Texas Elite Advisory - Clients' and Friends' Newsletter - June 2017
Market Update
(all values as of 06.28.2024)

Stock Indices:

Dow Jones 39,118
S&P 500 5,460
Nasdaq 17,732

Bond Sector Yields:

2 Yr Treasury 4.71%
10 Yr Treasury 4.36%
10 Yr Municipal 2.86%
High Yield 7.58%

YTD Market Returns:

Dow Jones 3.79%
S&P 500 14.48%
Nasdaq 18.13%
MSCI-EAFE 3.51%
MSCI-Europe 3.72%
MSCI-Pacific 3.05%
MSCI-Emg Mkt 6.11%
 
US Agg Bond -0.71%
US Corp Bond -0.49%
US Gov’t Bond -0.68%

Commodity Prices:

Gold 2,336
Silver 29.43
Oil (WTI) 81.46

Currencies:

Dollar / Euro 1.06
Dollar / Pound 1.26
Yen / Dollar 160.56
Canadian /Dollar 0.73

Macro Overview

Political turmoil was not able to derail market momentum in May as the three major market indices continued on their upward trajectory. Delayed passage of stimulus driven legislation is reducing inflation expectations as markets anticipate an extended low rate environment.

The Federal Reserve Bank of Atlanta’s closely watched GDPNow forecast model is predicting second quarter economic growth of 3.4%, a generous number.

Globally, the price of commodities such as iron ore, copper and oil have fallen since the beginning of the year. A weaker dollar is also buoying emerging markets as their currencies rise to fend off inflationary pressures in emerging market economies.

Changes in banking rules and regulations may be in the air as the Trump Administration made its first major regulatory change, replacing the head of the Comptroller of the Currency, the banking industry’s primary regulatory entity.

The Treasury department is exploring the issuance of longer term bonds maturing in 50 and 100 years. Current ultra low rates encourage debt issuance for longer periods of time.

Puerto Rico sought court protection in the largest ever U.S. municipality bankruptcy, owing over $72 billion to creditors, including Puerto Rican municipal bond holders. Detroit’s bankruptcy in 2013 amounted to $18 billion, which at the time was considered the largest municipality to go bankrupt. Moody’s & S&P credit rating agencies both downgraded the credit quality of Illinois state municipal bonds to one notch above junk status, giving it the lowest rating of all 50 states. Illinois state legislators’ impasse on passing a budget and spending cuts led to the downgrades.  (Sources: Dept. of Labor, Fed, Moody’s, Reuters, Bloomberg)

Elite Relative Value Investment Strategy Examination & GIPS Project.

Earlier this year Texas Elite Advisory (TEA) contracted Ashland Partners & Company LLP  to conduct a full examination of documents and calculations related to our performance claims for the Elite Relative Value Strategy (ERVS).  Ashland examined documents and calculations from  strategy inception April 30, 2008 through December 31, 2016.  A copy of Ashland’s attestation is available upon request.  Please direct all inquiries to: vbell@texaseliteadvisory.com

On May 24, 2017 TEA contracted Ashland to provide annual Global Investment Performance Standard (GIPS) consulting services.  Over the next several months we will be busy making any procedural changes and creating documentation required to bring TEA into full compliance with GIPS.  For more information on the GIPS standard please access the following URL: https://www.gipsstandards.org/

 
The IRS Collected Revenue On Over 134 Million Tax Returns In 2016

Equity Markets – Domestic Equities

Despite political turmoil in Washington, equity markets propelled ahead, resilient to any political and media interference.

Heightened corporate cash levels and steady earnings growth continue to fundamentally fortify equities across various sectors.

The three worst performing sectors so far in 2017 have been energy, telecommunications, and financials, while consumer, healthcare, and technology stocks have led since the beginning of the year. (Sources: Reuters, Bloomberg)

Fixed Income Update – Domestic Bond Markets

U.S. Treasuries strengthened at month end as demand for government bonds increased in anticipation of lessening inflationary pressures. The yield on the 10-year U.S. Treasury ended May at 2.21%, down from 2.29% at the end of April.

Inflation, the primary determinant for the Federal Reserve to raise rates has been muted over the past few weeks, allowing confidence to build among investors that rates will not spike up anytime soon.

