Texas Elite Advisory - Clients' and Friends' Newsletter - May 2017
Market Update
(all values as of 10.30.2020)

Stock Indices:

Dow Jones 26,501
S&P 500 3,269
Nasdaq 10,911

Bond Sector Yields:

2 Yr Treasury 0.14%
10 Yr Treasury 0.88%
10 Yr Municipal 0.94%
High Yield 5.72%

YTD Market Returns:

Dow Jones -7.14%
S&P 500 1.21%
Nasdaq 21.61%
MSCI-EAFE -12.61%
MSCI-Europe -15.66%
MSCI-Pacific -7.42%
MSCI-Emg Mkt -1.00%
 
US Agg Bond 6.32%
US Corp Bond 6.45%
US Gov’t Bond 7.40%

Commodity Prices:

Gold 1,878
Silver 23.72
Oil (WTI) 35.71

Currencies:

Dollar / Euro 1.17
Dollar / Pound 1.29
Yen / Dollar 104.44
Dollar / Canadian 0.75
 

Clients’ and Friends’ Updates and Account Reviews

Scheduling more Clients’ and Friends’ dinner seminars is still on our to-do list.  Watch your email inbox for an invitation.  Frequently, clients request a one-on-one meeting to review their account, either before or after an event. If you would like to schedule an account review, the first step in our process is to evaluate your current risk tolerance. We recently implemented a web based risk analysis tool for this purpose. You can access our risk analysis tool from the APPROACH page on our web site: www.texaseliteadvisory.com. Just click the FREE RISK ANALYSIS button and follow the instructions.

Macro Overview – May 2017

Fiscal policy has taken center stage as President Trump’s tax proposals will begin a drawn out process for legislative approval. Individuals, small businesses, and large corporations are expected to benefit from the various proposals.

Contrary to popular belief, the U.S. dollar has actually fallen after recent Fed rate hikes. Some economists see this as a signal that rates may actually stay close to where they are and not rise much until stronger economic numbers are in.

The Fed gave no indication of slowing tightening plans this year, even though U.S. economic growth slowed to 0.7% in the first quarter of 2017, the slowest quarter in three years. Consumer sentiment, though, remained at elevated levels in April as the University of Michigan’s Consumer Sentiment Index rose again. It is up 9% from April 2016 to April 2017.

The S&P 500 Index finished up 5.5% during President Trump’s first 100 days in office. Roosevelt began his term in the midst of the depression with a rebounding market from collapse in 1933, while Bush saw his first 100 days during the middle of the dot-com bust. (Sources: Eurostat, S&P, Bloomberg, Fed, Univ. of Michigan)

 
The U.S. Exported Over $3.5 Billion Of Wine, Beer & Distilled Alcohols In 2016

Equity Overview – Domestic Stock Markets

The three major equity indices all ended positive in April, with the technology heavy Nasdaq reaching a milestone. The Nasdaq Composite Index passed through 6000 in April, taking it 17 years to move from 5000 to 6000. The index has hit 25 new records so far in 2017, the most of any year since 1999.

Earnings remain upbeat for most sectors of the S&P 500 index, instilling confidence into markets. The technology sector excelled in April as improving earnings helped propel the sector. The recent drop in oil prices to below $50 affected the energy sector as tighter margins placed pressure on future earnings prospects. (Sources: S&P, Bloomberg)

Fixed Income Update – Global Bond Markets

Analysts believe that demographical factors are increasingly influencing the direction of fixed income markets. Even after the fed raised rates this past quarter, along with a series of rate increase expectations, bond yields have reversed and headed lower. The 10-year U.S. Treasury Bond yield fell in April to 2.29%, levels last reached in November 2016.

Volume of investment grade bonds has surpassed the volume of high yield bonds for the first time since 2008, suggesting that sentiment about risk factors in the bond markets may be changing.

An exit from any one of the EU member countries is expected to cause additional negative sentiment and market repercussions in European credit markets as the euro becomes that much more susceptible.

Government bonds from Venezuela reached yields in excess of 20%, as the country bristles with political and economic chaos. It is estimated that Venezuela has roughly $10 billion left in reserves, which is expected to be exhausted fairly soon. (Sources: Reuters, Bloomberg, U.S. Treasury)

A Favorite U.S. Export For Foreigners – International Trade

As foreign imports come into question with possible tariffs, certain US exports continue to be in big demand worldwide.

