Money Matters update Oct 1, 2015

No Money Matters show today due to special programming on KVMR

Marc's Notes:

What stock sectors react to what macro economic events?

Although common sense might lead one to think one way or another, the truth lies between both common sense and market sense, in other words how markets react with each other and the world around them.

When interest rates rise, you might think financials perform worse, common sense pointing you to the increasing cost of their money they have to lend out.

But banks can charge more interest on the back side, and since they make a percentage on the amount they loan, higher interest rates can increase the total amount they lend out, so their percentage goes up, making them more profits, or so the story goes.

Higher interest rates can put pressure on highly leverage companies, those that borrowed a lot to finance their activities, but it might take out some of their competitors as well, increasing market dominance for the surviving companies.

A stronger US dollar can make US exports more expensive but companies that sell mostly to US consumers might sell even more, making their financials even better.

Higher rates could hurt companies selling or mining gold as gold pays no interest and if rates rise the cost of holding gold becomes more expensive to investors, but higher rates could signal inflation is materializing and many investors buy gold to guard against inflation.

No matter what an investor’s belief on what does what to company sales, many underlying currents and cross currents of what happens down the line could have an opposite effect of what common sense might tell you might happen.

Although no one can say for sure what exactly will happen to prices of company stocks when certain things happen, we can never say never and also never say for certain what will happen because something else does. There is always two side of a story and in the world of investing, for every investor betting a cause will cause an effect, there is always another investor willing to take the other side of that bet at the right price, simply because he believes in something else.

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In this happy, feel good world where everybody gets a trophy, we find out some people don’t believe in such things.

The proverbial participation trophy is given to kids and adults alike for taking part in sports programs, school projects and other worthwhile endeavors. It is recently a fairly new concept in the world of such things, with the concept becoming more prevalent in just the last few decades or so, a byproduct of the world of political correctness.

You know the drill, your child joins a little league team or participates in a school competition, or maybe you enter some contest of skill or knowledge and at the conclusion of such an event, everybody that entered gets some sort of award.

These awards go by fancy names but most know them as participation awards. Indeed my own kids have shelves of glistening trophies which to the naked eye attest to excellence by my children in the things they have participated in. A quick glance at the trophy cases in my house would lead one to believe my kids are the best at everything they try, but in reality, few trophies we have point to an exceptional performance over their peers.

Don’t get me wrong, I love my kids dearly and in my mind they are all champions but the best baseball players? The best academics? The best in the spelling bees?

Hardly.

Our trophy case is full of participation awards, of which all the other kids that participated have the same trophies on their shelves at their house.

Is the practice of handing out trophies carte blanche teaching our kids the valuable lessons that the trophies of old used to signify?

One prominent NFL player for the Pittsburg Steelers doesn’t seem to think so.

The super aggressive and one of the NFL’s best linebackers, and 2008’s defensive player of the year, James Harrison, believes participation trophies do more harm than good.

Each of his two sons received a “Best of the Batch” student activities trophy and upon returning home and seeing them, he promptly returned both trophies. Taking it a step farther, Harrison explained in detail just why he did it saying:

"I came home to find out that my boys received two trophies for nothing. Participation trophies. While I am very proud of my boys for everything they do and will encourage them until the day I die, these trophies will be given back until they EARN a real trophy.

Harrison then went on explaining:

 “I am sorry I am not sorry for believing everything in life should be earned, and I am not about to raise two boys to men by making them believe they are entitled to something just because they did their best, because sometimes your best is not enough, and that should drive you to want to do better, not cry and whine until somebody gives you something to shut you up and make you happy”

Harrison seems to be ranting against the culture of entitlement, where everyone is entitled to whatever it is they think their entitled to.

Taking it a step farther, I hasten back to JF Kennedys famous quote:

“My fellow Americans, ask not what your country can do for you, ask what you can do for your country”

And as Brad Hoppman of Uncommon Wisdom Daily puts it:

“Yet too often these days, there is a culture of entitlement that effectively praises someone for who they are and not for what they achieved. This is a problem in society that starts with things like participation trophies that morph into things like not keeping score at baseball games so as to not offend the losing team, or abolishing grades so as not to offend kids who weren’t able to get A’s.

