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Housing Market – 3rd Quarter Update
Home prices snatched their strongest gains since 2005, climbing 5.9% from January through July and signaling the housing market’s steady trudge toward recovery. For the broader economy, the turn in housing could provide a much-needed boost if it continues.
Rising prices could eventually lift consumer spending if homeowners begin to feel wealthier again. Housing construction, a big generator of jobs, also has the potential to play a major role in economic growth. (Source: WSJ, September 26, 2012, A1 Housing Market Displays)
Rising prices largely reflect a dwindling number of foreclosed homes being sold by banks as well as stronger demand for those properties from investors.Foreclosures and other “distressed” homes typicallysell at larger discounts, and with fewer of those properties selling, prices are under less pressure. The median sales price for new homes in August was $256,900, up 17% from a year ago, and the highest level since December 2004. (Source: Bob LeClair’s, September 15, 2012)
Rising demand, especially at the low end, is putting upward pressure on prices as traditional buyers, as opposed to investors, feel more confident about jumping into the market.
Quantitative Easing – Ciccarelli 3rd Quarter Update
Federal chairman Ben Bernanke announced in September that the Central Bank will begin buying $40 billion of mortgage-backed securities per month starting in October and will continue to do so until the unemployment picture starts to show improvement. This is the Fed’s third round of quantitative easing (QE3) since the 2008 panic with a goal of further reducing long-term interest rates. (Source: WSJ, September 14, 2012, A12 Bernanke Unbounded) Recently, Mr. Bernanke extended the Fed’s forecast for near-zero interest rates until the middle of 2015. His plan also includes continuing “Operation Twist,” which exchanges short-term securities for those with longer maturities.
The Fed wants to continue pursuing its “dual mandate” of controlling inflation and reducing unemployment. “We have to do more, and we’ll do enough to make sure the economy gets on the right track,” Mr. Bernanke declared.
We still have not yet felt all of the ripple effects of these new policies, but one of them is the risk of future inflation, which Mr. Bernanke stated hasn’t strayed too far above the Fed’s 2% “core inflation” target. Unfortunately, this ignores the increase in food and energy prices, which consumers pay even if the Fed discounts them in its “core” calculations.
After three decades of decline, many investment advisors believe rates could be on their way back up soon. Pinpointing the timing of an interest rate rise is difficult, if not impossible. After the global economic crisis in 2008, many investors flooded into U.S. Treasury bonds, which consequently pushed their yields down. Unfortunately, if interest rates start increasing, the value of many bonds will decrease.
There are several potential drivers of higher interest rates. One might be inflation. While it has been fairly tame for years, if commodity prices and other costs start to climb, inflation could begin to creep higher. A consequence of higher inflation is typically higher interest rates
Investing in relationships: Marriage and the stock market
Kim Ciccarelli Kantor
Investing in the stock market and investing in a marriage: Are there similarities?
In both cases, there can be ups, downs and a bit of turbulence/ In both, it’s well worth pulling through and continuing the relationship. However, it’s important to weigh the risks too.
Recently, a client attended a marriage encounter program here in Naples for couples about to be married. Being older than most of the group, they absorbed the information from a vastly different perspective. The facilitators leading the program discussed financial affairs, communications, and family and belief systems.
The young people listened intently, and realized it wasn’t as simple as it seemed.
Statistics very clearly reflect a much lower divorce rate for couples who attend these types of programs. It reminded me of the “divorce rate” in the markets. Those who have the experience of being an investor over a long period of time determine when to hang in there; people educated early on had realistic expectations set forth from the beginning for financial success.
A proper perspective, commitment to the process and focus on the result will be the ultimate fulfillment. It is sad when people do not have this good fortune. A great feeling can also be that of a union between two people and the building of their life together. It is also sad that over 50 percent of first and second marriages end in divorce.
Investing is like being married. The first step is that you must educate yourself a little bit, read and learn about money; while preparing for marriage, you must date and meet different people. Then, step 2, you must find the right fit. Compatibility with your investment program can be very similar to the compatibility that must exist between two people who are committing to a lifelong journey together as husband and wife. No two marriage partnerships are quite the same, as are no two investment programs.
However, the principles of what makes a good marriage and the principles of sound investing can be applied to any situation.
Define your tolerance level in your investment plan, which is step three. In a marriage, communicating your strengths and weaknesses, values and the types of things you each can compromise on. Communicate who you are, how you feel and what is important to you. And, as in investments, there is no “perfect” spouse. Each of us is capable of making mistakes and achieving great successes.
