Making Financial Sense

 

James C. Knapp, AIF®

 

Settling into 2019, you will soon be celebrating Women’s History Month (March) and Earth Day (April 22). According to www.WomensHistoryMonth.gov, we celebrate and recognize “the great contributions that women have made to our nation. According to www.History.com, Earth Day is an annual event where various events worldwide are held to demonstrate support for environmental protection.

 

Society, as a whole, commemorates these as we find the value in them. The value coming from the fruits of women’s labor and the essential protection of Earth’s life-sustaining qualities.

 

Appreciating historical context leads to better understandings. You may seek tangible ways to protect and preserve the Earth’s environment or learn more about women’s historical contributions. As noble as your intentions are, you may become absorbed by life before making your planned impact on the environment.

 

I would suggest learning how to protect your hard-earned, investable assets is just as important. We can all agree that the lack of knowledge may lead to making poor investment decisions.

 

This knowledge will help guide you to develop your own practical investment process. This process is one where you understand and appreciate the varying dynamics and possible outcomes. This can also help you derive your own opinion on the economy, investment opportunities, and what you think is an appropriate manner to proceed.

 

I believe having applicable insight will better enable you to make smart decisions with your money, thus creating a lifetime of financial confidence. I believe this is vital as you will find cogent arguments for strategies recommended to you. It is your responsibility to fully appreciate the pros and cons of each and work through them to decide which is best suited for you.

 

Many news outlets, as well as market strategists, discuss the yield curve. They also reference the inverted yield curve. The yield curve is the difference between the interest rates on the short term United States government bonds and longer term United States government bonds.

 

Typically in a healthy economy, the rates of long term bonds will be higher than the short term bonds. The extra yield (aka interest) is to compensate for the risk that economic growth will likely cause an increase in prices (aka inflation).

 

New York Federal Reserve President John Williams said the yield curve inversion is “a powerful sign of recessions.” According to research from the Federal Reserve Bank of San Francisco, every recession of the past 60 years has been preceded by an inverted yield curve.

 

A resource I have used for yield curve data is from the Federal Reserve Bank of St. Louis (https://fred.stlouisfed.org/graph/fredgraph.png?g=mMGv). This resource will chart the 10 year Treasury Constant Maturity minus the 2 year Treasury Constant Maturity as of February 7, 2019.  (Shaded areas represent U.S. recessions; Source Federal Reserve Bank of St. Louis)

You also may read or listen to various news outlets debating whether the United States economy is currently in, or will be entering, a recession. I believe this may be missing the most important point. Going back to World War II, LPL Financial Research found there have been 14 bear markets, with seven taking place during a recession and seven without an accompanying recession.

Current events can also impact your investment portfolio. I believe your investment strategy may need to account for them due to their market and political implications. These range from increased trade risks, potential future government shutdowns, troubling headlines on geopolitical issues, global growth slowdowns, etc. Some examples to keep in mind may be:

  • The recent, record-setting 35 day government shutdown, which was temporarily funding governmental operations through February 15, 2019;

  • Thursday February 7, 2019, President Trump indicated he does not plan to meet Chinese president Xi Jinping ahead of the March 1 trade deadline;

  • The United Kingdom’s scheduled exit from the European Union on Friday March 29, 2019 after 46 years of membership;

  • The European Commission cut its GDP growth forecast for 2019 from 1.9% to 1.3%, warning that Brexit and China may worsen the outlook. Italy's revision was the most negative, from 1.2% to 0.2%. The latest data told the same story, as industrial production in Germany contracted in December by 0.4%, versus expectations for 0.8% growth, suggesting the country may have entered a technical recession in the fourth quarter. In addition, the Bank of England cut its U.K. economic growth forecast for 2019 from 1.7% to 1.2%-and noted that Brexit risk had risen. Finally, Europe's economic surprise indexes have lagged far behind those in the U.S., Japan, and China in recent months and

  • St. Louis Federal Reserve President James Bullard, a Fed voting member, said in a speech on February 7th, 2019 that the Fed must “tread carefully” in future policy changes, and noted that he views inflation-adjusted rates as “a little bit restrictive” at this point.

I hope this article gives you a good start building your knowledge base focusing on preserving your hard earned resources. I believe that when women have a voice, options, information and a community in which to learn, they are able to make smart decisions with their money, thus creating a lifetime of financial confidence.

If you seek clarity in developing your investment process, please email This email address is being protected from spambots. You need JavaScript enabled to view it. or view more educational resources at www.KNAPPADVISORY.com.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The Standard & Poor’s 500 (S&P 500) is an index of 500 stocks seen as a leading indicator of U.S. equities and a reflection of the performance of the large cap universe, made up of companies selected by economists.

The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed rate taxable fixed income.

 

 

 

 

James C. Knapp, AIF®

 

I hope you and your family have enjoyed the summer making cherished memories. This is the time of year we transition into Back to School Season. As we get our families ready to begin their learning journey, I thought it would be good to help you continue learning of your own.