The biggest problem here is that this kind of collectivist-style child rearing where everyone is a winner, and there are no real losers and no one child’s accomplishments are better than another’s, is not commensurate with how the real world works”

As for my family, my kids bust their butts as I do to encourage them, to get only straight A’s in school, and b’s and c’s are not good enough. As a result my kids have attended 24 collective years of school and received only one B between the three of them.

They have put in the work, sacrificed much while their other friends are out playing, and I will be darned if I think my kids should get the same trophy as all the other kids who perhaps are not studying as hard or working so diligently and then fail to get such exemplary grades as my kids have.

No dear reader, on this one I side with Linebacker James Harrison and the thousands of others who supported his media blast on his son’s participation trophies, whom, as a result of Mr. Harrisons actions, no longer have them.

In my world, and apparently also in Mr. Harrisons, achievement deserves reward, excellence deserves recognition, and only a few will ever attain such stature or deserve it.

In my world, and apparently also in Mr. Harrisons, you don’t get an award simply for showing up.

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Yields on junk bonds are rising and that may spell bad news for world markets in general. Typically regarded as the canary in the coal mine, when yields on these lower rated bonds start to rise in comparison to safer investments like US bonds, it means investors are starting to perceive a riskier environment may be materializing.

Historically when these “spreads” between the yield on junk bonds and the yields on US government IOUs (US Treasuries) widen, investors are moving cash to the perceived safer haven of US government backing.

If markets falter and companies begin to struggle, the default rate on junk bonds tends to increase and investors leave this sector as they grow more concerned on the return of their money rather than the return on it.

In the crisis of 2008/2009 junks bonds and indeed many lower rated bonds fell drastically in value which means what they pay goes up which is called their “yield”.   In times of market calm, investors don’t sweat the lower yields of junk bonds relative to safe US debt yields but as markets weaken we see yields on junk start to spike and we are starting to see that now.

By no means is this a sure fire way to gauge future market movements but historically it can be a harbinger of things to come.

There is also something similar called the “TED SPREAD”. The TED spread is the difference between the interest rates on interbank loans versus short-term U.S. government debt (those US Treasuries again).

The size of the spread is usually denominated in basis points (bps). For example, if the T-bill rate is 5.10% and TED trades at 5.50%, the TED spread is 40 bps. The TED spread fluctuates over time but generally has remained within the range of 10 and 50 bps (0.1% and 0.5%) except in times of financial crisis. A rising TED spread often presages a downturn in the U.S. stock market, as it indicates that liquidity is being withdrawn.

Although the TED is nowhere near the levels we usually see during huge market upsets, it is rising right now and if it continues to do so, this along with rising junk bond yields may indicate investor concern about markets faltering which could translate into broader market weakness down the road.

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Dear fans,

For years people have listened to my show and read my columns. Because many thought I made sense and agreed with my economic views, they requested I manage their funds and for years I have refused. I simply had too much work in the radio/ media business. But after so many requests and having given it serious consideration, I have joined a very dear friend at his firm MKB Financial Services in Auburn. Matt Baltz and I think alike. We are like family. We strive to provide the best service, with integrity, straight forward analysis with detailed and concise communication. We offer a full range of money management, retirement planning, income planning, family planning, investment recommendations and more. We have developed 3 portfolios to help meet the needs of our clients. The cost will be a simple fee commensurate with the industry on the amount invested.

I will talk with you quarterly to review your investments and more often if you require it.

Annually we meet and you and I will update your financial information to keep us on track and make sure you and I are up to date on your situation and your expectations.

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I am excited to be able to offer you this opportunity to go “Money Matters”!

Call me today at my personal number (530) 559-1214 (private cell- do not give out ) to talk with me about meeting with you or just to get more information. I expect to be busy with this announcement so give me a call to beat the expected rush! Or send me an email at  mcuniberti@cambridgesecure.com

Thank you again and I look forward to meeting of all of you!

Website news:

The website moneymanagementradio.com is being overhauled to reflect this new opportunity.

You will start receiving newsletters again shortly! Thanks again for your patience and I look forward to speaking with you on and off air! 

All the best and I am so excited to hear from all of you on my new role in managing your finances if you would like me to fill that role!

Marc

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