Investments are no different. There is no one perfect investment. There is no one stock that would work for everyone. There is no investment without flaws. Investing in the market brings with it a lifetime of challenges and rewards.
What we count on is to pick the right investment plan and the right financial advisers, so that compatibility helps to secure a fulfilling lifelong journey.
Kim Ciccarelli Kantor is president and founder of Ciccarelli Advisory Services Inc., a family owned and operated firm in Florida and New York, which provides comprehensive financial investment and estate planning services for individuals, families and businesses. Her book is “Preserving Family Wealth & Peace of Mind.”
Ciccarelli Advisory Services Inc. is at 3066 U.S. 41 N., No. 202, Naples, 239-262-6577
The Fiscal Cliff – Quarterly Update
The term “fiscal cliff” was coined by the Federal Reserve chairman Ben Bernanke, and refers to the $550 billion in tax hikes and spending cuts that will take place automatically on January 1, 2013, unless the President and Congress take action to prevent it. (Source: Kiplinger’s Personal Finance, October 2012)
Failure to modify the tax hikes and spending cuts would almost certainly induce a recession. The Tax Policy Center estimates that the fiscal cliff would hit 90% of U.S. taxpayers and cost an average of $3,500 in extra taxes per household. (Source: USA Today, October 5, 2012, 5B Investing Protect Your Money)
The fiscal cliff itself isn’t giving money managers nearly as much reason to worry as the uncertainty surrounding it is. “Uncertainty is worse than knowing,” said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management. (Source: Investment News, July 16, 2012, page 34) The most uncertainty surrounds dividends, which have been increasingly popular, given the record low yields in fixed income, Mr. Grohowski said. Right now, the dividend tax rate is at 15%, but depending on what Congress decides, it could go as high as 43% for that bracket. “That’s a pretty big spread of uncertainty,” Mr. Grohowski said.
Unless Democrats and Republicans can agree to extend at least some of the Bush-era tax cuts or postpone some of the spending cuts mandated by the Budget Control Act passed last year, the economy will suffer. “The macroeconomics behind the fiscal cliff issue is horrendous,” said Allen Sinai, chief global economist with consultant Decision Economics, Inc. “It’s unthinkable that this might actually happen.” (Source: Investment News, July 16, 2012, page 34)
Many advisors believe Congress will take steps to moderate some, if not all, of the tax changes before the end of the year. However, even if they don’t, they could still pass laws next year retroactive to the beginning of 2013. Unfortunately, with all the uncertainty still looming today, markets are likely to be swayed by the headlines rather than fundamentals.
The mere threat of $600 billion in tax hikes and spending cuts is already delaying business spending. Big economic forces, both domestic and abroad, are combining to dampen growth. As the economy has cooled, so have the economists’ forecasts. The average estimate of the 79 economists surveyed by Bloomberg is for gross domestic product to rise 2.1% in 2013, down from the consensus of 2.5% in May. The fiscal cliff poses the biggest threat. The combination of deep spending cuts and tax increases set to hit in January could strip as many as four percentage points off 2013 GDP growth. On top of that, the global economy is weakening, particularly in China and Europe, two of the biggest export markets for the U.S. China’s industrial output is growing at its slowest pace since May 2009. Although Europe’s leaders appear to be making progress in taming their debt crisis, much of the continent is already in recession. (Source: Bloomberg, September 17-23, 2012, page 13)
Global trade is stalling, dimming prospects that exports will buoy the U.S. economy in the coming months. The World Trade Organization just projected the global volume of trade in goods would expand only 2.5% this year, down from 5% last year and nearly 14% growth in 2010. The trade slowdown could worsen as momentum slips across the global economy.
Europe was the epicenter of the weakness radiating from the global economy. Weak exports have exacerbated a slowdown in China’s domestic economy, which economists project will grow about 7.5% this year, which would be the weakest annual expansion since 1990. (Source: WSJ, October 1, 2012, A1 Trade Slows)
Third Quarter Economic Update 2012
Wow – talk about another interesting quarter in the stock market! The Dow Jones Industrial Average rose 4.3% during the third quarter and is up 10.0% through September
30, 2012. The S&P 500 is having an even stronger year, with a 5.8% rise during the third quarter and a 14.6% gain year-to-date. The NASDAQ also had a great quarter, increasing 6.17% and 19.6% year-todate. There are many forces driving these gains:
- Many analysts believe that the Federal Reserve’s efforts to inject money into the financial system will help asset prices continue to go higher.
