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April 2021 Town Hall Video and Transcript Thumbnail

April 2021 Town Hall Video and Transcript

April 2021 Town Hall Transcript

Casey: Hi and welcome. My name is Casey Boland. I'm a wealth advisor and partner with Hcm wealth advisors. I'm joined today by Doug Johnson, who's our senior investment strategist and partner with HCM Wealth Advisors. Welcome to our monthly webinar. If you would like to ask a question, please go to the bottom of your screen.

You click on Q and A, and there you'll have an opportunity to submit your question and we'll do our best to answer at the end of our webinar. Doug, certainly we can't have a meeting without some level of discussion about Covid. So, the picture that is on my screen is from an art project that my wife Michelle made using printmaking.

It's a process involving transferring images from a matrix onto another surface, and you do this a couple of times until you come up with the final project that you see on your screen. She made this in the spring of 2020, just as Covid was spreading in the Us, the title this too shall pass. It depicts the covid virus and a woman, Rochelle's mom, holding an umbrella.

Casey: her mom always had the strength to see the sun shining through. No matter the obstacle…enjoy. There's a wonderful quote listed by the picture from Helen Keller. The word hope is the perfect word for 2021, as vaccinations happen this month. Okay. Doug, how about that segue to give us an update on Covid and what that means to the economy?

Doug: Yeah. Thank you, guys, for the introduction and welcome to the webinar series. If you've tuned in any of our previous webinars or listened to any of our communication for the past few months, you've heard us talk a lot about the inflation trade and the idea that we are going to see economic growth accelerate over the coming months, through the end of the year and part of the thesis or part of the reason around that thesis has to do with the idea of vaccinations increasing.

Now there's a few charts on here and let me pull up my laser pointer really quick. So, the left side here denotes The United States, the right side denotes The United Kingdom. So why these two countries? Well, both have very robust medical systems, and have had the ability to distribute the vaccine on a widespread basis and on a very efficient basis.

So, as you look at these numbers, these are vaccines distributed, and the top line here denotes the combination of these two. So, the green light green bar, is at least one, and then the dark green, which is tough to see behind the window here are citizens that are fully vaccinated.

So, the numbers that you should really pay attention to are at least one dose in The United States, 38%, fully vaccinated, 27%, and these numbers are going up by approximately a half a percent per day. Now we switched to the Uk. They have almost 50% of their population with at least one dose, and then somewhat, surprisingly only 15 that have been fully vaccinated, but we've seen that even one does, can be fairly effective in preventing significant or severe severe symptoms of the virus. So now you go to the bottom here. What you see as the actual case numbers over that timeframe. So, the US had a large peak over the Thanksgiving and Christmas holiday, large drop off, and then we've leveled off somewhat.

If you compare that to The United Kingdom, they've had a similar spike, large drop off, and their numbers continue to go down. So, what we can see here is that in countries that are doing an effective job in distributing the vaccine and getting it out there, we're seeing case numbers either level or go down.

That's going to be important going forward as we're going to need that to continue this reopening and to have it be a more permanent view. Now, in comparison, we see both in emerging market country and then in a country in Europe that you would think has a pretty robust infrastructure to distribute the vaccine, but for some reason, it just hasn't worked out as well.

So, the first country here is India. So very populous country, not the best medical infrastructure and the ability to distribute the vaccine on a widespread basis. So, what you see in India is you only have 8% of the population that's been vaccinated and only 1.3% that's been fully vaccinated. Now what's going on in terms of cases - you've probably seen India in the news as their case numbers have absolutely exploded almost north of 300,000 cases daily as of yesterday, and this was printed a few days ago.

Now we look at Germany. Germany is one of the most developed countries in Europe, has one of the most robust medical infrastructures, and what we see here, 19.8% have received at least one dose, and then 6.7% of the population has been vaccinated. So those are pretty low numbers. Compared to the previous terms, what has happened to the cases?

