Tag Archives: economy

Update on Recent Federal Reserve Announcement

Posted September 21, 2015 by paragon. tags:Tags: ,
FEDERAL-RESERVE-facebook_opt

Written By Nathan White, Chief Investment Officer

There was quite a bit of anxiety leading up to last week’s decision by the Federal Reserve on whether or not we would get the first interest rate increase in over nine years.  Surprisingly citing overseas uncertainty, they decided upon no change and slightly lowered their forecast for the path of future rate increases. There are very heated debates about the pros and cons of continuing the current Zero Interest Rate Policy (ZIRP) and many valid points being made by both sides.  The Fed “officially” introduced more uncertainty last week by openly using overseas (i.e. China) volatility and weakness as the reason for continuing with zero interest rates despite the decent progress of the U.S. economy. While I understand the Fed’s reasoning and with inflation so low they can be justified in not raising rates yet, but it seems each time they get closer they trot out a new reason (justified or not) for holding off.

However, I believe this is now starting to create too much uncertainty and mixed signals which begs the question of when will the time ever be right to move off the zero bound?  The Fed is indeed trapped at this point as monetary policy has done about all it can and the longer it has to keep rates at zero is more indicative of a general economic malaise.  I do however think the economy is strong enough to raise rates a bit and it would actually help free up frozen capital, aide savers, and restore the healthy discipline of normal price signals.  Overly easy monetary policy basically steals from the future in that it pulls demand forward leaving us with less economic growth in the future when it has to get paid for. The current monetary policy is still commensurate with an economy in crisis and we are well away from that condition. The longer the Fed has to stay a zero or delays raising rates runs the risk of never getting out or moving dramatically in order to play catch up.  Both of those scenarios are not good.

OK, enough of my diatribe….What are our current plans and actions?

The net takeaway from last week’s decision was that we did not learn anything that would want to make us take more risk at the current time.  Our models are still telling us to be cautious at this point.  The speed of the August decline did create a short-term oversold condition, but we were ready ahead of that.  We do not see a recession in the cards at the current time, but the markets are still trying to adjust to new dynamics (i.e. slowing profit growth, emerging market risk, effects of reversing the Fed’s easy money policy, etc.). That can give us the opportunity to get assets at cheaper prices.  So for now we would sell some if we rally back towards the pre-August levels and buy some on dips toward the lows.  The cash we are holding in the portfolios gives us the flexibility and protection to take advantage of the current environment.

For those so inclined here’s a great take on the Fed’s move in the WSJ: http://www.wsj.com/articles/the-federal-reserve-pulls-a-lucy-1442531250

Disclaimer Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

 

 

Now Showing in Europe: Negative Yields – Next Stop the U.S.?

Posted February 26, 2015 by paragon. tags:Tags: , , , ,
World Globe

Yes folks, the condition where you actually have to pay someone to hold your money or you get back less than you deposited is now a reality in Europe. In anticipation of the start of the ECB’s asset purchase program yields in many European countries are now negative. Why would someone accept a negative yield? One reason is that you might expect deflation to continue to fall pushing the price up even further or giving you a positive real yield. Another reason could be regulations that force people or institutions to hold negative yielding instruments. Unless you’re using your mattress you pretty much have to put your cash in a bank/depository. Fear of an economic downturn or disaster could make getting most of your money back rather than losing it a relatively better prospect.

Due to the Fed’s zero interest rate policy and QE we in the U.S. have almost been there for years. I bet you are just loving that zero percent you basically get on your savings! In fact, after adjusting for inflation we’ve had negative real yield for some time on cash or near cash instruments. However, now the Fed is in a tough spot trying to raise rates to match the economy because most of the rest of the developed world is doing the opposite. Our relatively higher rates are causing the dollar to soar as foreigners buy our bonds.  As the dollar increases it creates stress on emerging markets and U.S. multinationals. This in turn gives the dovish Fed the excuse to put off the date for rate increases to begin.

Central banks however can only do so much and their actions to prop up assets prices don’t necessarily translate into economic growth. Overtime the marginal benefit from asset purchases decrease and then we are left with paying the price of trying to unwind them. The pain of trying to unwind then causes the Central Bankers to refrain altogether or even add more QE. The cycle never ends and we are trapped.

Let’s hope the world doesn’t end up being stuck in an infinite loop of QE and negative yields as they seem to be associated with subpar economic growth in the long run – just ask the Japanese.

