Monday morning, Monday morning couldn't guarantee

     Monday morning the Dow Jones Industrial Average** lost over 1000 points at the open following the continued fall in China’s stock market. Many market watchers were hoping the China Central Bank would act over the weekend to slow their markets current decline. When the China Central Bank did not act as market watchers hoped, other markets took this as a reason to sell off. As the markets decline it may set up some opportunities.

-   Prices of dividend paying stocks are now at levels which we have not seen for years.

-   Companies which do most of their business in the US should not be as affected by happenings throughout the world.

-   Real estate markets could get a shot in the arm as interest rates have fallen causing the average 30 year mortgage down to the 3.75% range.

     The reports by the news media may be unclear. Many people believe the financial markets are going higher while just as many are reporting the financial markets are heading down.  Because of the contradiction in views, it is important to look at the facts, let’s see if we can clarify the numbers to gain some insight into the markets.

Q2 numbers as of June 30th 2015:1

1. Current S&P* forward price to earnings ratio of 16.4.

2. The 25 year average of forward price earnings ratio of the S&P* is 15.7 with a high of 24 and a low in 2008 of around 9.

3. Q2 Corporate earnings came in at or near targets with Healthcare reporting the highest year- over-year increase in earnings of all ten sectors.

4. As of August 24, 2015 the Dow Jones Industrial Average** is down over 1500 points since July 16, 2015.

5. Interest Rates as of August 19, 2015 for the 10 Year US Treasury Bond*** are under 2.1%

6. Oil prices are at a low of around approximately $38 dollars a barrel as of August 24, 2015

     Over the past few months the Global back drop of the negotiations with the debt crisis in Greece and China devaluing its currency in order to make exports more attractive may have created fear. During the same period of time the price of a barrel of oil dropped to a very low price, while the retail price at the gas pump remained relatively high.  Interest rates, which most people believed were going to rise, have instead come back down. This has put mortgage rates back under 4% which could be a plus for the real estate market.  Each of these factors may have contributed to the decline in the Dow Jones Average. If corporate earnings continue to report close to estimates and interest rates remain low, the only unresolved issue is fear. After looking at the numbers, my advice is to continue to meet and speak with us regularly.

     In my nearly 30 years in this business we have experienced several declines. In 1987 the Dow Jones Industrial average was a little over 2000 now it is close to 16000. Maintain a diverse investment portfolio and stay the course. Sometimes staying the course is harder than jumping ship, but in my experience those that keep their eye on the long term goals and not short term setbacks will come out ahead in the long run.

     Take advantage of our new integration's and financial planning; please schedule your personal appointment by contacting us via email or telephone john@marketcapitalmanagement.com – 760-434-3575 ext. 101

John H. Heil, President, Retirement & Wealth Planning, CA Insurance  Lic. #0A52827

Citations

1 www.yahoo.finance. August 20.2015

*The S&P is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. **The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. ***The 10-year Treasury Note represents debt owed by the U.S. Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

You cannot invest directly in an index. Diversification does not guarantee profit nor is it guaranteed to protect assets. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

“Registered Representative offering securities through First Allied Securities, Inc., a Registered Broker/Dealer. Member: FINRA/SIPC. Advisory services offered through First Allied Advisory Services, Inc., a Registered Investment Adviser."

When is it a good idea to pay the tax?

Who really enjoys the US tax paying process?  Most of us would not volunteer to pay more taxes than we owe.  But in some cases it may be a good idea to pay more tax this year.  How about if you could pay no taxes later? Converting your Traditional IRA to a Roth IRA may allow you to do just that!

A Traditional IRA defers a portion of income before taxes to an account in which the principal and growth are tax deferred until the saver withdraws the money in retirement.  The idea is to delay paying taxes now when the saver is in a high tax bracket and wait to withdraw the funds in retirement when the saver is presumably in a lower tax bracket.  A Roth IRA works differently in that the saver pays the tax on the income now but withdrawals the money in retirement tax free.
 
When to consider a Roth IRA conversion ?

1.        Tax bracket this year?  If you are in a high tax bracket or if the additional income from the conversion pushes you into a higher bracket it is generally not favorable to convert to a Roth IRA.  However, if for you are in low bracket this year it may be a good idea.  For example, if you were laid off during the year and your taxable income is significantly lower a Roth IRA conversion might make sense.  If you have substantial tax deductions such as medical expenses which lower your income a Roth IRA conversion may be right for you. 
 
2.       Tap current IRA funds in the next five years?  Generally, you must wait five years to tap any of the gains from your Roth IRA.  If you may need the IRA funds a Roth IRA conversion may not be right for you as you may end up paying taxes twice on the same funds.