- Rising dividends are another source of support forthe stock market as many investors continue to reinvest the proceeds. For example, in August,S&P 500 companies paid out a record $34 billionin dividends. (Source: WSJ, October 1, 2012, C1 US Stock Investors Look Beyond)
- Stepped-up efforts to aid the Euro zone, such as the European Central Bank’s plan to buy government debt to reduce some nations’ borrowing costs, gave many investors confidence to take on more risk, according to many analysts. The Federal Reserve’s September 13, 2012, announcement of new stimulus measures for the U.S. economy also helped in this regard. To the surprise of many investors, many U.S. stockshave nearly come full circle and are going into the finalquarter of this year within shouting distance of all-timehighs. Five years ago on October 9th, the Dow JonesIndustrial Average closed at an all-time high of14,164.53. As of Friday, October 5, 2012, the Dow closed less than 4% below its peak. (Source: WSJ,October 6-7, 2012, B7 What A Trip)
Let’s look at what happened during this five-year period: the stock market halved and then doubled; bonds soared; the real-estate market crashed, then stabilized, and is possibly on its way back; and energy prices spiked, tanked and rose back, too. During this time, the U.S. government racked up massive new debts, and many other global economies also experienced significant changes in their economic pictures.
The 37% drop in the S&P 500 in 2008 was devastating for investors, but since then the stock market has yielded annual returns of 26.46%, 15.06%, and 2.05%. Dividend yield on the S&P 500 has also been steady at slightly above 2%. Many investors who left their money in the market are now ahead of where they were at the end of 2008. Unfortunately, many investors who wanted to keep their money “safe” are shaking their heads as to what to do now. (Source: Bob LeClair’s Newsletter, September 15, 2012)
No one knows whether stocks and bonds will continue to climb or will hit a steep drop, but either way several experts constantly remind us that two important things to consider are:
- It is difficult to consistently time the market,
- and
- Diversify, diversify, diversify!
Many investors are worried about risks looming on the horizon—everything from key fiscal issues in the U.S. to the global economic outlook. The debt crisis in Europe remains unresolved and its economy is stagnating. In the U.S., earnings forecasts have also been reduced. With the presidential election only a few weeks away, major political uncertainty hangs over the U.S., especially when it comes to the Fiscal Cliff, when some very critical economic stimulus measures expire.
With all of these uncertainties, how has the market continued to do so well? There are a number of reasons. “International investors have used the U.S. stock market as a safe haven,” says Lisa Shalett, chief investment officer at Bank of American Merrill Lynch Global Wealth Management. “They see it as a much better place to have been around the world than emerging markets, which have struggled, and a better place to be than Europe.” (Source: WSJ, October 1, 2012, C1 US Stock Investors Look Beyond)
Introducing Our New Website
We are pleased to announce the release of our new website. Designed with a fresh, innovative appearance, our new site includes all the features you previously utilized, as well as some new ones you’ll be sure to love. Our new design allows us to communicate with you, your family, friends and neighbors in greater ways, through regular updates, event announcements and educational tools & opportunities.
A short virtual video tour and
walk-through of our new website
will be available soon. More
information to follow.
Also available is a simple guide to accessing your accounts through our website. This booklet can be requested by contacting one of our offices.
New Employee Announcements
Ciccarelli Advisory Services welcomes new team members to the Bonita Springs and Naples offices.
CAROLYN BATES
Director of First Impressions ● Bonita Springs Office ● Email: Carolyn@CASFinancialCoach.com
Carolyn joined us in May 2012 as our Receptionist and Director of First Impressions in our Bonita Springs office. As a member of the Bonita Springs CAS team her responsibilities include answering the phones, scheduling and confirming appointments, handling client calls and requests and other office related tasks. Carolyn, although originally from Ohio, recently relocated to Bonita Springs from New Mexico. She enjoys reading, walking, bicycling and is a proud wife, mother and grandmother.
Tina R. Garvey
TINA R. GARVEY
Client Services Associate ● Bonita Springs Office ● Email: Tina@CASFinancialCoach.com
Tina joined us in August 2012 as a member of the client services team in the Bonita Springs office. Her primary role is to assist Paul F. Ciccarelli, CFP®, ChFC®, CLU in working with the clients he is responsible for. Tina has an extensive financial services background, having worked for such companies as Ameriprise, AG Edwards/Wells Fargo, JP Morgan and Bank One. She received her Bachelor’s degree from Purdue University in West Lafayette, IN. Tina and her husband, Jerry, moved to Naples in 2011 from Lake Geneva, Wisconsin.