The Merriam-Webster dictionary defines learning as “to gain knowledge or understanding of or skill in by study, instruction, or experience.”

It is always a good idea to continue advancing your knowledge by studying as much as you can. This can be accomplished in many ways; through reading textbooks, autobiographies, specific podcasts, etc. Gaining knowledge through instruction is another great way. This can be accomplished by taking a class or seeking the counsel of an industry professional. I will suggest that learning through experience, specifically applied to personal investing, can sometimes be a painful process. Painful as this education can come from those occasions when we make mistakes. Those mistakes can be quite costly and damaging as you work towards financial freedom.

Albert Einstein said:   Know where to find information and how to use it ---that is the secret to success.”

This month’s article centers on helping you understand where to find the information (though a Google search is also efficient) and then applying that to your own personal situation to derive your investment approach. The information cited and discussed is not an all inclusive list. Please consider them as a starting point.

As I write this article, we are just 14 days until the S&P 500 bull market becomes the longest of all time, at 3,543 days, on August 22, 2018. This means everything is fine and there are no worries, right?

 The U.S. is experiencing an 18 year low in unemployment, a resilient housing market, high business and consumer confidence numbers and the S&P 500 nears or is at all time highs. That is all great though I’d suggest not waiting for a financial crisis to occur to begin strategies that work towards protecting your portfolio.

There are many ways investing parallels horror movies. In the great horror movies, you don’t see the monster until later in the movie. The horror starts with a hint, and it’s not until the plot thickens that we see the horror unfold. The markets are also hinting at some horrors of their own.

 Increasing interest rates, post crisis tight bond spreads and the potential for peak corporate earnings hint to a late cycle economic environment. And who can forget the US trade protectionist policies and ever intensifying geopolitical tensions.

 Interest rates have recently begun to rise; which has some focusing on the yield curve and its potential to invert. The yield curve is basically the difference between the interest rates on short term United States government bonds and longer term United States government bonds. As of August 8th, 2018, the difference of the 2 year Treasury versus the 10 year Treasury is 28 basis points according to the U.S. Department of the Treasury’s website (www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield).

 Typically in a healthy economy, the rates on long term bonds will be higher than short term bonds. The extra yield (aka interest) is to compensate for the risk that economic growth will likely cause an increase in prices (aka inflation). Lately, long term bonds have been slow to rise while the Federal Reserve has been raising short term rates. This has caused the curve to flatten and come close to inverting (shorter rates being higher than longer rates). The spread was at these levels last in 2007; right before the Great Recession.

 Flattening alone does not mean the US is destined for a recession. Though an inversion, as New York Federal Reserve President John Williams said, is “a powerful sign of recessions.” According to research from the Federal Reserve Bank of San Francisco, every recession of the past 60 years has been preceded by an inverted yield curve. Their research can be seen at https://www.frbsf.org/economic-research/files/el2018-07.pdf. If you like visual representations, the Federal Reserve Bank of St. Louis has a good resource: https://fred.stlouisfed.org/series/T10Y2Y. It depicts the 10 year Treasury vs. 2 year Treasury and also allows you to gain a historical context.

 Credit spreads also should be monitored. Risk premiums on investment grade bonds over comparable Treasuries have been rising since February. According to Jim Paulsen, Chief Investment Strategist at Leuthold Group, risk premiums or spreads on Baa-rated corporate bonds over Treasuries increased 2% this month based on data from Moody’s Investor Services. This milestone was reached either during or just before six of the past seven US recessions since 1970. Dallas Federal Reserve President, Robert Kaplan, told Reuters that while credit conditions are benign, they can deteriorate quickly.

 I have suggested many times that negative returns & high volatility are typically destructive to wealth building. There are many strategies to consider that aim to protect your portfolio against potential risks. I remind you of this as there is still time to position yourself more defensively. Trade wars can heat up, volatility and inflation can spike rapidly to new highs, and markets can begin to pay greater attention to risks than they had before. When these things occur, that is when the horror begins!

 If you would like more information about strategies that seek lower volatility than traditional portfolios of equities and fixed income, the Knapp Advisory Group is here to be a resource for you.

 

www.KNAPPADVISORY.com
This email address is being protected from spambots. You need JavaScript enabled to view it.

913-544-1509 or 314-323-7094

 

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The NASDAQ Composite is a stock market index of the common stocks and similar securities (e.g., ADRs, tracking stocks, limited partnership interests) listed on the NASDAQ stock market. Along with the Dow Jones Average and S&P 500 it is one of the three most-followed indices in US stock markets. The composition of the NASDAQ Composite is heavily weighted towards information technology companies.

The Federal Reserve Federal Funds Rates (Fed Funds) is the weighted average interest rate at which banks lend each other funds held at the Federal Reserve.

 

 

 

I wish all of my devoted readers (hi, Mom!) a Happy New Year with much success and happiness. This edition’s timing coincides with the Working Women’s Survival Show. It is my life’s mission to help women survive and thrive in the investing jungle.