You've seen cases come back up. Granted there's been a little bit of a leveling, but the case counts are almost as high as they were back in the initial spike in the late fall, early winter. So how does that theme translate to other parts of the US’s economy? So, we've seen these charts before.

This is hotel occupancy rate by week of year, so the blue line up here denotes what the meeting occupancy has been from the year 2000, all the way up to 2020. You have this dotted line is 2009, which denotes the previous worst year in history for hotel occupancy, and that was during the great financial crisis, and then here, this black line you've got 2020 so it's very clear to see when Covid started. The line was going right with the median it, and we have a huge drop off a little bit of a recovery level, and then we fall out again, but look at the 2021 line. So, we see a good pattern of upward movement and hotel occupancy as people are more willing to go out, to travel and just stay in a hotel. As people are more willing to go out. So, the plan is that this will continue to move higher until it meets up with this blue line for hotel occupancy. Another stat that we've looked at before tsa checkpoint. So basically, airline travel and same patterns emerge.

You get 2019 the year before COVID so you have roughly two to two and a half million people going through airports on a daily basis. Then you have 2020 huge drop off. Now in 2021, we're starting to see this red line come back up. We're starting to see people willing to travel and kind of go about their businesses as they have before.

So, we're going to continue to pay attention to the vaccine rates and the case counts, because that is a critical linchpin in getting us to the point where the economy continues to heal and has a more quote, unquote, permanent. Reopening. Whereas in the international space, we're seeing some uneven vaccine distribution and it's causing a little bit of headwinds for the international space, particularly the emerging market.

So, in terms of return, we'll look at this in a little bit. We had a very good return profile for international at the end of last year, but it certainly leveled off as we moved through the past. So, Casey. This question asks, what do these two have in common? At first blush, I would look at this and say absolutely nothing.

Casey: yeah. I don't know if Alan Greenspan has ever scored 35 points or 50 points in a basketball game or not, but I’ll give you a hint. Michael Jordan is holding a pair. Yes, we were talking about underwear. So, what is the connection to Alan Greenspan? Well, it's the men's underwear index and what underwear says about the economy, and in 1978, when Alan Greenspan, the former chairman of The Federal Reserve, he was running his own economic consulting firm, and he said that he looked at sales of men's underwear as an economic indicator. Underwear sales are normally stable, but dip when people are cutting back spending. So, his theory was you don't see underwear, the spending on men's underwear is going to be the first discretionary item to go.

When people are feeling confident, they spend more and underwear sales increase. So, let's look at the tape and see if this theory bears fruit. So, what we're looking at is a stock chart of Hanes brands.

So, there's the connection to Michael Jordan. He's been a spokesperson for Hanes brand for several years. On the bottom left of the chart. The line you see, as the price of Hanes brands right at the time of the presidential election, it was just under $ 13 a share, and then a few days after the election news of the success of the COVID-backed vaccine broke, and then you start to see the stock climb in the next few months, up to $15-16 range. Then you're going to see a sizable jump in the stock price in February, right after the news story that the stimulus relief package was approved by The House Ways and Means Committee, setting it up for a vote in the House.

So, with the likelihood of more stimulus coming, the price of Hanes brands stock jumped. Well, the anticipation of sales increasing. So i'm either going to put this in the camp of either Alan Greenspan's underwear index was spot on, or we have an example of confirmation bias where you seek information to support a belief, but I'm not going to question Greenspan's wisdom here. We're coming off a very strong year for stocks, and a question we received from many of our clients is what comes next for the stock market going forward after such a strong rebound and stock prices. It's understandable that many investors they're worried these gains that came too far too fast, but the ingredients are there for the full market to continue.

We've got history, provides a very consistent message for the second year. It's smaller market gains, stronger earnings, and economic growth. Now in the last year was that first year we experienced the bull market. We saw stock prices move up faster than earnings. So, this relationship or prices relative to earnings is called PE ratios.