Fed members this past month suggested a slow yet consistent manner in raising rates. The Fed is being careful to communicate the rise in rates as slow and steady in order to avoid another “taper tantrum” as occurred in 2013 when the Fed spooked markets by aggressive rate hike language. (Sources: U.S. Treasury, Federal Reserve)

What Most Tax Payers Earn -Tax Fact

With tax cuts and IRS simplification proposals on the agenda, tax revenue statistics are focal points as certain taxpayers in various age and income groups may or may not see beneficial changes.

The Internal Revenue Service (IRS) keeps careful detail on tax revenue and how it is broken down. Tax revenue data is based on Adjusted Gross Income (AGI) which is compiled and revised during every tax season.

Of the more than 134 million tax returns filed for tax year 2016, the bulk of returns fell between the $30,000 to $200,000 income range. The median income group of taxpayers earning $50,000 to $75,000 comprised the largest segment of tax payers nationwide with over 18 million filers. The second largest group includes those earning between $100,000 to $200,000, with nearly 16 million filers in 2016. Demographical factors drive tax revenue, such as middle-aged, dual income households tending to earn more for a longer period of time. The amount of income also determines the number of filers in each income group. For 2016, there were only 3,469 taxpayers reporting $10,000,000 or more in income and 1,086,092 filers reporting no income. (Source: IRS)

 
The Average Credit Score Has Risen To 700

Credit Scores On The Rise For Americans – Consumer Finance

Higher scores lead to more available credit as consumers tend to receive more financing offers and promotions. Eight years after the financial crisis, consumers that suffered bankruptcies and repossessions are seeing their credit scores improve. Theoretically, as credit scores increase, consumer expenditures also increase, but some believe it might be different this time. More favorable and higher credit scores are usually held by older consumers, who actually spend less as they enter retirement and empty nester years.

The onslaught of lower rates for over eight years now has also buffered consumers with the help of lower interest payments and more going towards paying down principal balances. (Sources: Fair Issac, Experian, Equifax, TransUnion)

China Buying U.S. Treasuries Again – Global Fixed Income

Currently valued at over $13 trillion, the U.S. Treasury Bond market continues to be the world’s largest and most liquid bond market, attracting capital from foreign central banks seeking safety and stability.

Federal Reserve data as of May17 shows that foreign central banks held nearly $3 trillion of the $13 trillion Treasury market, an increase of over $60 billion since the beginning of the year. Of the various foreign buyers, China’s central bank has increased its Treasury holdings the most by $29 billion to a total of $1.08 trillion. China is currently the second largest holder of Treasuries, with Japan the largest holder.

A reversal in the U.S. dollar has also helped propel buying by foreigners in order to help stabilize their local country currencies. U.S. Treasuries continue to offer higher yields than other developed country debt such as Japan or Germany, attracting yield seekers.

For the first time in almost 30 years, China’s government debt rating was lowered in May by one of the major credit reporting agencies, Moody’s. Such a move could diminish China’s ability to borrow funds from domestic and foreign investors. (Source: Federal Reserve Foreign Holdings Report, Moody’s)

 

 
Investor Education - Common Stocks

Investor Education

This last page has been reserved for those who want to learn more about investing. The following was reproduced with the authors permission:

COMMON STOCK

“Stock” most commonly refers to common stock, the simplest form of ownership in a corporation. If Pepsi is worth $100B (billion) and has 1B shares of outstanding common stock, each share is worth $100. An investor holding 100 shares owns 0.00001% of Pepsi. In reality, there are many variations of stock; for example: some stocks have certain voting rights, others do not. The vast majority of investors will not control enough stock to have any meaningful impact on how a company is run.

Although there is much cynicism about how boards of directors behave, the shareholders of a company elect and are represented by the board of directors, usually 10-20 people in public corporations. The board of directors hires the company’s executives who hire other staff and run its day-to-day business. The board may form subcommittees, hire outside expert advice, etc. At times, a company’s stock price will rise or fall due to the purchase or sale of a large portion of stock by an ‘activist shareholder’, one who has established a reputation for shaking things up and/or getting the board of directors to change direction. Any such determinations are highly subjective, but they are the type of news that an investor may want to take into consideration.

Source: (Daniel Dower, “Understanding Investments A Few Minutes At A Time”)

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Market Returns: All data is indicative of total return which includes capital gain/loss and reinvested dividends for noted period. Index data sources; MSCI, DJ-UBSCI, WTI, IDC, S&P. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate and/or suitable for all investors. This material is meant solely for informational purposes, and is not intended to suffice as any type of accounting, legal, tax, or estate planning advice. Any and all forecasts mentioned are for illustrative purposes only and should not be interpreted as investment recommendations.