Marc Smith - Financial Advisor

07/08/2020

I am writing to share some exciting news. I added three new people to my firm. Denis O'Sullivan and Randy Ryan bring a combined 50+ years of financial advisory experience with them. Becky Marsh has spent the last five years working with Denis and is joining in a client service role. As a result of this, I am rebranding the firm under the name Oars Capital. The name is a partial acronym from the three advisors last names: O'Sullivan, Ryan and Smith. For existing clients, nothing changes. I will continue to manage your portfolios in the same manner and will remain your primary point of contact. I look forward to continuing to provide you investment management and financial planning services under the new brand. For any potential clients, let's talk about what we can offer you to build the financial future you want.

Shout out to Flair by KD by designed our new logos.

04/14/2020

If you qualify for a stimulus check, you should get it over the next two weeks. It's $1,200 for individuals making up to $75k/yr and $2,400 for couples making up to $150k/yr.

The first wave of coronavirus stimulus relief checks was deposited into some Americans' bank accounts over the weekend, according to the IRS. Millions more can expect to receive theirs in the coming weeks.

04/14/2020

Coronavirus and the related fallout have made retirement a tough situation for many people at/near retirement. If you need help evaluating your situation, let's schedule a Zoom meeting.

The economic fallout from the coronavirus could be coming for your retirement plans. Depending on your work prospects, that could mean retiring much earlier or later than you had originally planned.

04/10/2020

Another 6.6 million people filed initial jobless claims this week. That brings the three week running tally to over 16 million claims. To put that into perspective, the total number of people employed peaked at just under 159 million people in January. That means, in three weeks, over 10% of employed people lost their job and filed for unemployment insurance. That number is going to keep rising in the coming weeks as the shutdowns continue. Over 90% of the US population is under stay-at-home orders meaning all manner of economic activity isn't happening. The ripple effects and ramifications of this will be felt for many quarters, potentially years. And yet the stock market is rallying and back to levels seen in early 2019, when the general outlook on earnings and economic growth was substantially better than it is today.

What is going on? The US economy is roughly $22 trillion. Between Congress and the Fed, there is roughly $4.5 trillion of stimulus coming. That's 20% of the economy. That's roughly double the stimulus during the financial crisis, so that's an enormous boost to capital markets. But will that keep the economy afloat? Zeke Emanuel, a key architect of Obamacare and current special advisor to the World Health Organization said we need to stay in some form of shut down for another 18 months, "The kind of normal where we go traveling, we go to restaurants, we go to concerts, we go to religious services, we go on cruises, until we have a vaccine that protects everyone. That's 18 months, it's not going to be sooner." That's terrible for the economy. The National Association for Business Economics did a survey over the last week of economists and the consensus was ~50% of the jobs lost won't be regained until after 2021. This level of unemployment will hurt almost every aspect of the economy. So, we have the economy in a severe slowdown and the Fed/Government trying to print/borrow enough money to bridge the gap. That's possible to do if this lasts for another few weeks or even few months. It's not possible in my opinion, if we're on some sort of social distancing and non-normal plan through the end of 2021. Stocks are ultimately priced off earnings and if earnings are down over the next 18 months, I believe stocks have to follow suit.

There's a chance with increased antibody testing, we'll find that many more people have already had the virus. We hope that having had it provides some medium to long-term immunity like other viruses. We don't know if the antibodies will protect people from slight mutations of the virus. There's also a chance we can't develop an effective vaccine in 18 months. There are points of optimism and points of concern. I scaled into some new positions this week, but remain comfortable holding a larger than normal cash balance. What I'd love to see is a full week of relatively calm days. Seeing the market move up/down 2%+ on a day, in a large, developed economy, still tells me that no one really has any solid outlook for what the next 6-12 months hold. For the week, the Dow gained 12.7% while the S&P 500 increased 12.1%. Both remain 18-20% below their peaks.

Oil decreased sharply this week, continuing its volatile run, declining 20.4% to close at $22.73/barrel. The yield on the 10-year Treasury increased to close at 0.73%, from 0.61% last week. The average rate on a 30-yr fixed rate mortgage held steady at 3.33%.

Market were closed today in observance of Good Friday. I hope you all have as good an Easter week as possible given the current situation. Another 6.6 million people filed initial jobless claims this week. That brings the three week running tally to over 16 million claims. To put that into perspecti...