Those climb higher, meaning that stocks became more expensive. Now in the second year of a bull market, it's defined more by earnings growing faster than stock prices, but you can have the p and the e and the PE ratio both would go off, but the expectation is our earnings will grow at a faster pace than stock prices, and this would help ease the concern that stocks are a bit were bad. So, if you haven't already had a resurgence, it should be a tailwind for the bull market. It'll compress PE’s, short-term though the risks are, we've got excessive optimism, near record valuations, but when you go back in history, now let's look at the bottom part of this chart.

When you look at stock price returns, dating back to 1950 you can look at some of the data, see how stocks performed after you've had a 50% move or more, and so we review those returns over those 12-month periods, and when you look at returns the next one year, three year and five year type periods, it's nothing surprising that one-year following such a big year will drop off a bit. That may come in the form of low returns and possibly slightly negative as we've seen in history. However, the further you go out, the better the returns. So, there wasn't a single three-year period following a 12 month gain of 50% or more that showed a negative return, and there was only one five-year period with the loss and the average of those numbers that we're looking at over the three- and five-year periods. It's 7% over the three year, 11% over the five year, and it didn't include dividends. So that would have even boosted these numbers even more so for solid positive returns to play out.

Earnings growth is going to have to be strong. So, Doug, what's the outlook for earnings?

Doug: So, the outlook is very optimistic. What we have here is what Jerry McGuire was saying, show me the money, because that is basically what the analysts are projecting in terms of earnings. So now you have to remember that when they made these assumptions, they're coming off of presumably low levels from last year when things kind of bottomed out, but these are very large numbers. So, for the first quarter you have s and p 500 companies so far that have reported earnings of approximately 30% and a 7% growth, and yet now we're, maybe a little bit before, halfway through earning season, so that number could adjust, but as of now, that's a large number. So, looking forward the second quarter analysts projecting 54% equity growth, for the third quarter, 20%, for the fourth quarter 15, and then for the entire year of 2021, that blends to be approximately 27.9%. I believe that would be the highest growth in years since 2010, which makes sense, because if you remember 2010, that was the year that we were kind of coming out of the great financial crisis, the big recession, so the comparisons to basically basement level earnings were much higher, but one of the things that we had on the previous slide was this idea that in the second year of a bull market, that you can see PE contract.

So, what happens is. You get this blast of earnings growth, and then what happened? Excuse me, the other side of that is the prices either drop or they just stay the same. So, what happens is the p doesn't move, but the earnings go up. So, what happens is you essentially get a PE contraction, and we think that is certainly possible in a scenario that we're seeing right now in the market.

How do returns look, year to date? We've talked a lot about value. We've talked a lot about small caps, talked a lot about growth, and we've talked a lot about just broad market in general, and even internationally to a certain extent. So, year to date up here, we've got the iShares value factor.

So, we talked a lot about allocating money towards value with the idea that the economy is going to continue to grow. We're going to see the possibility of inflation go up and the possibility of rates moving higher. Which historically has benefited value asset. So far that has been the top performer year to date.

Then we moved down here to the Russell 2000, which is simply small cap broad market here, and then you have both growth and international at the bottom. So, one thing to point out though, is all these returns are still very good, and we're going to kind of get into expectations here in a little bit. But one thing to notice is that since it was around March 8th or nine you had the trajectory that we saw for interest rates kind of level off and come back down, and since then, you've seen a little bit of change in the pattern of returns, so you've seen value level off. You've seen small cap coming down while you've had the market continuing to go up.

You've had international go sideways, but really, you've had a growth resurgence right here, and what we've seen as these kinds of daily trading kind of trade-off, so to speak between days when rates go down, growth does really well. Days when rates go up, value does really well. So, a lot of this is tied to COVID cases or economic data, but we see seem to be in a very back and forth environment right now where one day value takes the leadership. One day growth takes leadership. One day rates move up, one day rates moved down.

Now that's not abnormal. When you're seeing some of these longer-term trends which I certainly think we've mentioned this before, that we were starting to see the trend of value outperforming growth, but along the way, you're going to have some of these periods where you kind of have counter rallies to the main trends of space.