Written by Nate White, Chief Investment Officer of Paragon Wealth Management

Disclaimer Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Debt Limit – A Guide To American Federal Debt Made Easy

Posted March 22, 2012 by admin. tags:Tags: ,


Our national debt is a very serious matter but because it is such a large number it takes it out of the realm of reality and makes it difficult to understand. This short video helps put it into perspective.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results. 

Are We Headed For Another Recession?

Posted September 16, 2011 by admin. tags:Tags: , ,
Chalkboard


Written by Nathan White, Paragon’s Chief Investment Officer

The economic data is still presenting a mixed bag on whether a recession is coming or is already here.

For example, industrial production and manufacturing increased in August contrary to the ISM data that slipped negative for the first time since May 2009. Industrial production is up 3.3 percent on a year over year comparison which indicates moderate economic growth. Overall, the economic leading indicators are still pointing up (anemically so, however) and a recession has never started when they have been advancing.

Much of the slowdown is being affected by the political headlines that are driving markets. 

This uncertainty naturally creates a sort of self-fulfilling prophecy as business and consumers hold back. The bad news is that the economy is not growing at a rate that can significantly reduce unemployment or raise standards of living. The good news is that the economy is sort of bouncing along the bottom, and it is hard to get significantly worse. It is running more or less at what I call its replacement rate (e.g., people buy a car when the old one dies as opposed to upgrading because they’re doing well) and until the debt overhang is worked off, the economy will have a hard time taking off.   

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.
  

Mr. President, pull a “Clinton” please.

Posted September 8, 2011 by admin. tags:Tags: , ,
President Bill Clinton


photo by *Cindy*

Written by Nathan White, Paragon’s Chief Investment Officer

The President is going on another of his “grand” stages tonight with his jobs speech before Congress. I keep hoping, praying, and wishing that the President will finally pull a “Clinton” and present some real structural solutions to help the economy. Anything less will be very disappointing and now that most of the points seemed to have come out ahead of tonight it seems like we are just going to get more of the same stimulus that we’ve already got. More style than substance. The economy and markets are so starved for certainty at this point.

Clinton got it. He moved to the center and co-opted Republicans ideas and then got the credit (and deservedly so) as the economy soared. Our current President seems to have no inclination to do the same – yet. Self-preservation is a powerful motivation and the President’s time is pretty much up. One of the problems is that the President doesn’t have the same quality of advisors (including those from the private sector) that Clinton had.

I believe the answer to the President’s problems is right before him and all he has to do is reach out and grab it and the economy will take off – move to the center!

Here’s some of my views on what could or should be proposed and the probabilities of being proposed:

High Probability (Low Impact):

  • High Payroll tax cut extension (yawn)
  • Temporary tax credits for hiring (again, enough with temporary!)
  • Infrastructure bank/spending (OK)

Low Probability (High Impact)

  • Removal of the repatriation tax on foreign corporate earnings – an absolute no brainer that continues to mystify me why it isn’t done.
  • Dramatic approach addressing the housing situation
  • Structural tax reform

 

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Where is the Stock Market Headed Next?

Posted December 2, 2010 by admin. tags:Tags: , , , , ,
Amazing Sunset


photo by ewen and donabel

Written by Dave Young, President and founder of Paragon

At this time of year, many people eagerly ask, “What’s next for the stock market?” To understand where it might be going, let’s look at where it’s been.

In October 2007, the Dow Industrials hit a high of 14,164. From that high we saw one of the worst bear markets in history with the Dow plunging to 6,547 in March 2009. Then, as many proclaimed the world was ending, we saw the Dow rally from that 6,547 low up to 11,205 by April 2010. Since April, we’ve spent the past six months going back and forth, only to recently hit a new high of 11,444 on Nov. 5.

So what’s next? If you follow what the media has said,  you might think the markets will never recover. Actually, it’s amazing how many people don’t realize the Dow has already rallied 75 percent off of the March lows. But some still believe the world is ending.

While there are many reasons to be concerned about the future, there are many more reasons to be optimistic:

1. The Fed wants the stock market up and interest rates low. It is taking its most aggressive action in history by buying $600 billion in Treasury bonds. A basic rule of investing is, “Don’t fight the Fed.”