03/21/2020

Unfortunately, a lot of people are going to start losing their jobs in the coming weeks. Many companies are being forced to close and simply don't have the money to keep paying employees when no business is happening. This is an important program to help people who lose their job during this period. Call your mortgage services, request a deferral. It should be an easy process if everything goes as announced.

The federal government is telling lenders to lower or suspend mortgage payments for up to 12 months for homeowners who have lost income due to the coronavirus outbreak.

03/20/2020

As rough of a roller coaster as the last month has been, this week was actually the worst one yet. This was the third week in the last four that the Dow has declined by more than 10%. The Dow is now more than 35% off the highs reached in early February. Our portfolios weathered this downturn a lot better than the Dow, but it's still been a painful and challenging time. We are well positioned in that everyone has more than 20% cash in portfolios that can be used to buy stocks at some point in the future. I dabbled a little earlier this week, but plan to remain conservative in deploying capital going forward. There is still a great deal of uncertainty around this virus. It's difficult to value a company on an earnings basis when no one knows what earnings will be this year and next. The measures we are taking are hurting the economy to save our healthcare system. It's hard to know whether the medicine will be better/worse than the disease, but we are currently erring on the side of healthcare. While no one knows what the future holds, it feels like things will get worse before they get better. For the week, the Dow declined 17.3% while the S&P 500 decreased 15.0%.

We need massive government involvement to get through this situation. People are already being laid-off and furloughed without pay. The government announced programs yesterday that would allow people financially impacted by the virus to defer mortgage payments for up to 12 months. That is a critical relief for most people. Housing is one of most peoples' biggest expenses. Something will need to be done on rent, but a ban on evictions seems likely as well. We are shutting down large sectors of the economy. The next step is getting money directly to people. I initially preferred a more targeted approach where the government would backstop payrolls for struggling businesses, but I now think sending every American a monthly check makes the most sense. Congress needs to pass this quickly. People will start missing paychecks next week or the week after. Proposed numbers change from day to day, but if every adult received $1,000-1,200 per month and children received $500/month, people could continue to buy food and pay electric bills over this period. I would hope that people who keep their jobs and don't 'need' the money would donate to friends/family in more need than the the main check can cover. We are truly in uncharted territory and need to keep the basic functions of society working - housing and food being the most important. I would love to see Congress pass this as a single-issue bill. We need money flowing to people as soon as possible as job losses start accelerating.

Bailouts of specific industries is a much more complicated process. We can't allow this issue to delay getting money in peoples' hands though. The 2008 bailouts were very difficult politically, although I believe necessary, especially in the financial sector. For whatever reason, over the prior 10 years, we haven't put plans together for how future bailouts would work. Travel companies find themselves in financial distress after spending billions and billions on stock buybacks over the last 5-10 years. American Airlines spent $12 billion on buybacks since 2014 and now needs a bailout. $12 billion would pay 2 years of labor costs if the airline still had the cash. Boeing spent almost $40 billion in the same period buying back its own stock and is asking the government for $60 billion in bailout funds. In my opinion, there has to be some significant financial penalty for CEOs and senior management that made the decisions that left companies without the financial strength to weather a shock.

Some people would like to see the government let these companies go bankrupt and then reorganize with new equity holders on the back end. From a pure free market perspective, that is the best approach. Owners who made/supported bad decisions would lose money, but the businesses would continue to exist because long-term demand is there for the products/services. One major problem with this approach is the number of companies this could impact and the ownership of these companies by pension funds. Pensions, especially government pensions, are already in bad financial shape. This 35% drop in the the stock market has only exacerbated that problem. If many of these equity investments go to zero, it could create near-term problems for pensions to make monthly payments over the next few years. So the bailout likely needs to save current shareholders. This might end up being a situation like TARP where no one liked it or wanted it and it set bad precedents, but was ultimately the best option out of a list of poor choices.

Oil sold-off sharply again this week, decreasing an eye-popping 40.1% to close at $19.84/barrel. We haven't seen oil this cheap since the late 90s. The yield on the 10-year Treasury decreased to close at 0.89%, from 1.01% last week. The average rate on a 30-yr fixed rate mortgage moved sharply higher to 3.65% from 3.36% a week ago.

As rough of a roller coaster as the last month has been, this week was actually the worst one yet. This was the third week in the last four that the Dow has declined by more than 10%. The Dow is now more than 35% off the highs reached in early February. Our portfolios weathered this downturn a lot b...