I believe that when women have a voice, options, information and a community in which to learn, they are better able to make smart decisions with their money, thus creating a lifetime of financial confidence.

Education is critical as it should be remembered that all good things often do come to an end. Financially speaking, some of these endings can be disastrous to your long-term financial objectives. A practical investment process will likely serve you well in good and bad markets. Everyone approaches this differently, though; please develop yours guided by information. I suggest beginning with having a strong understanding of your willingness to handle market fluctuations as well as what lifestyle you would like to achieve.

 

Good, Better, Best: The Founder of The Vault Tells Her Story

 

by Lucy Knapp

 

Everyone knows Sue McCarthy. She's not just locally famous; she has a nationwide and worldwide following. This is thanks to Resale Royalty, a show about Sue and her first store, Women's Closet Exchange, that ran on the Style Network in 2013. It's also thanks to her clientele and suppliers, who are quite literally from all over the world. She has purchased her stock of designer clothes and accessories from all manner of people with an eye for fashion, from celebrities, European aristocrats, and the very wealthy to Las Vegas call girls. Sue has loyal customers who will make a special trip to St Louis to shop at the Vault. There is a group of New York lawyers who fly in every season to update their wardrobes. Why? Because they know they can get better clothing at better prices than they can in New York.

 

Above all, Sue McCarthy's fame and fortune are due to her talent, personality and drive.

 

Sue has written her autobiography entitled Good, Better, Best: The Rags to Riches Story of the Upscale Resale Queen. It is truly a rags-to-riches story. She grew up poor, in fact at one time her family was homeless and sleeping in a park. Before she found – or more accurately, created – her dream job, she had been a hair stylist, mortuary beautician, and owned an all-woman painting company called “A Woman's Touch.” That was unusual for its time because it hired only women, offered flexible hours and, most importantly, kept the commitments it made to their customers.

 

In the 1990s, Sue got into the resale business, first as an employee then as an owner. With her first store, the Women's Closet Exchange, she revamped the resale model, gradually shifting from consignment to purchasing outright, only acquiring quality items in excellent condition, and designing the shop to look and feel like a boutique, not a second-hand store.

 

In 2014 came the big leap of faith: Sue and her daughters Laura and Diana opened The Vault Luxury Resale in Brentwood. They source clothing from major cities in the U.S. and Europe, specializing in “closet buys,” where they visit the homes of stylish women who have multiple closets filled with designer and high-end clothing and purchase what they deem sellable on the spot. Their approach to buying is not just purchasing but curating: Everything has to be up-to-date, in excellent condition, and be what their typical shoppers will want to buy.

 

The Vault has been wildly successful. The store itself is 7,000 square feet of luxury heritage brands, they experienced 40% growth in sales over last year, and recently added four new employees. `Sue estimates that they evaluate 1,000 items per day. They also give back, having donated over $100,000 to charities and are working on donating another $100,000.

 

I recently had the opportunity to talk with Sue McCarthy and learn about her philosophy of fashion and her philosophy of doing business.

 

Her fashion philosophy may seem surprising coming from a style maven and boutique owner, but it is similar to what stylish women have been practicing for years. “The first word I would have to tell you is simplify. There is nothing more confusing than going to your closet and looking at 20 items and you can't decide. If you have items that you've never put it on, get rid of them. Monetize it in a good resale shop.” She also advised investing in basic pieces (LBD, black pants, black jacket) that are high quality and can be combined with a huge number of colorful tops, scarves and jewelry. If you have good quality basics, you can afford to play around with trendy accessories.

 

Speaking of trendy, Sue is adamant in saying, “Don't sell yourself to trends that do not work for you. Be true to who you are. Just because everyone is wearing something doesn't mean it's right for you. Wear what is comfortable and makes you feel good, because when you look in the mirror and you feel good, you're going to project that.”

 

Above all, she believes in treating people with honesty and integrity. If you make a promise, keep it and strive to do your best. She attributes this to her father's motto that she heard many times growing up: “Good, better, best. Never let it rest until the good is the better and the better is the best.” She says,”That motto would come to define my working ethos later in life. They are the words I lived by—and still do.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In Business and Life, Context is Crucial for Empowerment

By Erin Joy, Founder and CEO, Black Dress Partners

As a strategic business consultant, confidant, and advisor, much of what I do for my clients is help them cultivate a sense of empowerment. Why? Simply put, most “successful” people are empowered people. One of the primary reasons I conceived the Midwest Women Business Owners’ Conference, in fact, was to provide women business owners with the resources they need to become more empowered in business, and in life.

What does it mean to be empowered?

Empowerment is defined as the process of becoming stronger and more confident. It is derived from a specific context you give to situations and to life. Empowered people have very specific conversations with themselves; they frame things positively, take responsibility for (and believe they are responsible for) their actions, and have conversations with their network about what they want versus what they don’t want or why they can’t.