2. Based on the results of the last election, politicians should be much more friendly to business than they have been. This should be good for the economy.

3. From a cyclical standpoint, the third year of a presidential term has almost always been the best year of the term for stocks. It’s known as the “sweet spot.”

4. Every time the market has lost ground over a 10-year period, like it has recently, performance the following decade has been positive.

TWO INVESTMENT RULES

I often receive subscription invitations to various investment services. Usually I ignore them, but this one was from a highly regarded firm. Its pitch was compelling. They offered eight “exclusive” stock picking services priced at $3,000 per year, per service. I told them I wanted to “look under the hood” — to see if the performance matched the hype.

I was shocked to discover that the historical performance of six of the strategies was terrible, and the other two mediocre. Surprisingly, most of the services were sold out.

What did I learn from this? Why would anyone pay $3,000 a year for a stock picking system that doesn’t add value? Apparently, many investors act on the “hype” but don’t investigate the numbers.

Rule No. 1:  Always thoroughly evaluate the numbers. Don’t rely on what sounds good. You would think a big, national firm with unlimited resources could put together a successful trading strategy. You could be wrong.

Rule No. 2:  Investing is very difficult, whether the firm is big or small. Don’t assume that the big firms have the advantage when it comes to investing. Because of their bureaucratic structure and large size, it can be harder to be nimble and creative.

Because investing is difficult, many investors become convinced that no one can beat the market. They give up trying and simply buy and hold some mutual funds hoping to at least match the performance of the broad market.

At Paragon, we believe there is a better way to invest. Our performance tells our story. From January 1, 1998 through October 31, 2010, our Top Flight growth portfolio has generated a net compound annual return of 13 percent versus 3.4 percent for the S&P 500 Index.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Any information presented is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. All opinions and estimates constitute the judgement as of the dates indicated and are subject to change without notice. Do not rely upon this information to predict future investment performance or market conditions. This information is not a substitute for consultation with a competent financial, legal, or tax advisor and should only be used in conjunction with his/her advice.

A Doom Boom?

Posted September 2, 2010 by admin. tags:Tags: , , ,
Storm Coming


photo by eflon

Written by Nathan White, CFA

I think the current sentiment about the investment environment and the economy is about the worst I have ever seen.

It seems nearly impossible to find anyone that is optimistic! It amazing how the media exaggerates the slowdown in economic data to mean Armageddon.

Every time I look at something like the Drudgerport, I see someone new coming out with a book on how to profit from the coming depression or market crash. Even political pundit, Dick Morris, has a book like this out!

Now, I’m not a rabid bull, nor do I believe that there aren’t concerns and real risks out there. I just wonder how much has already been priced into the market, and that is always the trick with investing.

Investor actions have been confirming their negative view as seen by the record amount of money just piling into bond funds at historically low interest rates.

Do people buying the 10-year Treasury at this price realize that a one percent increase in interest rate could mean a 9-10 percent loss on their investment and take about four years just to “break even” with interest payments; and this is a “risk-free” investment?

Longer-term bonds would produce even worse results!

A report that came out the other day that said hedge fund managers indicated that just 17 percent were bullish, and around 47 percent were short ahead of the historically bad month of September. Perhaps September came a month earlier in the form of August this year?

I’ve been in this business just long enough now to see what happens when everyone is thinking negative and have positioned themselves in the same manner; the market likes to do the opposite.

I agree that things are not great, and the recovery has been so-so. It should have been better, but we are by no means in a depression.

Instead we are feeling the consequences of government bail-out and intervention in the economy in the form of limited upside growth. It is just simply impossible to grow very robustly when the government is creating so much uncertainty and making it harder for businesses to conduct business.

Bail outs and government interventions in the market may help to put a temporary floor on a market slide or economic downturn, but only the cost is giving away the upside later on. This is what we are feeling now.

This produces a Jekyll and Hyde environment where some things look good and others bad, which results in a great degree of uncertainty and markets that bounce around. Choppy markets can be very hazardous to investors’ health as it produces a lot of buy high, sell low activity.