So, we don't necessarily think that this is a changing leadership, but it's certainly not surprising to see growth gained some ground against value in small cap over the past few weeks. Now you've seen this chart before. This is a very long-term chart shows the trend line of large cap growth performance relative to large cap value performance.

So, we start all the way up here. When the line is moving down and we're seeing these red bars - simply means that large cap growth has outperformed large cap value. So, this goes all the way back to 1930 and since then we've had a very long, significant trend of growth, outperforming value.

You've had a few periods where you've seen reversals here, but for the most part it's been a growth market going all the way back to the thirties now. Or I'm sorry. I've kind of got this backwards here. The red bars are actually growth, underperforming value. So, excuse me.

So, this has been a value trend for quite a while. You see the spike here when large cap growth outperformed right around the tech bubble. The tech bubble blows up, value comes back, and then for the past, i would say 15 years, you've seen a resurgence in growth up until this point that we think is maybe the pivot or inflection point that we're going to see this start to turn down.

Now, one of the questions we get a lot is how much further does this have to run? Values have done really well. Well, you look at this chart, then you can see fairly clearly that we've moved quite a bit, but we still have a long way to go or the potential for a long way to go to kind of fall into the average some of these timeframes, which can be decades now.

So, Fed chair Powell was on 60 minutes earlier this month, and two of the quotes that came out of that interview, are worth discussing. So, the first was it's highly unlikely that the Fed would raise interest rates this year. Okay, but in that same interview, he went on to say, we feel like we're at a place where the economy is about to start growing much more quickly and job creation coming in much quicker.

So, it seems like these are kind of paradox statements because if they believe the economy is going to do well, and jobs are going to come back, their stated kind of mandate is to have full employment and keep rates somewhat stable, but historically when inflation was higher, the Fed has had to act in almost what would you call, Casey, a preemptive manner? But now they're… the language around which they're acting, has kind of shifted - would you not agree?

Casey: Yeah. Yeah. And I wonder about that, Doug, because, 40 years ago when the Fed was under Paul Volcker, at that point in time, you almost had the Fed operated in a form of secrecy.

In some ways they gave you the right decision. They gave you very little information about what was to come, and sometimes they would continue to cut rates and then they might increase, and you didn't have all this transparency and for guidance, and it seems like this trend over the years that you've had from Greenspan to Bernanke to Yellen now, to Jerome Powell, it's been more of so much transparency that - are they trying to reduce uncertainty and calm the markets? If i look at the data in the last 20 to 25 years, it seems like we've had more volatility, and if you give people too much information, it seems like it looks for the environment for people to take on more risk, and that's what i wonder. So how is the Fed going to back off at some point in time and say, we're going to walk over and grab the punchbowl and bring it and walk away and things are going to unwind. Okay. How are we going to do that Doug?

Doug: yeah, it's hard to say. It feels like right now that the Fed is kind of continuing to play chicken with the market.

Since QE started, there's only been one instance where they've actually tried to raise rates that was at the end of 2018. They got close to 2% on discount rate, which is the shorter-term rate, and it was a disaster because it got to a certain point. The market said we can't handle this and promptly sold off, I believe around 20%, and very quickly after that, they backpedaled took rates back down to zero and off we went. So, there is a large contingency of people who believe that the Fed will never be able to raise rates again, at least without causing major disruption in the market.

So, if you take the Fed for their word, they're telling you that they're not going to raise rates this year, even though they expect the economy to grow more quickly and for jobs to come back, so for now, they've got some room, but it’s interesting, and will be very telling going forward.

It'll also be interesting to see how the bond market reacts to this, and we'll look at rates here in a second, but as we look at jobs this is the comparison with the latest recession that we saw versus all the other major recessions since World War Two, and the one that the other one that obviously comes to mind is the 2007 recession, which wasn't as deep as this one, but it certainly took much longer than all the other ones to get back to full employment. So, this one was extremely steep, and we've had good progress, but it’s still a long way back to where we could. So, if we do take the Fed at their word, maybe they're saying, hey, we're looking at the same chart and we're not going to think about thinking about raising rates right now, and they may need to see this job number way up here. So, the point to take away is that we've had a lot of questions about rates moving higher and inflation moving higher, and what the Fed is saying that they're willing to kind of be a little bit more reactionary to this than they have in the past.