03/13/2020

The Bull is Dead, but Week Ends on Positive Note

Almost 11 years to the day from when the longest bull market in history started, it officially ended when the indices closed more than 20% below the prior high. We are now officially in a bear market. The terms 'bull' and 'bear' are used because a bull attacks in a upward motion and a bear attacks in a downward motion. The length of the average bear market is 14 months. A bear market officially ends when the indices return to their prior highs. I would expect this would be on the faster side of average given the drivers of this sell-off, but that depends on how we are able to get a handle on the virus. For comparison, it took almost four years for the bear market following the financial crisis to end. After the market hit a bottom in March 2009, it took until February 2013 to reach the October 2007 high. For the week, the Dow declined 10.4% while the S&P 500 decreased 8.8%.

This was a rough week with a nice ending. Yesterday's 10% sell-off was the largest single-day percentage decline since the 1987 stock market crash, which saw the Dow lose over 22% of its value in one day. It's hard to believe that yesterday was a worse day than any single day during the financial crisis. People were clearly in panic mode, which is understandable watching every major sporting league suspend their seasons, seeing schools closing all over the country and thinking through how this could grind the economy to a halt. Treasury Secretary Steven Mnuchin said this morning on CNBC that the Treasury/government would provide whatever liquidity in needed during this stretch. That could be critical if we see this quasi-quarantine lead to layoffs and business closings. My hope is the government will essentially backstop payroll for a few months to get through this and potentially take steps like delaying mortgage payments/foreclosures, paying unemployment without requiring people to look for work for a few months and other similar ideas that will keep liquidity in the system to prevent an economic shutdown.

The market loved the Trump speech/presentation this afternoon. The Dow was up ~900 points when it started ~3:30pm eastern and closed the day up almost 2,000 points. The key takeaway to me was having multiple corporate leaders talk about the work they are doing in coordination with the government to help us get through this period. I think we are going to see a spike in new cases in the coming weeks and we will see additional deaths. My hope is all the voluntary closings over the next few weeks will slow this enough to keep the healthcare system functioning and give us time to test people and learn more about the incubation period, contagious period, death rate, etc, to better address the health risk. China, South Korea and Italy are starting to see decreases in daily new cases, which is a positive sign. Hopefully we are only a few weeks from a similar path.

Oil sold-off sharply again this week, decreasing another 20.2% to close at $33.12/barrel. The yield on the 10-year Treasury increased to close at 1.01%, from 0.77% last week. The average rate on a 30-yr fixed rate mortgage moved slightly higher to 3.36% from 3.29% a week ago.

03/09/2020

Panic Sets In - But Should it? - 11:50am Eastern

Given what's going on in the market this morning, I wanted to send some thoughts outside of my normal weekly email. Soon after the open, the Dow declined over 2,000 points triggering an automatic 15-minute halt in trading. Trading halts are in place to attempt to break the downward snowball effect and the first halts kicks in at a 7% decline from the prior day's close. The market has 'rallied' since trading resumed and the Dow is now down just under 1,500 points. We continue to hold more cash than normal and I'm happy with that position. I'm not yet ready to start buying into this market and plan to take a conservative approach when reinvesting cash. There's a lot going on and I wanted to work through the main ones.

It's important to look back at where we've come from and what happened in the last market sell-off. Interestingly, today is the 11-year anniversary of the market low in 2009 following the financial crisis. The Dow closed at 6,547 that day. Today, the Dow is over 24,000. Late in 2018, the Dow declined over 17% from the prior high to an intraday low of 21,713 on December 26th. From there, stocks rallied over the next 14 month, reaching almost 30,000 just a few weeks ago. We are currently sitting at 24,469. We're still 13% above the lows hit in the 2018, but we have given up essentially a year's worth of gains in the past 2.5 weeks. This market is scared and confused. I don't know where it will go, but testing the 2018 lows seems possible.

Big picture, this move is starting to feel overdone relative to the true risks in the market. That said, we still don't understand the true ramifications of coronavirus, so while I believe this is a temporary situation that we'll work through, it's unclear how long this will take. While the problem remains very small in the US, and even in the world when you look at absolute numbers, the potential for this to significantly slow economic activity is pushing stocks lower. The number of cases continue to increase. The critical unknown is how many patients are truly infected. A higher number of undiagnosed cases means the death rate is much lower than being reported. Testing appears to be ramping up with Labcorp and Quest Diagnostics announcing over the last few days they can now process tests. Getting a handle on how many people have the virus would go a long way to calming the markets.