The current economic conditions seem to resemble the early 80’s with few opposite ironic twists. Instead of interest rates at extreme highs, the current rates are at extreme lows and the economic approach of the Obama administration is the “opposite” of what the “Reagan” was. We’ll see how this shakes out…

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Continued Recovery or Double Dip Recession? Part II

Posted August 17, 2010 by admin. tags:Tags: , , , ,
Newspaper Paper Headline


 Photo By Shutterstock

 

 

Article taken from Paragon Wealth Management 2nd Quarter Newsletter

 

Written By: Nathan White, Chief Investment Officer

 

Media & Current Affairs

In the short-term emotions rule and volatility reigns as investors are pushed around by headline news. A study of bear markets by Ed Clissold of NDR showed that bear markets that occur on rallies after recessions tend to be relatively short and not associated with a new recession- a sort of “echo bear”.

Worries of the European debt crisis and its ramifications are coinciding with the slowdown in economic data compounding the market nervousness. Many are worried that the austerity policies being promoted by the European Countries will stifle the economic recovery even though those actions would reduce their large deficits, which are what the markets were worried about in the first place. The U.S. administration is arguing the opposite of the Europeans with the belief that it is too soon to withdraw stimulus and reduce deficits. 

I find it strange that people are fleeing Euro zone currency and debt due to fear over deficits into U.S. government debt, even though the U.S. is preaching more deficit spending? Somehow I don’t think that will end well. We are therefore avoiding long-term U.S. treasuries, as they could be a time bomb waiting to happen. It might not happen soon, but the low return (below three percent for 10-year Treasuries at the time I am writing this) is not worth the risk in our opinion. 

Above all, the market hates uncertainty and with the bear market still very fresh in investor minds we are in a condition where people are very fast to sell and ask questions later. A report in the Wall Street Journal on June 14 by E.S. Browning (Rapid Declines Rattle Even Optimists) showed that the 12.4 percent drop in the Dow Jones Industrial Average from the peak on April 26 to June 7 occurred in only 42 days. The article indicated that the only other time that the Dow has fallen that fast in the past 80 years was at the start of the Korean War. 

 

Conclusion

As I write this article, the S&P 500 is down about 14.5 percent from its peak. That’s only 5.5 percent away from the negative 20 percent that most consider as the condition for a bear market. It seems the market is pricing in a double-dip recession whether it actually unfolds or not! We have been slowly raising cash over the past month or so and as the market continues to show uncertainty. If our indicators weaken, we will raise more, but for now we still want to have exposure to the market as it could strengthen as fear subsides and investors realize that the market has already priced in any bad news. After all, we are still in recovery mode. Although it is weak, a recovery is still a recovery. 

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

 

Unusually Uncertain?

Posted July 22, 2010 by admin. tags:Tags: , , , ,
Protest Sign

 Photo By Shutterstock

Written by Dave Young, President of Paragon Wealth Management

Yesterday, Federal Reserve Board Chairman Ben Bernanke said that the outlook for the economy is “unusually uncertain”.

He stressed that the economy was growing at a moderate pace. He mentioned that employment and consumer retirement sentiment were weak.

When he said, “unusually uncertain” the market sold off. What a surprise.

So why is this recovery “unusually uncertain”? What is unusual about it?

I’ve been through a few economic cycles and have never heard the fed chairman use those words.

I don’t know what he was thinking, but I’ll take a guess. After an economic slowdown/meltdown “usually” the economy goes through a normal cycle of recovery. He said this one is “unusually uncertain” indicating it is not “normal”.

What is “unusual” this time?

I believe it is the impact that politics is having on our economy and the markets. Usually politics do not have that big of an effect on the economy. This time is different.

Is it unusual for government to completely overhaul the private sector health care system, which makes up around 17 percent of our economy? Is it even more unusual to do it during such difficult economic times? Maybe it’s unusual to do it when surveys show that most Americans oppose it.

Or maybe it’s embarking on a complete overhaul of the financial system? Maybe it’s that the financial overhaul is based on the theories of senators like Chris Dodd and Barney Frank that have no “real world” financial experience and therefore those living in the “real world” have no confidence in them. Maybe it is because congress passes these monster bills (2500+) pages on a purely partisan basis without reading them.

Why as he said, is unemployment high and why are consumers scared?

If you are a business that needs to make a profit, (unlike a government agency), there are costs and risks involved in hiring new employees. Maybe you aren’t sure how much the new health care regulations are going to cost your company. Possibly you aren’t sure how much of your money you will still have left to pay a new employee with after the upcoming new tax proposals are implemented. Now that unemployment costs go on for 99 weeks, maybe you don’t want to accept that unknown liability you have if you need to lay someone off in the future. Or maybe it’s simply because as a business owner you have a target on your back that says “Need Money? Tax Me!” and you don’t feel comfortable with that.

