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March 14, 2017
Dear Valued Client:
Sitting in my office in the middle of a blizzard seems like a good time to reflect on some important recent anniversaries, as well as the current state of the equity markets and the global economy. It was eight years ago last week (March 9, 2009) that the S&P 500 index reached its bottom during the Great Recession. Since those darkest of days the index has returned 290% (including dividends). I remember well waking up at 3:30am day after day that month and coming to the office to follow markets and communicate with clients. And it was just over one year ago today on February 11, 2016 that stocks started the year by declining 11%, appearing to foreshadow a global recession. Over the past 13 months, stocks, as measured by the S&P 500 index, have returned 33%. If there is anything that we have learned as long-term investors it is that it is impossible to successfully predict market tops or bottoms, despite the efforts of many of the “talking heads” featured in the press (of which I am often one).
The only clear lesson is that patience and discipline are the keys to long term success. At market bottoms it is natural to feel the fear and anxiety and the desire to “just get out”. This is when sticking to our strategic asset allocation and long-term financial plan is most critical. On the other hand, at market tops, optimism and euphoria are widespread and almost all news is viewed as good. At these times we also need to remain disciplined and consistent with our long-term plans and not overreach for returns.
Although we continue to be positive on global equities, particularly compared to the alternatives in fixed income and cash, it is important to recognize that valuations are relatively rich and we have experienced well below historic volatility over the past year. Corrections in the equity markets, as reflected by a decline of 10% or more, and bear markets, reflected as a decline of 20% or more, are common and are part of the economic concept of the equity risk premium: historically investors in equities are rewarded with higher long-term returns for tolerating increased volatility. It has been 13 months since we’ve had a correction and over 8 years since we’ve had a bear market (although we had a 19% decline in 2011). While we are not saying that such events are imminent, it is important to understand that they are part of the investing process. We often refer to this as a “lifeboat drill”: During periods of good markets and calm seas it’s important to remember how we should react when volatility returns and the seas get rough.
Now back to the blizzard …
November 30, 2016
Dear Valued Client:
We hope that you and yours had a terrific Thanksgiving holiday. Every year, we are at amazed at how quickly the time between Thanksgiving and New Year's seems to fly by.
In the days ahead, we encourage each of you to consider some important financial and tax planning items, including:
As always, don't hesitate to contact me, Craig or Tom with any questions about your particular situation. In the meantime, wishing you a very happy holiday season and a healthy New Year!
November 9th, 2016
Good morning. Undoubtedly, most of you, like us, had a long night following the election results. Much will be written today and in the coming weeks regarding what the results mean for our country and our position in the world, and much of that analysis will be thoughtful and accurate. In our opinion, many will read more into this election than is actually there. The reality is both parties nominated candidates that were very unpopular with the majority of people in this country and that made the outcome of the election that much more unpredictable.
As we expected and as we discussed in our call a few weeks ago, markets are reacting negatively in the short term to a Trump victory because of the uncertainty of some of his stated policy objectives. We expect to see considerable volatility today and over the coming weeks as the markets try to sort out how much of some of Trump’s more extreme positions on trade and immigration can work their way into actual policy.
The question for the markets, and our country, is whether Donald Trump the President actually governs as the extremist populist campaigner or the pragmatic businessman that wants to change Washington. We will watch closely to see the people that he surrounds himself with and potential future cabinet members as an indication of which direction he intends to lead.
With Republicans appearing to be in control of the Presidency, the Senate and the House of Representatives, we believe there will be significant changes in tax policies and regulation. Clearly Trump is not the typical Republican and it is still uncertain how closely the executive branch and Congress will work together, but there are some significant opportunities for legislation that would be viewed positively by the financial markets.
We will continue to watch developments closely over the coming months and communicate our views. If you have any specific questions, don’t hesitate take to reach out to us or anybody on our team.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Gerald Klingman and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
June 24th, 2016
In a close ballot, Britain voted to leave the European Union. So what does it mean? As various published studies have shown, the departure will likely be negative for the UK economy and increases the chance of a recession. We would agree, and thus expect today's vote to be very disruptive to financial markets in the short-term. Britain never adopted the Euro as its currency, and there will likely be a significant fall in value of the British Pound. However, we do not think it necessarily spells the end of the Eurozone, nor the world, and, depending how this plays out, we believe it may present attractive opportunities in global asset prices.
The overall impact of the Brexit is hard to quantify as there are many economic and political uncertainties that will remain. There are going to be unanswered questions around the timing and length of trade negotiations, impact on the UK government and the relationship a departing UK will want with the EU. However, we believe the biggest long-term risk may be around political contagion. If Britain establishes a clear exit path out of the EU, it's possible that Britain may not be the last member state to depart from the EU. At the same time, it is possible that the remaining 27 countries bind together and unite politically to strengthen the union. This outcome would become more likely if Britain struggles throughout their "break-up" with the EU. Only time will tell.
We are disappointed in the outcome today, and believe it was a short-sighted decision on behalf of the UK. However, Britain has prospered on its own for centuries and we do not see any fundamental reason why that will change going forward. For that reason, we believe a significant market sell-off could create long-term opportunities in many global assets classes, particularly non-US stocks. We are prepared to take advantage if this occurs with the built up cash allocation in our models. As we have preached time and time again, markets often overreact in the short-term assuming the worst case scenario. Investors who remain calm and focus on the longer term horizon can possibly benefit from such volatility.
June 15th, 2016
On June 23rd British citizens will vote to determine if their country will stay or leave the European Union. This process has often been referred to as "Brexit". Before diving headfirst into the "Brexit" vote and its potential implications, recall that the European Union (EU) is an economic and political union of 28 European states. The EU upholds common policies across the states on social and economic programs such as trade and immigration. Britain is a member of the EU, despite maintaining its own currency.
Economists, central banks and politicians around the world (including the Bank of England, the UK Treasury, and Britain's Prime Minister David Cameron) have warned Britain that they could be worse off economically outside the EU. However, it has become clear that the vote is much less about economics. Rather, people's voting interest seems to be more about sovereignty of the British citizens – specifically around control of their immigration and trade policies. We believe it is in Britain's best interest to stay in the EU, and we believe that is the probable outcome. However, recent polls indicate the vote could come right down to the wire. The Financial Times most recent poll on June 10th suggests 45% vote stay, 43% leave, and 12% remain undecided. The big swing factor will likely be the British youth, who generally support staying in the EU, but are less likely to actually vote. All of this uncertainty around the outcome has led to a significant increase in market volatility, and we expect more to come as we approach the vote. We saw somewhat of a similar situation last year when Scotland voted whether to break from the United Kingdom. Polls indicated a close vote, but the Scots comfortably voted to stay in the UK.
If the outcome of the vote is to stay in the EU, it will be business as usual and we would expect a relief rally in global asset prices, particularly in Europe. If the outcome is to leave the EU, Britain will embark on a two-year negotiation period with the EU about the terms of their divorce. The departure would increase the chances of a recession in both the UK and the EU in the coming years. It would also increase the chances that the remaining 27 states in the EU do not stay intact. Both most likely would be negative for markets in the short term. Stay tuned.
These materials are being provided for information purposes only and are not a complete description, nor is it a recommendation. Any opinions are those of Klingman & Associates, LLC and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing materials are accurate or complete. Investing involves risk and investors may incur a profit or a loss regardless of strategy selected. Investments mentioned may not be suitable for all investors. Past performance is not a guarantee of future results. Diversification and asset allocation do not ensure a profit or protect against a loss. Prior to making an investment decision, please consult with your individual advisor about your individual situation. You should discuss any tax or legal matters with the appropriate professional.
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