3.        Time until retirement?  A long time horizon can make the conversion to a Roth IRA a better idea.  The longer your savings can accumulate tax free the more savings you should accumulate. 

Use our Roth IRA Conversion calculator on our website at www.marketcapitalmanagement.com and to determine if a Roth IRA conversion is right for you.

We would love to hear what you think. Feel free to follow our blog, give us a call or email us…until next time

John H. Heil, Senior Financial Blogger
 
This information is for general purposes only. This information is not intended to be a substitute for specific professional financial advice. Please see a financial professional in regards to your own individual situation.

Start by making your bed, start investing even if it is a little

Last June at University of Texas at Austin 2014’s Commencement Admiral William H Raven, Ninth Commander of U.S. Special Operations, Command gave the commencement speech to the new graduates.  Admiral Raven is a Navy Seal and his speech was about the things he learned at Seal training 36 years ago.

One of the things Admiral Raven speaks about in his commencement speech is about making his bed every morning.  This was one of his defining moments to creating change in the world.

We can use this as an easy first step to start an investment plan.  Many people believe starting a retirement plan is difficult and complicated.  The best way to start any plan is to do something easy.  My advice is to enroll in your 401k at work.  This simple task can be the start of a savings plan.  It is like making your bed every morning.  By saving a little from each paycheck your effort at work can have a positive reward. Similarly to if you accomplish nothing else, in a single day…at least you accomplished making your bed.

If you do not have access to a 401k, start investing in an IRA or other savings plan.  Make it easy by automatically deducting a contribution from your primary bank account or paycheck.  If you start an automatic plan you may be less likely to stop.   In a few months when you review your statement and realized that you can save, it is more likely you will increase your savings than lower your savings.

Finally, don’t sweat when you hear the headlines about how tough the world is today.   Our country has been through two world wars and four other wars.  A President was assassinated and another was shot.  We survived two market crashes, a depression and a financial crisis.  We have had Republican and Democratic Presidents and Congresses and each time as a country we have come through stronger.  Those investors that stay the course may change their lives for the better.

So how do you change your world?  Start by making your bed, start investing even if it is a little at a time; by doing these two things each day when you come home you may have a nice bed to fall into and a little more money in your pocket.

Link to Admiral William H Raven, ninth commander of U.S. Special Operations Command University of Texas commencement speech:  https://www.youtube.com/watch?v=pxBQLFLei70

We would love to hear what you think. Feel free to follow our blog, give us a call or email us…until next time
John H. Heil, Senior Financial Blogger

The Good News and Bad News of lower oil prices

The other day I filled up the tank of my wife’s Prius for under $25. That is over 25% less expensive than one year ago. With the holiday shopping season on its way, every penny saved is a good thing.  Yet for most every action there is an equally opposite action and this may be true with gas prices as well. 

Oil producers and their associated industries have seen their stock prices decrease in value.  Last Thursday OPEC met to discuss production levels and prices. With Saudi Arabia leading the way the cartel voted to keep production at current levels. The strategy appears to put pressure on US shale oil producers. Most analysts believe the price of oil needs to be around $70 a barrel for producers to be profitable. By keeping prices low OPEC is hoping US shale producers will lower their production and therefore help push up the price of gas in the US. In addition, without the oil production from US shale producers OPEC could take a larger share of the market. 

The big question is whether OPEC’s strategy will work. In the long term, the shale producers most likely will not shut down and walk away because too much infrastructure and money has been invested.  One analyst actually sees a silver lining for the US shale producers. Norbert Ruecker, head of commodity research at Julius Baer thinks OPEC’s new strategy may force the US shale producers to find new ways to lower production costs. In the long run this may keep oil prices low but also allow for all oil producers to make a profit. 

This leads us to the good news of filling up the wife’s Prius tank for under $25 bucks. According to the American Automobile Association gas prices have dropped below $3.00 a gallon. AAA estimates this helps consumers save about $250 million per day as compared to the last few months of summer when prices averaged $3.68 a gallon. 

This savings is like a tax cut for the average American. It’s a good time of the year for the savings to flow into our pockets.  The biggest beneficiaries may be retail companies. Holiday retail sales started mediocre over Black Friday with the physical stores sales down but internet sales up 11%. Hopefully the extra dollars in our pockets will make for a jolly season. 

Alternatively, it is possible consumers learned a lesson from the financial crisis and decided to sock away the extra money in their pockets.  If so that could keep the economy on this slow growth path we have been experiencing. Generally, we can only hold out so long until we need to buy new appliances, cars and clothes. So enjoy the low gas prices while they last. Most analysts believe when the spring comes prices will begin to rebound and over $3.00 a gallon will be back. 

We would love to hear what you think. Feel free to follow our blog, give us a call or email us…until next time

John H. Heil, Senior financial blogger