So, we can expect a moderate level of inflation if everything plays out according to plan. If you just look at what the rate complex looks like over the past five years, you can clearly see where both the ten-year and then in orange, and then the 10-2 Treasury spread follows right along with that, because the two-year Treasury has basically just been pinned to the floor, and then you have the market implied inflation rate here, at 2%. Rates shot up quite a bit at the beginning of the year. We've leveled off, certainly, since then, and we came back from a high of 1.8 down to 1.6 when we printed this, I believe that today, last I looked, we were close to 1. 56, 1.57 on the ten-year, but you think about it. If the ten-year Treasury goes up five basis points a month for the rest of the year, that puts us at 2%, and that's not an outrageous number though. Some people would look at that and be scared.

Now, looking at just commodities in general, we see this top chart here, the commodity industrial inputs, so things like lumber, metals, things like that, it's pretty clear that the prices of those inputs are going up and they're going up quickly. On the flip side, you've got food and beverage, same thing, going up. So, the Fed can sit and kind of say, hey, CPI is benign or non-existent, but when we look at what's going on in terms of raw material inflation, it's pretty clear that it's happening, and we're seeing it take place right in front of our eyes. So how has all this affected bond returns? We've had a lot of questions about, and you can see this has been kind of a tough year for the bond market, so to speak. So, there's a few lines on here. I'll try my best to point all these out. Down here, you have a security called zeros and that's the ticker, which is basically the PIMCO’s zero duration coupon, or I’m sorry, zero coupon ETF.

So, zero coupon bond basically has no interest payments. You buy it at a discount, and it matures to par, and really all the interest payments are kind of phantom, but what's unique about zero coupon bonds is that they have the highest duration of any fixed incomes matured. Duration is just a fancy way to describe the relationship between how interest rate movements affect bond prices.

So, if you have a duration of five, for instance, rates go up 1%, the price of that bond comes down approximately 5%, so these zero-coupon bonds have durations in the twenties. So obviously they've been hit pretty significantly being down with 16%, then you kind of start to move up. You have your 7-to-10-year Treasury bond, right around here down almost 4.5 to 5%.

You've got The Barclays Ag, which is basically the s and p 500 for bonds with a duration of around five or six, down a little over 2.5% here. Then you've got things like the 1 to 3-year Treasury bond, which just very low duration, still slightly negative for the year, and the only thing that you see positive in the fixed income world right now is you're looking at the Invesco high yield bond. Which has essentially been a statement on risk taking. So, the bond world has certainly been a challenging place, and we've continued to try to make portfolio adjustments to address those concerns.

Now, lastly, one of the things that we've seen pop up this year is that as outlandish returns have been condensed into a very small window, client’s expectations have shifted a little bit and there's this concept called hyperbolic discounting. It's a behavioral finance concept, and if you look here, it's the idea that we want instant gratification. So, we want something that we can have now, instead of waiting for a better outcome far in the future, even though we can get that out there. So, this chart here, would you rather have $ 50 now? Would you rather have $ 100 than one year?

So, the devil on this stick figure shoulder saying we want $ 50 now the angel saying we want a hundred dollars in one year. You can also see here; this is another way to look at it. What do we want? We want instant gratification. When do we want it? We want it now. So nowadays, think of how many times you check your account balance in a month, probably 30, right at once a day, now that we have access to it. And as we look at some of the returns that we've seen, it feels like investors are reaching for some of these outlandish returns, feeling like they need that instant gratification, almost a fear of missing out, instead of sticking with tried-and-true methods that they know over time will work, but it's just not as exciting.

So, Casey, who better to teach us a lesson about long-term investing or kind of having a longer-term time horizon than our red eyed friend, this cicada.

