Wall Street opens higher after China rally, Italian budget relief (source: Reuters)

Screen Shot 2018-10-22 at 9.17.37 AM.png(Reuters) – U.S. stocks opened higher at the start of a busy week of earnings on Monday, riding a wave of gains in global stocks due to hopes of economic stimulus in China and easing tensions over Italy’s debt.

The Dow Jones Industrial Average rose 47.80 points, or 0.19 percent, at the open to 25,492.14.

Click here to read the full article: https://www.reuters.com/article/us-usa-stocks/wall-street-opens-higher-after-china-rally-italian-budget-relief-idUSKCN1MW1LR


Seven ways midterm elections could impact investors (US News)

retirementrealityBy Wayne Duggan
US News Contributor

Pollsters think Democrats will make gains in Congress.

The November U.S. midterm elections are coming up fast. President Donald Trump and a Republican Congress have implemented several market-moving changes since the last election, but polls suggest Democrats could regain a majority in the House of Representatives. Bank of America economist Joseph Song recently looked at what is on the line for investors this November and how it could impact the market.

Click here to read the full article:


Market Commentary: Focus on Pitch Instead of Power When You Are “Behind the Power Curve”

MarketCommentary2016-croppedThere is an equation used by airplane pilots that goes, “Pitch + Power = Performance.” It occurred to us recently that this formula is a fitting analogy for a common problem we see in the way some people handle their finances. 

In flying, “pitch” refers to whether a plane is angled up or down in an effort to ascend or descend. Power, naturally, has to do with horsepower and whether the pilot is flying at full-throttle or has the throttle eased back. The plane’s “performance” is the balance between its speed and its rate of ascent or descent.

There is a particular speed at which the plane achieves maximum lift in relation to units of drag, which is known in aviation terms as L/D(max). Above that speed, a pilot can fly the plane in the way that is most intuitive: using power for speed (easing the throttle forward to accelerate and pulling back to decelerate) and pitch for ascending or descending (angling the plane up or down). 

However, when traveling below L/D(max), the pilot is flying “behind the power curve,” also known as the “region of reverse command.” It’s referred to as such because in this region the pilot must now fly the plane in a way that is counterintuitive: here, he uses power to ascend or descend, and pitch to change the plane’s speed—angling up to decrease speed and down to go faster. The pilot knows there are dangers and limitations to flying “normally” when he’s behind the power curve, so he uses the alternative strategy.

The Financial Power Curve

Now, here’s how all of this applies to investing: just as there is an optimal speed for a plane, there is an optimal amount of money each investor needs to meet his or her retirement goals. You might say any money in excess of that amount is ahead of the power curve, while money below that amount is behind the power curve. When people aren’t aware of this, they instinctively think they can put all their savings into “power-based strategies”—which in financial terms means investing for growth. While that might be okay for money ahead of the power curve, it doesn’t really work for money behind the power curve.

With that money, investors are better off resisting the urge to use power and instead using pitch—which, in financial terms, means investing for income. That’s because if it’s behind the power curve, it’s money you can’t afford to lose, and income-based options—as you know—are designed to protect principle while providing the opportunity for “organic” portfolio growth through strategic reinvestment.

The mistake many people make is thinking they can just “throw the throttle forward” with all their money and rely on risky growth-based options like stocks and mutual funds. That, of course, is the standard approach touted by many advisors and much of the financial media, but the problem with it is twofold. First, growth can quickly turn to shrinkage if the market drops, and when that happens the investor, who is focused on growth, can end up in big trouble. Equating it to flying, it’s similar to what can happen when a pilot impulsively throws the throttle forward to try to increase speed when he’s behind the power curve: he can send the plane into a spin, with devastating results.

The second problem is that the growth potential of an overvalued market, like the one we’re in now, is limited. Just as a pilot can’t increase his speed much by applying power when he’s behind the power curve, an investor typically can’t increase his return much by focusing on growth when the market is topped out; this is ignoring the fact that he’s also risking a potential 40 to 70 percent loss by chasing a 5 to 10 percent gain! Both the Dow Jones Industrial Average and S&P 500 recently hit new record highs, further disconnecting stock values from economic fundamentals and increasing the likelihood that the next major correction will be closer to 70 percent than 40. 

