel and aluminum in response to Turkey's imprisonment of an American citizen. Although Turkey only sells $1.4 billion of these metals to the U.S., it is the thought that counts. Down went the lira (again), which has now declined 40 percent since the beginning of the years. Their stock market (which is about the size of the market capitalization of McDonald's) plummeted. Interest rates spiked (now 17 percent), while the inflation rate is expected to go higher than its present 17 percent.
While there is little positive news that one can point to in terms of this country's economic prospect over the short term, their situation is purely "Turkish" in nature. There is no need to put down that novel or call your broker from the beach. As I have warned my readers over the past few weeks, manufactured crises that are then blown out of proportion are how traders whittle away the slow days of August. Don't get caught up in the hysteria.