Casey: Yes. So, what does instant gratification mean to a cicada? When you're waiting 17 years? Yes, the cicadas, they will be with us soon, and they were last with us back in 2004.

What has changed in your life since 2004? I thought it would be good to reflect a bit on what was going on in culture, in the markets, and compare 2004 to 2021. So, it's amazing the reaction of your brain and you see this slide. Blockbuster was the place to go for movie rentals. Blockbuster when it was at its peak back in 2004, with more than 9,000 stores, worldwide, and revenues of more than $5.9 billion. A small fact: Netflix trying to sell the blockbuster for 50 million.

They said, no. Now you can stream major motion picture movies and gobs of original content in your living room today, and you've got many choices.

So, when we look now at the S&P 500, the top 10 companies in the S&P have really changed over the course of time. So, the top 10 are companies that are referred to as ranked by size, by market capitalization.

So, number one, back in 2004, GE was number one or in the top 10, in fact, from 1980 to 2007, it's now ranked number 69 out of the S&P 500 AIG. It almost didn't exist in recent years until it received a lifeline from the government. It ranks number 1 85 today. So only two stocks from 2004 remain in the top 10 today.

It's difficult to stay at the top. Times change. It's very easy for people to get emotionally attached to a stock. As we've seen over time, there's no secret company, it's important to be diversified. So much has changed. As we've seen over time, there's no sacred company, in many cases, this change was substantial, but the changes didn't happen overnight.

So, if we go to the next slide, here's some additional market stats, so interesting enough, we can look at the top of the title BTDS Comms back in 2004, that's when we had the last SARS case, which is a form of a covid virus, so how ironic is that? The S&P and the Dow they've risen three times to four times from where they were back in 2004 to today.

It’s so easy to be focused on what the market does day to day that we lose focus of the long term. These numbers really help provide context, but I also appreciate that viewing long-term numbers, you lose sight of the many bouts of volatility that are challenging to investors along the way.

Now it's interesting when you look at the 10-year Treasury rate, it's kind a reverse of sorts, here, that's happened for interest rates. The 10-year Treasury rate dropped from 4.5% back in 2004 to 1.57% today. If you're a retiree, your income checks are decreased by 65% over time. Now you couldn't lose your principal. I You're guaranteed to receive your principal back, but there's been a price for safety and the security. The income you receive was cut and couldn't keep up with inflation. Now I’m going to skip that SPY dividend. I'm going to come back to that one, but that bottom chart you see, it says buying power, it's decreased with inflation.

You need a $1.40 today to buy the same goods and services you could buy with the dollar back in 2004. So, inflations like termites. They eat at your foundation of your finances. And inflation’s a slow process. It creeps, it builds over time. You'll notice it not so much year to year, but the compound effect of inflation damaging to your finances, and your income needs to be able to grow and stay ahead of inflation.

So how can you stay ahead of inflation of retirement? That leads us back to what I skipped earlier. Maybe the most important item on this page that I skipped is that SPY dividend number. Those are dividend payments you would have received back then 2004 39 cents, and today $1.27, which is coming from the S&P 500 ETF security that trades simple as that substantial increase over those 17 years.

So, the focus for most people will, we look at this page is on the market indices, and if you're an investor in retirement, the most important thing to you is to have income you can depend on that’s growing faster than inflation. Those are attributes of a growing dividend strategy. We'll take a deeper dive at a future webinar.

We'll talk more about dividend growth investing. One other quick stat on this page I want to make sure that you don't miss: in 2004, only 8% of stocks at a higher dividend yield than the 10-year treasury. Today, that number is 48%. That tells you how low interest rates are today, but also how attractive the environment really is for dividend paying stocks.

Before we were looking at the picture of the cicadas and the 17-year view in the picture. It's odd to think of cicadas as some form of a signpost on our journey, but it's good to reflect. What's changed for you in the last 17 years? You think about where you've lived over that period of time, what stage of life for you at 17 years ago, were you raising a family or were you in your peak earning years, or were you on the cusp of retirement?