Theresa Chiriatti
THERESA CHIRIATTI
Co‐Director of First Impressions ● Naples Office ● Email: Receptionist@CAS‐NaplesFL.com
Theresa joined us in August 2012 in the job‐share role of Co‐Director of First Impressions. Born and raised in upstate New York, Theresa attended Dutchess Community College and received an AAS degree in Business Administration. She joined IBM Corporation in Poughkeepsie, New York, soon after and held numerous administrative positions in New York and Massachusetts. Theresa moved to Naples from the Boston area in March of 2012 with her husband, Richard, and cat, Charley, after vacationing in the area for several years.
Lory L. LaRose
LORY L. LAROSE
Operations Assistant ● Naples Office ● Email: Lory@CAS‐NaplesFL.com
Lory joined us in May 2012. Originally from Massachusetts, Lory graduated from Suffolk University with a Bachelors of Science in Finance and obtained her Masters in Business Administration from Bryant University. Prior to moving to Naples, Lory spent nine years with Fidelity Investments, where she most recently served in a business analyst role at their corporate headquarters in Rhode Island. In her spare time, Lory enjoys traveling, serving as a volunteer at Domestic Animal Services, and spending time with her husband and two Scottish Terriers.
Stephen T. Merkel
STEVEN T. MERKEL, CFP®, ChFC®
Financial Advisor
Ciccarelli Advisory Services, Inc.
Email: Steve@CASFinancialCoach.com
Steve’s Niche
Steve specializes in asset allocation and private portfolio design. He believes that diversification and a disciplined personalized risk‐adjusted portfolio model are important elements for financial success. Steve acknowledges that there are many other important aspects of the financial planning process, such as risk management, tax planning, and reviewing estate documents regularly.
Biography
Steve joined Ciccarelli Advisory Services, Inc. (CAS) as a member of the advisor team in the Bonita Springs office. His responsibilities include strategic investment research, planning analysis and client relationship management. In addition, Steve’s role includes portfolio management, portfolio trading and providing financial planning support for the office. Steve is also a member of our research team and will be writing white papers and articles for CAS on various financial planning topics. Steve has over 14 years of experience in portfolio management, estate planning, risk management, tax strategies, private wealth management, and personal financial planning. Prior to joining CAS, Steve was a Chief Compliance Officer & Portfolio Manager for a registered investment advisory firm located in Miami, FL. In 2005, he moved to Naples for a partnership opportunity as a Sr. Vice President/Portfolio Manager with a local investment advisory firm that was later sold to a larger institution. He was responsible for new business development and portfolio management during these years. Prior to that time, he accomplished 11 years of distinguished service in the United States Army serving with the 10th Mountain Division out of Ft. Drum, NY and the Air Defense Artillery Corps as a Stinger Missile Commander.
Steve is a registered representative of FSC Securities Corporation and has his Series 7 & Series 66 securities registrations. Steve holds the prestigious CERTIFIED FINANCIAL PLANNER™ practitioner designation and is a Chartered Financial Consultant as designated by The American College. He holds a Bachelor of Science in Business Administration with a concentration in Finance from Shippensburg University of Pennsylvania. In addition, Steve is a graduate of the United States Military Academy, FL where he was appointed as a Commissioned Officer. Steve has been featured and widely quoted in numerous publications, including: The New York Times, Business Week, Consumer Reports, Investment News, Financial Planning Magazine, and Fidelity’s Stages Quarterly. Additionally, Steve is a frequent contributor of published articles for websites, such as: www.Investopedia.com and www.AccountantsWorld.com. In 2007 and 2008, he co‐hosted the talk radio show “The Wealth Strategist” on 98.9 FM aired on Saturday & Sunday mornings on the SW Florida Gulf Coast. Currently, Steve is a member of the Financial Planning Association (FPA) and the National Association of Estate Planners & Councils (NAEPC). He moved to Florida in 1994 and lives in Naples with his wife, Johanna, and their two dogs, Gia and Foxy. Steve enjoys fishing, golf, military history, Miami Hurricanes football, and continues to be an avid motocross rider and enthusiast since 1985.