The Road Less Traveled

When a pilot is in the region of reverse command, he’s doing the very opposite of what he normally does to maintain the plane’s performance—thus the term “reverse”. Similarly, when you’re investing for income, you’re also doing the opposite of what you would instinctively do, and the opposite of what most people think you should be doing.

If that sounds familiar, it’s probably because you’ve heard us discuss how investing for income is like “taking the road less traveled”, or how being a good investor requires being a contrarian since the concept of “buy low, sell high” runs counter to most people’s instincts. For most people, when the market is low, their fear kicks in and that’s when they sell. Conversely, when the market is high their greed takes over and they’re reluctant to sell for fear of missing out on more growth. 

With that in mind, is it possible that once the next major correction occurs and the market has bottomed out that it might be okay again to focus more on growth, even with money that’s “behind the power curve”? In other words, might it make sense to switch back from pitch to power and fly more normally? For some investors, depending on their situation, it is possible. 

In the meantime, though, we believe using pitch instead of power (i.e. investing for income instead of growth) for money behind the power curve is a better way to ensure a safe, successful “flight” into retirement for many investors.

Tech, industrials lift Wall Street higher (Reuters)

sugarhigh(Reuters) – U.S. stocks advanced on Monday, led by gains in shares of technology and industrial companies, as a last-minute deal to save NAFTA as a trilateral pact raised hopes for progress in talks with other countries at the start of the fourth quarter.

Click here to read the full article:

Registration now open for our Required Minimum Distribution (RMD) Workshops – Oct 9 and 11 at Northwestern

stopwatch3Can you afford a 50% tax penalty on your IRA or other retirement accounts after age 70 ½?Don’t let your money go down the drain! Learn how to avoid costly mistakes and pay only the true “minimum”.

If you’re at or near retirement age, you’ll soon have to pay taxes again on your IRAs and other tax-deferred savings accounts. Taxes on RMDs can be a major financial burden… unless you know how to protect yourself. Learn simple strategies that could save you thousands!


  • Five (5) questions to ask your current financial advisor or accountant to minimize the impact of RMDs on your retirement plan.
  • When do I have to take my distributions – and are there exceptions?
  • How much will I have to take out?
  • How much tax liability will they create?
  • How do the distributions impact my Social Security?
  • Is my asset allocation appropriate for RMDs?
  • Are my beneficiaries set upfor maximum tax efficiency? And MORE!

Learn more and register here:


High U.S. stock valuations hinge on inflation, interest rates (Reuters)

sugarhighNEW YORK (Reuters) – Investors are banking on tame inflation and interest rates to support U.S. stock prices and help counter any concerns over an anticipated slowdown in corporate earnings growth next year.

As they have recently, stocks in general are poised to trade at valuations, based on price-to-earnings ratios, higher than they have traded on average since the mid-1980s, investors said.


Market Commentary: As Fall Nears, the Markets are a Messy Mix of Good, Bad & Ugly

MarketCommentary2016-croppedIn our experience, people seem to have a more serious attitude about their finances at certain times of year than others. The post-Labor Day period through Thanksgiving is when many people typically reassess their saving and investment strategies and decide whether to make changes. With that in mind, we would like to share a few thoughts about the current state of the markets for you to think about as you review your own strategies. There’s more going on than we can cover in one newsletter, so we’ll stick to an overview of “the good, the bad and the ugly.”

The Good

As everyone knows by now, economic growth in the second quarter reportedly hit 4.1 percent—a figure that was recently upgraded to 4.2 percent.1 As everyone probably also knows, 4 percent growth was one of President Trump’s chief campaign promises, and the main goal behind his massive tax overhaul. He and other Republicans were quick to hail the second-quarter milestone as a direct result of the tax cuts (approved last December), and call the growth rate sustainable.