If you've ever had kids, you feel like you blink and suddenly they're graduating from high school and where did the time go? You're now 17, 18 years older. So, what’s changed in your life? Are you where you wanted or expected to be now? Did you plan?

So, it's fun to review these two slides we cover with how things have changed over time, but it doesn't mean anything without a plan. I've been with HCM now for over 20 years, and I've had the fortune to see how clients’ plans have evolved. It's extremely rewarding to reflect on the many families that have invited HCM to be a part of their life, whether they're a new client, or been with us for a few years, or a few decades. Yesterday, I happened to speak to a family and their sons are heading to Indiana University this fall.

We've discussed, we've mapped out a plan. We've invested along the way, they’re ready to go, the funds are in place. 17 years ago, I can think of a family, actually an individual gentleman I started to work with. He was back in his early fifties and he was recently divorced. He was looking to recalibrate, map out a plan for retirement.

As time went on, another partner came into the scene and they were married. Goals change. New goals are added: to move South to a new home in retirement. Life intervened and his mom needed some help. Today, they're retired, living in their new home South. COVID has brought some changes for some of our clients. They've decided that they'd like to live at a different part of the country. Plans change. Another discussion coming soon this weekend with someone: they're going to have to get on the airplane, starting this summer, and travel almost on a weekly basis for their job, and they don't want to do the extensive travel anymore.

They'd like to be able to retire if they can. The good news is, it looks like they can. They've done a great job of executing their plan all along the way. So, life happens. It may have been a loss of a job or loss of a business or selling a business, a career change, entering back into the workforce to early retirement or postponing retirement, the passing of a spouse, celebrating a new child or grandchild from a growing family, to peak earning years, to retirement, to fulfillment and quality of life, to legacy planning. Rarely does life play out the way we think. The success comes from the process of planning, and then revisiting the plan and adjusting the plan along the way. So, the HCM clients that are watching, thank you for placing your trust and confidence in us. As Mike says, if we can be of help to you, a family member or friend, please reach out to us. We would be honored.

Doug: Thank you, Casey. So, let's get to some questions here. We've got a few that have come in. So, the first one: is bitcoin or doge coin a part of anyone's planning process right now? What would you say to that?

Casey: Boy, Doug, the challenge with any of these currencies is you've seen swings at times, whether it's a couple of days a week or even a weekend, where are these prices increased by 25 and 30% or plummet by 25 or 30%. So, in the vein of making sure that we can ensure that people are financially secure in retirement from a volatility perspective, that's too much volatility. If somebody wanted to maybe with a small piece of their money, that if something happened to it, and they were losing a majority of those funds, then by all means certainly put a few dollars at play and see what happens. There's not a lot of regulation that's surrounding these currencies and they're very attractive, but they're very difficult to get your hands around a really thorough understanding of how these operate. And there's going to be some winners, and there's going to be a lot of losers there too, and these things tend to tend to play out over time.

Doug: Yeah. When you're talking about something like bitcoin, it does have a little more momentum behind it in terms of adoption. So, you've got businesses, individuals, some people actually take it as a form of payment. You've had some institutional interest in actually investing in bitcoin, but again, you talk about having swings of 5, 10, 15, 20% overnight, that doesn't necessarily lend itself to being a currency, so to speak.

So right now, it's probably still in the speculative stage, but many people look at it as a possible inflation hedge in the future. So certainly, an interesting concept that we'll continue to keep our eye on. As for doge, I mean, doge coin was made as a joke almost to make fun of other cryptocurrencies, and as kind of a sign of the times, you've had this mass adoption and flood of money going into it. The price has shot up, but in terms of just pure speculation, I would say that it certainly falls under that camp and we would certainly not endorse or recommend anybody investing money into something like that they were not able to lose a hundred percent.