Why would you hire a new employee?

Why would you take the risk? You wouldn’t. And most employers aren’t. They are making things work with the employees they have. The government tells us every day they are saving us, but they are actually having the opposite effect. They have created incredible uncertainty. That uncertainty translates into high unemployment and low consumer confidence.

Not to worry.

Today congress cleared the way to spend another $33,000,000,000 (that’s billion) of our grandchildren’s money, and extend unemployment benefits once again. This administration seems to be taking the law on unintended consequences to a whole new level. Maybe higher tax rates and permanent government expansion are not the solution after all.

Maybe we’ll have a chance in the voting booth to start repairing this mess in November. Time will tell. 

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

The Stock Market takes two Steps Forward and one Step Back

Posted July 2, 2010 by admin. tags:Tags: , , , , ,
High Rise Buildings




photo by iStock

Written by Dave Young, President of Paragon Wealth Management

Unfortunately, markets don’t move up in a straight line. If they did, it would make my job a lot easier.

The other issue that makes things difficult is that I cannot see into the future. A lot of guests on CNBC like to imagine they can, but the reality is they can’t.

That leaves us to try and make sense of where we have been, where the market currently is, and where it might be heading.

The market rallied hard off the March 2009 lows with the Dow Industrials going from a low of 6443 to a high of 11207 at the end of April.

Studies showed that about 70 percent of retail investors completely missed that rally because of overwhelming fear caused by the 2008 market meltdown. During that 13-month rally the market tried to selloff repeatedly. However, every time it started to selloff, bargain hunters would step in and buy and keep the rally going. Every time it started to selloff bearish investors (who missed the entire rally) proclaimed that this was the beginning of the end. But the market kept going up and the bears continued to get burned, and completely missed their opportunity to participate in the rally.

After the April highs, the market started selling off once again. The sixty-four-dollar question is always whether or not these sell offs are going to develop into a downward trend.

At this point everyone started spouting rules of thumb like “Sell in May and go away” or once we’ve broken the “200 day moving average” it is time to sell and run for the hills.

Rules of thumb can be useful but must be taken in context with where in the market cycle we are. Neither of these rules of thumb have been consistent when you are in the second year of recovery following a selloff.

Historically, during a recovery the market will start out strong, then ultimately selloff, but not as hard as the initial selloff, and then go through a transition period before trending back up. Second, third, and fourth year market action is usually muted compared to the first year but is still positive and usually still outperforms long-term performance averages.

Our conservative portfolio, Managed Income, is invested very conservatively and has been holding up very well through the selloff.

Our growth portfolio, Top Flight, is currently about 20 percent cash and 80 percent invested as such its performance has been dampened down somewhat. Generally speaking, it has been moving in synch with the broad market.

There are a lot of scary problems right now and most of them are directly related to the folks in Washington. If they would get out of the way, stop talking, stop scaring the investors, and let our economy recover, that would remove a lot of uncertainty, which would help the stock market immensely. 

So far this selloff is missing many elements that occurred in the 2008 selloff. For example, the VIX has not shown the same levels of fear this time, high yield bonds and preferred stock have not sold off like they did previously and volume is lower. So far, these are all divergences that make me question how severe this selloff will be.

With that said, we still don’t claim to see into the future.

For investors, the only way to keep your sanity and ultimately make money is make sure you are invested according to your risk tolerance and that you keep a long-term perspective. (If you are stressed out, then you are probably invested more aggressively than you should be). When you are not invested according to your risk tolerance, you will want to bail out (usually at the worst possible time), and you will never get the long-term returns you seek.

Have a great 4th of July holiday, and contact us if you need anything!

What do you think? Feel free to leave comments, questions or thoughts.

Paragon Wealth
Management
is a provider of managed portfolios for
individuals and institutions.  Although the information included in this
report has been obtained from sources Paragon believes to be reliable,
we do not guarantee its accuracy.  All opinions and estimates included
in this report constitute the judgment as of the dates indicated and are
subject to change without notice.  This report is for informational
purposes only and is not intended as an offer or solicitation with
respect to the purchase or sale of any security.  Past performance is
not a guarantee of future results.

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