Meanwhile, the stock market returned to a mostly upward trend in late summer after months marked by a consistent pattern of small gains and big drops. Though the Dow Jones Industrial Average, as of this writing, still hasn’t regained its 2018 peak, it did come close in late August, while the S&P 500 actually surpassed its January high and hit a record 2,914 on August 29 before starting to level off again in the final days of the month.2

Though the market remained somewhat volatile, investors seemed to focus mainly on the 4 percent GDP figure and other hopeful economic data around jobs and consumer confidence, and the fact that interest rates remained stable. At the same time, they seemed to ignore the factors that caused all those wild emotional market swings earlier in the year. In other words, they seemed to focus on the good and ignore, at least for the time being…

The Bad

While President Trump and his administration called the second-quarter growth rate sustainable, many analysts and economists continue to maintain that the impact of the tax cuts will more likely be short lived, and that growth will shrink back closer to 2 percent—or lower—by next year. Many have doubled down on this stance based in part on early reports about what corporations have been doing so far with all their extra tax money.

A recent study by the National Employment Law Project and the Roosevelt Institute found that most corporations have used the money on stock buybacks, rather than direct investments into the company for things like technology, expansion or pay raises.While some experts contend buybacks are a viable strategy that can help ensure a company’s financial strength, others argue that buybacks ultimately hurt corporate America, hurt American workers, and could starve the economy of the very growth the tax cuts were intended to achieve.

Also falling into the “bad” category is the potentially troublesome relationship between President Trump’s tax plan and the federal deficit. From the start, analysts rejected President Trump’s argument that the tax cuts would “pay for themselves” and cautioned that such a drastic reduction in federal revenue would push the sky-high deficit even higher. Now, the White House has acknowledged that the deficit is growing faster than expected. In July, the Office of Management and Budget revised an earlier forecast to account for nearly $1 trillion of additional debt over the next decade.4

Complicating matters further, President Trump recently pledged up to $12 billion in federal emergency relief for farmers hurt by his trade war—which is another of the “bad” or potentially bad factors Wall Street seems to be ignoring lately. Though big investors may be taking a wait-and-see attitude, many real effects from the new tariffs are already being felt across the country in the form of closed plants and lost jobs. The U.S. Chamber of Commerce has said President Trump’s trade actions could lead to 2.6 million American job losses in total.5

The Ugly 

For years now, we’ve been cautioning that we’re living in an unprecedented age of economic uncertainty—a result of the reckless overuse of experimental artificial stimulus policies by Central Banks around the world, starting with our own Federal Reserve. One could argue the Trump administration’s massive tax overhaul is yet another experimental effort. While there’s little argument it will boost growth in the short term, there is plenty of debate about whether it will sustain that growth or, instead, cause the federal deficit to finally spiral out of control.

There is just as much debate and controversy around President Trump’s trade policies. Will they make the U.S. more globally competitive and ultimately strengthen the economy? Or will they undermine his tax cuts, cripple growth and usher in a new recession that finally forces the stock market to make fundamental sense again (as it eventually must) with a 40 to 70 percent correction?

No one has a crystal ball, of course. But when reevaluating your own portfolio this fall, make sure you’re taking all these important details about today’s market into consideration. Make sure you’re not blindly focused on “the good” (as Wall Street seems to be), to the extent that you overlook “the bad” and “the ugly!”

  1. Lucia Mutikani,“US Second Quarter GDP Growth Raised to 4.2 Percent,” Reuters, August 29, 2018, https://www.reuters.com/article/us-usa-economy-gdp/u-s-second-quarter-gdp-growth-revised-up-to-4-2-percent-idUSKCN1LE1GB?il=0
  2. macrotrends.net
  3. Annie Lowrey, “Are Stock Buybacks Starving the Economy,”The Atlantic, August 5, 2018, https://www.theatlantic.com/business/archive/2018/07/are-stock-buybacks-starving-the-economy/566387/
  4. Jim Tankersley,“How the Trump Tax Cut is Helping Push the Federal Deficit to $1 Trillion,” The New York Times, July 25, 2018https://www.nytimes.com/2018/07/25/business/trump-corporate-tax-cut-deficit.html
  5. William Mauldin, “Trump’s Trade Policies Threaten Millions of U.S. Jobs, Chamber of Commerce Says,”Wall Street Journal, May 31, 2018, https://www.wsj.com/articles/trumps-trade-policies-threaten-millions-of-jobs-u-s-chamber-of-commerce-says-1527792627