Oil is down almost 20% today and roughly 50% over the last two months. Oil notoriously ends up oversold or overbought and this feels like that. Part of today's drop is OPEC's failure to meet a production agreement, meaning oil producing countries could increase production to try and increase their market share. This failed agreement comes at a time when global demand is already dropping, making the matter worse. The drop in oil is pushing oil stocks lower and raising further concerns about global growth in the near-term. Oil under $40 is good for consumers, but it's not great for the overall economy. Oil exploration and drilling employee a lot of Americans and many projects don't make economic sense at today's $33/barrel price. In addition to the energy sector, many segments of the economy that support the energy complex will be hurt as well. If this price proves more than temporary, we'll see layoffs and a slowdown in business spending.

The Federal Reserve cut short-term interest rates by 0.5% last week. There is talk they will cut further this week. If they don't, the next scheduled Fed meeting is next week and further cuts seem likely at that meeting. I appreciate the Fed trying to help the markets, but the risk today seems well outside the scope of Fed policy. Lowering interest rates is supposed to entice companies to invest and help stimulate the economy. I don't think any company is considering the cost of financing right now. People are concerned about a potential pandemic and what that means for growth. South by Southwest didn't cancel because borrowing costs were too high, they cancelled because they didn't want to help spread coronavirus by bringing thousands of people from across the country/world together in one location. Facebook and other companies didn't cancel planned attendance at SXSW and other conferences over costs. They cancelled over coronavirus fears. That is to say, the Fed is doing what it can, but lowering rates doesn't address the underlying issue in any manner in my opinion.

As I finish typing this, the Dow continues to claw back some of the morning's losses. We're now down just over 1,200 on the index. While still an historically bad day, we're 800 points off the lows from earlier. This volatility isn't fun, but the underlying fundamentals of the economy are strong. This volatility could last months. Stocks could keep going lower, but the key for a long-term investor is to weather the storm and focus on growth over the next 5+ years, not the next 5-10 weeks.

02/28/2020

US markets suffered their worst week since the financial crisis. The major indices have now been down 7 straight days. The Dow declined an incredible 12.4% this week while the S&P 500 decreased 11.5%. So, what happened? Like I said on Monday, I think a confluence of factors, led by coronavirus fears drove this move down. Interest rates are plummeting. The 10-yr Treasury set an all-time low of 1.1% today. People are nervous about growth slowing independent of the virus, which is pushing rates lower and pressuring stocks. Program and algorithmic trading is a technical driver of this sell-off. As stocks keeps going lower, computer programs continue to execute more and more sell orders. In a market with few buyers stepping in, that keeps pushing prices lower to find a buyer. But the single biggest driver is growing concern over the the lack of containment of the coronavirus.

Big picture, the coronavirus is going to be a temporary situation. Scientists will figure out a treatment/vaccine and the number of new cases will eventually slowdown. The question is when will we get some positive news on that front. It seems all the efforts to contain it have been unsuccessful. We don't fully understand the incubation period or transmission and scientists believe many people who have it can be asymptomatic. This means people can be silently infecting other people without even realizing they are sick. I view this development as having some pros and cons. The bad news is the virus can be transmitted in a manner where doctors won't be able to find the source, making containment near impossible. The good news is, if some number of people getting infected don't have symptoms, or have minor symptoms, the death rate, currently around 2.5% is actually going to be lower than that since the number of cases is higher than currently believed. From various things I've read, the number of cases in the US is going to start increasing, potentially quickly.

Since we believe this will be temporary, why is the market selling off so much? The impact to global growth is the key. Disney Tokyo announced it was closing for at least two weeks to slow transmission of the virus. An LPGA golf event in Japan in being played without fans this weekend to minimize human interaction. Japan announced all its schools are closing during March. Conferences in the US are being cancelled or considering cancellation. A high school in Seattle has been closed for two days and the CDC is telling schools in the US to put together plans for mass closings. Business travel is being cancelled. All this adds up to a significant drop in economic activity. This situation is very different from the financial crisis, but in the 4th quarter of 2008, economic activity dropped to a near standstill. One of the more amazing stats from that time period is that Volvo, a major commercial truck manufacturer, sold only 8 trucks that quarter. That significant drop in economic activity could wipe away growth for the entire year, even if it only lasts a few weeks or months. There will be a rebound in growth on the back end of this as pent up demand boosts growth, but hotel rooms, flight seats, oil used, dinners out, etc that are missed, can never be recovered. That is the risk people are nervous about. How much will economic activity slow and when will it start up again.

