Investors were pleased with the Federal Reserve’s new approach to its balance sheet. The Fed delivered its semi-annual Monetary Policy Report to Congress last week. The report recapped the events of late 2018 and reiterated the Fed’s intention to “…be patient as it determines what future adjustments to the federal funds rate may be appropriate to support the Committee's congressionally mandated objectives of maximum employment and price stability.”
In other words, rate hikes are on hold for now. The Fed also addressed issues related to its balance sheet, which grew from $873 billion at the end of 2006 – about 6 percent of the United States’ gross domestic product (GDP) – to almost $4.5 trillion at the end of 2014 – about 25 percent of U.S. GDP. (GDP is the value of all goods and services produced in a country during a given period.)
The balance sheet more than quadrupled during the past decade because the Fed began buying Treasuries and mortgage-backed securities, a policy called quantitative easing, in an effort to restore the U.S. economy to health.
Friday’s report indicated the Fed will not shrink its balance sheet to pre-crisis levels, reported Erwida Maulia for Financial Times. Markets responded positively to the news:
“U.S. stocks and Treasuries were comfortably higher at midday on Friday as the Federal Reserve signaled it will hold a much larger balance sheet in the long term than it did before the financial crisis, helping ease investor concerns about tightening financial conditions.”
Investors also remained optimistic about trade talks between the United States and China. Major U.S. stock indices finished the week higher.
THIS WEEK IN THE MARKETS
The S&P 500 added another 0.7 percent to its impressive gains since late December. Optimism about a trade agreement between the United States and China continued to support markets.
While trade negotiations between the United States and China remain the key focus, a number of other key events and data releases are likely to move markets this week. The United States will release its first look at fourth quarter gross domestic product (GDP). President Trump will meet with North Korea’s Kim Jong-un, and China will release key economic data, too.
Global stocks performed well last week. The MSCI ACWI gained 1.2 percent. Bonds posted slight gains as the Bloomberg BarCap Aggregate Bond Index rose 0.1 percent.
Another positive week. U.S. stocks continue to move higher almost every week. The S&P 500 has only dropped once in the last nine weeks, and it declined 0.2 percent in the week it was down. The 0.7 percent increase this week was the third-worst weekly performance since the week prior to Christmas. When a week that rises 0.7 percent is below average, markets have performed exceptionally well.
The increase in prices reflects the calm in popular risk measures. The VIX, which measures the expected volatility based on options contracts, has dropped below 15. The measure, sometimes referred to as “the investor fear gauge,” is now close to the levels seen at the market highs.
Markets likely won’t continue at this pace much longer, although the recent performance shows the market’s penchant for providing surprises. There are several short-term factors threatening the advance. First, the market is getting close to estimates of fair value after looking cheap during the decline. The sharp recovery has pushed the S&P 500 to within 3.9 percent of its all-time high. Second, global economic data continue to disappoint, and additional signs of slowing growth would likely pressure markets. Because of the government shutdown, this week will provide the first report for U.S. fourth quarter GDP. Third, market expectations for the U.S.-China trade talks are elevated. Those talks could either hit a significant bump or the progress may not satisfy elevated expectations.
We are watching these fundamental factors closely. However, our biggest concern is the complacency in the markets and that investors are becoming less cautious as the rally continues. While risk seems to have headed south after Christmas, we expect it to eventually come back.
KEY POINTS FOR THE WEEK
- U.S. stocks rose for the eighth week out of the last nine (as measured by the S&P 500 Index).
- Investor optimism seems to be washing over the fear investors showed in December.
- Important economic data and the risk of disappointment from trade talks pose short-term risks.
BABY BOOMERS AND DIGITAL ASSETS
How many password-protected accounts do you have?
If you keep mental inventory, use a password manager, or have a written record of your passwords (which is not recommended by anyone), take a quick count. You’re likely to find you may have some or all of the below types of accounts:
- Email accounts
- Online bank accounts
- Online brokerage accounts
- Online shopping accounts
- Online bill paying
- Social media accounts
- Photo and video sharing accounts
- Gaming accounts
- Online storage accounts
- A website or blog
- A domain name
- Materials and coding that are copyrighted
These are digital assets. They are part of your virtual life, as is any digital property you own, such as computers, external drives, storage devices, smart phones, digital cameras, e-readers, and other devices.
Digital assets should be part of your estate plan
Unless you live off the grid, it’s likely your digital life will outlive you and become a part of your legacy. Your digital assets may have significant financial or personal value for your heirs. Consequently, you should give some thought to how these assets should be managed after your death.
The catch is digital estate planning can be tricky. Many digital accounts and assets cannot be transferred to a new owner because they are not your property. Assets that fall into this category are subject to contracts and licensing agreements established with a service provider.
For example, if you’ve spent significant sums accumulating a virtual music library, you may not be able to pass it on through a will or another estate planning tool because you do not own the digital music files, according to Nolo.com. This may also be true with other types of accounts.
“Social network accounts, domain name registrations, email accounts, and most other types of online accounts are ‘yours’ by license only. When you die, the contract is over and the business that administers the account controls what happens to it,” explained Betsy Simmons Hannibal on Nolo.com.