Next question. So how does the market look historically versus GDP or is the market valuation trending with GDP? I've seen this chart floating around, I wish I had it in front of me. I will try to send it out after this. But what you've seen is one of Warren Buffett's favorite indicators is market valuation, the GDP, and right now that number is brushing up against levels that we saw during the tech bubble of 2000, so you've got a lot of people concerned about that as a, as an indicator of trouble ahead. One thing with that that’s interesting is that you've had the market run up, but you also have to remember GDP I think it was the second or third quarter of last year, fell by 35%, or at least the gross number did. So that's a pretty big number. We're still trying to recover out of that, but if you just looked at valuation, the GDP, you might look at that and draw a conclusion that the current trajectory is not sustainable. So, either the market valuation would have to come down to meet GDP, or GDP would need to come up to meet the market valuation.

So, it doesn't necessarily have to be a scenario where you're saying, okay, this dislocation is going to lead to a crash or something really bad, but historically you would see those two things trading in a little bit closer range than what they are now. Casey, do you have anything to add on that?

Casey: No, Doug, I've seen that chart circulating ground and I would agree with that.

Doug: Okay. Great. So, we have time for one more question that has come in. Do we have any opinion on the capital gain tax headline that just was released this afternoon?

I've only had limited time to look at it. What I've read is that if you live in California or New York and you make over a million dollars, that's not going to be a great situation for you. You're going to be paying, with everything: state, capital gain, Obamacare tax, all that stuff, you could see rates approaching 50% for those folks. But it looks like, for anybody who's not making a million dollars or more that the capital gains rate will probably stay the way it is. And again, it's very early in the process here, this may not even pass in its current iteration, but like I said, I only had limited time to look at it.

Casey, were you able to glean anything from what you saw?

Casey: Yeah, the same thing. I just saw the headline and had limited time to do it as well, and from what I saw again, in the limited amount of time, it's similar to what has been thrown out there of this possibility of that million dollar line, and there's a little bit of feeling of, people won't blink as much if you “tax the rich,” but a lot of people have questions of is that just the beginning and does that line continue to move down over time, and certainly, we don't know the answers to that. But the concern some clients have expressed is well, are they going to start increasing my capital gains tax rate, and we'll see. Some people feel like if I have assets and that means that you have wealth, and if that's the case, rates may go up. And it may, I mean, rates today, if your income as a married couple together, between all sources, is under $105,000 to $ 108,000 between all sources, capital gains and dividends actually aren't even taxed. So that's a pretty good break, and then anything above that is taxed at a 15% tax rate and they can increase a little bit more from there. So, it's a fairly low tax rate now, already. So, in time, certainly you could see those numbers increasing a bit, but some people are concerned is that line continue to move down.

Doug: Yeah, and one other thing that I saw was the possibility of taking the step up away. So, if you have somebody pass away, they leave you money, right now, the cost basis steps up to what the market value is and the date of death, but there's some chatter that being taken away, which would obviously affect people's tax burdens on inherited assets fairly substantially in some cases.

Casey: Yeah, that would be a substantial hit and really change estate planning, and that's something that, since 2011, brokerage firms have been gathering now, and making it mandatory, that they keep cost basis data. So, they've been able to build this now over time, so they have that information, so it's going to make it much easier for them to implement, but still, it would be very difficult to implement today. There's an awful lot of securities out there that people still don't have a sense of what that basis is and stocks that have been purchased a long time ago, but that would be big sting for people and their estate planning. Yeah.

Doug: Well, that's all the questions on here. So, if you want to take us out, go ahead.

Casey: Well, thank you very much for being with us today, and we'll look forward to speaking with you next month on the webinar. I do not have the date.

It's typically the third Thursday of the month, but stay tuned. Doug, do you know the date?

Doug: I don't know the date off the top of my head, but I usually it's the third Thursday of the month. So, we've tried to keep that fairly consistent and, as always, if something pops up in the interim that we feel needs to be addressed at that time, we can schedule inside of that, but we'll send those dates out as soon as we have them.

Casey: Thank you everybody.   

Doug: Thank you.


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