MAY 21, 2018
U.S. stock markets were relatively calm, although they finished the week lower. U.S. Treasury yields hit a 7-year high and finished the week above 3 percent. While these were notable, the most remarkable events last week occurred beyond our borders. These include:
- The Vatican publishing a position paper on financial markets. Its opening was, “Economic and financial issues draw our attention today as never before because of the growing influence of financial markets on the material well-being of most of humankind. What is needed, on the one hand, is an appropriate regulation of the dynamics of the markets and, on the other hand, a clear ethical foundation that assures a well-being realized through the quality of human relationships rather than merely through economic mechanisms that by themselves cannot attain it.”
- The royal wedding boosting the British economy. A normal Britain wedding costs about £18 thousand and includes about 80 guests. Prince Harry’s nuptials were a bit more lavish. A wedding planning company estimated the cost of hosting 600 or more guests at £32 million ($43 million in U.S. dollars). The largest component of the cost was £30 million for security, which included drone destroyers.
- Venezuela’s oil-based economy continuing to collapse as oil prices rise. “Venezuela leads the world in two things: oil reserves and incompetence,” opined The Washington Post. Poor management of the state-run oil industry has caused production to drop 23 percent since December. The country’s declining production helped push oil prices higher last week. Prices are at levels last seen in 2014, reported Financial Times. Regardless of the country’s economic woes, this weekend’s election is not expected to oust President Nicolás Maduro.
Rising oil prices have pushed the cost of gas higher, but that’s not expected to deter Memorial Day travelers, according to USA Today. Though prices at the pump have risen year-to-date, the price increase is still below the average increase in gasoline prices for this time of year. Gasoline prices tend to peak in the summer, level off and decrease into the fall months.
Source: Bespoke Investment Group
As interest rates continue to increase, some investors are becoming concerned the higher yields available from bonds will cause investors to rotate out of stocks. For the first time since 2007, an investment in ultra-short-term government debt pays more interest than the same investment in stocks pays in dividends.
This type of analysis can help gauge the value of one investment relative to another. As rates increase, bonds become more competitive than stocks and investors who have taken on more risk in search of yield are able to rotate toward safer investments.
However, focusing on dividends ignores the changing nature of corporations’ cash returns to investors. The accompanying chart shows companies are buying back their own stock at higher levels than what they are paying out in dividends. The chart also shows stock buybacks didn’t become meaningful until the 1980s, so historical analyses of dividends understate how much money corporations typically return to investors.
Corporate tax reform has provided additional cash to reinvest in businesses, pay dividends, and buy back stock. Not only are taxes lower, but many companies are bringing cash currently kept in overseas accounts back to the United States. When the analysis includes buybacks in addition to dividends, bonds don’t offer the same level of competition as stocks when only dividends are counted.
Source: Financial Analysts Journal, 3Q 2017, Phillip Straehl and Roger Ibbotson
Key points for the week
- Interest rates are now above dividend yield rates.
- Buybacks are high as corporations benefit from using cash from overseas and lower taxes.
- Total yield offers a better indicator of returns than dividend yield alone.
We wish you safe travels during the holiday weekend.
Mindfulness and Memorial Day.
If you’ve ever composed a grocery list in your head while driving carpool and listening to your children discuss who got in trouble at school and
If you’ve ever worked on a PowerPoint presentation while listening to a conference call and eating lunch, then you know what it’s like to have your attention divided.
If you’ve ever watched television while playing a handheld video game and chatting with friends, then you know what it’s like to have your attention divided.
Mindfulness is the practice of being fully present and aware. It’s not easy in a world where the ability to multi-task is highly esteemed
Originally known as Decoration Day, Memorial Day first honored those who lost their lives while fighting in the Civil War. But, during World War I, the United States found itself embroiled in another major conflict, and the holiday evolved to commemorate American military personnel who died in all wars.
On Memorial Day, every American has an opportunity to practice mindfulness during the national moment of remembrance. The remembrance will occur at 3:00 p.m. local time on Monday, May 28, 2018.
This year, no matter where you are on Memorial Day, spend one minute remembering and honoring those brave Americans who died defending our nation.
Is Multi-tasking an Asset or a Liability?
We know that texting or talking on the phone while driving is dangerous and in some locations illegal. Research shows that distracted driving is significantly more dangerous than focusing all your attention on driving. However, what about when you are not driving?
Multi-tasking or switching quickly between tasks is perceived by most people as an admirable trait and shows a good work ethic. However, multi-tasking means you end up doing nothing productive and it ends up taking longer than if you had a singular focus on each successive task. Successful people have the ability to focus all of their attention on one activity at a time. They don’t switch rapidly between what they are doing now and the next distraction.
A 2008 study has also shown that multitasking increases stress hormones. The stress not only makes you feel worried and
Instead, focus on prioritizing your top 3 tasks of the day and work on one at a time, not moving on until you have completed the task or taken it as far as possible. Practicing mindfulness can help boost your attention and your productivity. Some people take a periodic nap to recharge the batteries before an important task. When you feel yourself drifting, come back to your daily big 3 tasks to get back in focus.
Did You Know There’s a Billionaire Census?
Last week, the fifth edition of the Billionaire Census was released. Apparently, the wealth of billionaires increased by 24 percent during 2017. In addition, the billionaire population, which had suffered reduced numbers since 2015, expanded. It now includes 2,754 individuals. The previous high was 2,473 in 2015. According to Wealth-X:
- 816 live in the Asia-Pacific region
- 884 live in the Americas
- 1,054 live in Europe, the Middle East, and Africa
There is a bit of disagreement about the size of the ‘Three-Comma Club’ and the rate at which its wealth is increasing. In March 2018, Forbes reported there were “…2,208 billionaires from 72 countries and territories including the first ever from Hungary and Zimbabwe. This elite group is worth $9.1 trillion, up 18 percent since last year. Their average net worth is a record $4.1 billion. Americans lead the way with a record 585 billionaires, followed by Mainland China with 373.”
Two hundred and fifty-six women made the list, including 42 new additions.
The Giving Pledge is another exclusive group that some billionaires have joined. The objective of the Pledge is to “…help address society’s most pressing problems by inviting the world’s wealthiest individuals and families to commit more than half of their wealth to philanthropy or charitable causes either during their lifetime or in their will.”
As of February 2018, 175 billionaires from 22 countries had joined.
What are we reading?
Below are some articles we paid particularly close attention to this week. We encourage our readers to follow the links.
Olesja Schemjakowa of France recently enjoyed a slice of cake and cup of coffee at a small café in Switzerland where her bill was $23.76. So, you can imagine her surprise when her bank statement later read she had a $7,732 charge. Turns out when entering the tip, Schemjakowa accidentally entered
“Philanthropy is almost the only virtue which is sufficiently appreciated by mankind.”
~ Henry David Thoreau, American essayist
“Don't postpone joy until you have learned all of your lessons. Joy is your lesson.”
~ Alan Cohen
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. 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
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https://www.givingpledge.org/About.aspx (Click on “How many people have joined the Giving Pledge, and where are they from?”)
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