How are we dealing with this environment? I sold some positions earlier in the week to raise cash and provide a little stability in portfolios. Overall, we're down about 60-65% as much as the indices. One encouraging sign came right at the close today. The Dow was down over 900 points at 3:45pm and yet closed down 'only' ~350 points. That suggests mutual funds were net buyers on the day and some amount of capital stepped in thinking we are at/near a near-term bottom. That's no guarantee there won't be additional weakness next week or beyond, but the move this week has priced in a lot of risk already. We've lived through several similar/worse corrections over the last 10-years, including a ~20% decline in the market in the 4th quarter of 2018. We saw similar weakness during the Greek debt crisis, Cyprus banking crisis, Brexit, etc. This has been different in that we declined a lot faster than previous corrections. In fact, this drop was the shortest number of days between a recent market high (2/19) and officially being a correction with a 10% down move. So the speed of this has felt bad, but the actual move has so far been equal, or less severe, than the past 4-5 corrections. If you have questions or want to talk through your portfolio, please reach out. This was an unsettling week that probably felt more unsettling because we've had a good 14 months of positive markets.

Oil sold-off significantly this week, decreasing 15.3% to close at $45.23/barrel. The yield on the 10-yr Treasury moved sharply lower to close at 1.16%, from 1.47% last week. The average rate on a 30-yr fixed rate mortgage moved lower to 3.45% from 3.49% a week ago. With the sharp drop in Treasuries this week, mortgage will likely fall sharply next week. If you have considered refinancing, I would reach out to some lenders and see what rates you can get next week. Could be historically low.

02/24/2020

The Dow traded down over 1,000 points and finished with the second largest single-day point decline in history. The largest point decline occurred two years ago, on Feb. 5th, 2018 when the Dow declined 1,175 points. While the point total was high, today's sell-off isn't in the Top 10 in the more relevant percentage terms. The biggest single-day drop in Dow history occurred on Black Monday, October 19, 1987 when it declined over 22%. So, what's going on today? Most of the headlines have blamed a growing fear over the inability to contain the coronavirus. I believe that's partially correct, but not the full story.

Coronavirus is a concern, and cases are appearing around the globe. The US has 34 confirmed cases and a large outbreak is starting in Korea. Over the next few weeks, we could start to see product shortages on goods made in China and other places. This will slow economic growth in the this quarter and could carryover into next quarter. However, I don't see this a long-term problem. Researchers will find effective treatment and/or a vaccine. Additionally, when the supply chain is back up and running, pent up demand will likely help fuel stronger than trend growth later in the year.

Interest rates are another area of concern. I wrote about the 10-Treasury rate dropping below 1.50% last week in the weekly recap. In addition to the US rates, many parts of Europe and Japan are seeing some negative interest rates. That means that investors are actually losing money to buy these bonds. Many buyers of sovereign debt aren't yield sensitive for various reasons, but seeing US rates trend towards Europe and Japan suggests many investors are nervous for future economic growth. It's important to note we've seen similar moves in rates during the Greek debt crisis, the Cyprus banking sector collapse, Brexit and several other inflection points over the last decade, but growth has generally continued higher. I think the economy is still reasonably strong right now and this move in interest rates seems overdone and not predictive of an upcoming recession.

Another important factor in days like this is quantitative trading. Many hedge funds build complex algorithms that dictate trading. These programs have automatic sell orders built in based on a variety of factors. Certain stocks drop by a certain percentage and the programs sell. If indices drop by a certain amount, the programs sell. This can lead to a selling begets selling situation. As stocks keep declining, more programs trip requiring more selling. This can push a mediocre down day into a full-blown sell-off like we witnessed today. These days happen. They are never fun and sometimes the sell-offs continue for several more days or even weeks. While it's impossible to know what the future holds, every time we've had a sell-off like this over the last decade, they've been short-lived and stocks eventually kept moving higher.

02/24/2020

Social Security in its current form is supposed to replace about 40% of pre-retirement income. Saving and investing is a critical part of making up the other 60%. Here's a quick primer on how much you should be saving to meet your retirement goals.

Saving enough money now could make it possible to fund your retirement by living off your returns without ever touching your principal.