This doesn’t mean you have no control over what happens to these accounts. Your estate can leave instructions about account management and should provide a complete record for your executor. Jeffrey Salas offered an opinion about best practices on LegalZoom.com. He recommended:
- Leave usernames and passwords for any online financial accounts – banking, utilities, brokerage, mortgage, retirement plan, life insurance, tax preparation, or others – to the executor as they will need this information to pay bills, close accounts, and administer your estate.
- Social media companies have diverse policies regarding the management of digital assets upon the death of the user. Some delete or deactivate accounts after being notified of a death. Others put accounts into ‘memorial’ status.
- In general, companies will not know about the death until they’re notified. As a result, a digital executor who is armed with passwords may be able to access your account to post final updates, delete items (per estate instructions), or delete/deactivate accounts.
- Email accounts, online communities, and blog management may also be guided by provider agreements. However, your executor may be allowed to notify friends or followers of your death and then delete, print, or archive your communications.
- Digital photos that are stored online may be passed on through a will or another estate planning tool.
- If you have one or more websites, domain names may have value and they may be transferrable.
- If you have an online store, you may want to leave instructions about what should happen to the store, the items for sale, and any income or profits that may continue to arrive.
2. Add language regarding digital assets to your will and/or trust. Currently, there is no uniform federal law to guide the management of digital assets. At the start of 2017, Kiplinger reported, “Federal law regulating access to digital property does not yet exist. At this time, 29 states have established legislation or laws to protect digital assets and to provide a deceased person’s family procedures and rights to manage those accounts and assets after death.” Regardless, it can still be a good idea to include language that specifies your wishes for the treatment of each of your digital accounts.
3. Check the law in your state. Talk with your attorney or advisor about whether any laws your state has that apply to digital assets, and make sure your estate plan is consistent with these laws.
While estate and inheritance laws are behind the curve when it comes to digital assets, it is important to inventory your digital assets and decide how they should be managed upon your death. If you would like additional information about estate planning, please give us a call.
SALT WATER HAS AN ECONOMIC IMPACT
Sea levels have been rising at a more rapid rate during the past three decades, according to the U.S. Global Change Research Program’s Climate Science Special Report. Since 1900, sea levels have risen between 7 and 8 inches. Since 1993, they’re up 3 inches.
As levels continue to rise, people and companies around the world are likely to be affected. Morgan Stanley reported, “Many coastal cities around the world that look attractive to real assets investors – for example, Miami, New York, Boston, Osaka, Guangzhou, and Mumbai – are particularly vulnerable to flooding and other weather-related problems. And, infrastructure assets favored by investors, like airports, cell towers, and oil and natural gas pipelines, are often located in places prone to storms and extreme heat…Insurance will continue to be an important safeguard, but a limited one.”
Protecting property and improving infrastructure is likely to change demand for specific goods and services. Sarah Green Carmichael of Barron’s reported, “As we rush to protect basements and beach houses, companies in the home-improvement retail sector should benefit…So should companies that make products to cope with flooding, such as commercial-grade water pumps…Upgrades to infrastructure also mean good news for the construction sector…”
The textile industry – think fabrics and clothing – may also be affected since major exporters like Bangladesh, Indonesia, and the Philippines, which supply 10 percent of the textiles and clothing imported by the United States, are vulnerable to coastal flooding.
Sea level is a macroeconomic issue. It has the potential to affect output and income across the global economy. Investment managers who take a top-down approach to investing consider the ways in which macroeconomic factors, like changing sea levels, could affect the market as a whole, as well as the share prices of specific companies. Bottom-up investors take a different approach. They consider company fundamentals, such as management team and earnings growth potential, first.
“They always say time changes things, but you actually have to change them yourself.”
~ Andy Warhol, American artist
Links & Disclaimers
RJFS and SPC do not offer or provide legal or tax advice. Tax services and analysis are provided by the related firm, S&M through a separate engagement letter with clients. Portions of this newsletter were prepared by Carson Group Coaching. Carson Group Coaching is not affiliated with RJFS, SPC or S&M. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. This information is not intended as a solicitation of an offer to buy, hold or sell any security referred to herein. There is no assurance any of the trends mentioned will continue in the future. Any opinions are those of the author and not necessarily those of RJFS. Any expression of opinion is as of this date and is subject to change without notice.
Opinions expressed are not intended as investment advice or to predict future performance. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Past performance does not guarantee future results. Investing involves risk, including loss of principal. Keep in mind that there is no assurance that any strategy, including diversification and asset allocation, will ultimately be successful or profitable nor protect against a loss. Consult your financial professional before making any investment decision. Stock investing involves risk including loss of principal. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock companies maintained and reviewed by the editors of the Wall Street Journal. Please note direct investment in any index is not possible.
The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index's three largest industries are materials, energy, and banks. Investing in emerging markets can be riskier than investing in well-established foreign markets.
The MSCI ACWI (All Country World Index) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. As of June 2007, the MSCI ACWI consisted of 48 country indices comprising 23 developed and 25 emerging market country indices. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise.
The Barclays Capital Aggregate Index measures changes in the fixed-rate debt issues rated investment grade or higher by Moody's Investors Service, Standard & Poor's, or Fitch Investors Service, in that order. The Aggregate Index is comprised of the Government/Corporate, the Mortgage-Backed Securities and the Asset-Backed Securities indices.
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https://science2017.globalchange.gov/chapter/12/ (Key Finding 1 and Key Finding 2)
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