As much as Americans enjoy inexpensive foreign imports, many foreigners enjoy expensive American made products.

U.S. wine makes its way primarily to the UK, Canada, Japan, and Italy, while American beer is most popular in Chile, Australia, Canada, Sweden, and Mexico. U.S. whiskey has become an absolute favorite in Japan, Spain, Australia, and Germany. (Sources: Census Bureau, Distilled Spirits Council of the US)

 

 
The National Parks Cover 84 Million Acres Of Land & Water Throughout The U.S.

Trump Tax Proposals – Fiscal Policy

The administration of President Trump released its tax proposals in late April. The proposals did vary somewhat from initial proposals presented during the campaign, but adhered to the basic principals of tax reform of broadening the tax base while lowering tax rates.

Markets are anxious because it may take months before there is an indication whether any portion of the tax proposals actually convert into tax legislative law.

Administration officials stated that the reduction in tax revenue generated by the tax cut propels would be offset through a combination of anticipated economic growth and various broadening measures.

Once the Budget Proposal for Fiscal Year 2018 is submitted by the White House in mid-May, then Congress will begin the deliberation process of the tax proposals.

Affecting most every taxpayer in the country is the standard deduction. The proposal essentially doubles the standard deductions from its current levels, thus simplifying the entire tax process for many tax filers. This is so because the standard deduction is used instead of itemizing expenses in various categories. The Tax Policy Center estimates that those who itemize would fall from 30% to 5%, hence spending less time on identifying expenses to deduct and less of a burden on the IRS.

Ironically, one of the proposals actually hinders homeowners that have expensive homes, primarily in Democratic California and New York. Senators from both states are expected to rebuff the elimination of the state and local property tax deduction, seen as a significant deduction for residents of these expensive coastal states. (Sources: whitehouse.gov, Tax Policy Center)

National Parks Contribute Over $34 Billion To Economy – Federal Programs

As the summer months approach, the National Parks are a destination for tourists all over the United States. National Parks are part of the National Park Service, which was established in 1916 by President Woodrow Wilson. Beginning with Yellowstone National Park in Montana and Wyoming, there are 417 parks today covering 84 million acres.

On a recent visit to California’s National Parks, newly appointed Interior Secretary Ryan Zinke made mention of the tremendous activity and economic output the National Park Service is generating. The parks operate under the exclusive control of the Secretary of the Interior. The 417 parks saw a record 331 million visitors in 2016, contributing $34.9 billion to the U.S. economy. The economic output is derived from various jobs and industries including lodging, hospitality, retail, transportation, food, fuel, camping fees, and recreational activities. (Sources: U.S. National Park Service)

 

 
Investor Education - Benjamin Graham

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:

BENJAMIN GRAHAM

Benjamin Graham is regarded to be the father of value investing, the process of selecting investments based on their underlying business value, usually determined by fundamental analysis. His intellectual gifts are investment lore. Born in London, Graham’s family immigrated to New York, where his father died at an early age and left them in poverty. Despite these challenges, Graham graduated salutatorian from Columbia University at age 20 where he was offered professorships in English, Mathematics, and Philosophy. He declined in favor of a job on Wall Street where he formed the Graham-Newman Partnership. To our knowledge  complete records are not available, but experts believe that Graham returned approximately 20% annually from 1930 to 1956, including the Great Depression. (1)

In 1928, he began teaching his investing philosophy at Columbia, subsequently refined with David Dodd and published in Security Analysis. Graham’s followers and students include Warren Buffet, William Ruane, Irving Kahn, and Walter Schloss among others. Buffet and Kahn named their sons after Graham (Howard Graham Buffet and Thomas Graham Kahn). In 1949, Graham published the first edition of The Intelligent Investor. In these books, he established the core definitions and concepts to distinguish speculation from investment, intrinsic value from market value, and risk from uncertainty, as well as other important factors like  margin of safety and circle of competence (invest in what you know). I have attempted to summarize those concepts herein. They deserve all the credit.

(1) Oppenheimer, H. R. 1986. Ben Graham’s net current asset values: a performance update. Financial Analysts Journal 42, 40 – 47.

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

 

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