Welcome to March 2016. The year continues to fly by. All of us seem to feel that each year goes by more quickly. It makes sense, actually. When you are ten years old, a year is 10% of your life. At age 50, one year is 2%. At age 80?
Candidates of all stripes are sharing doom and gloom, primarily as a marketing tool. You know the drill. The world is headed down the River Styx!! Elect me and I’ll fix everything.
The problem is, such doom and gloom flies in the face of what’s actually going on. GDP has been up in each of the last two quarters, while a recession is defined as negative GDP for two consecutive quarters. GDP averaged 4% annual growth in the 90’s, 3% annual growth during the 2000’s, and has averaged about 2% annually during the teens.
Whether GDP growth will head back up as part of a larger cycle, or whether the slowing growth is a reflection of a maturing economy, we don’t know for certain. We suspect it is part of a larger cycle, and growth will increase. We will know in hindsight.
The three most valuable brands on earth are Marlboro, Coke, and Budweiser, in that order. These companies make products that people want to buy, and have been doing such for quite some time. Coke (KO) has a forward P/E of 21, pays a 3.25% dividend, has an ROE of 27%, and has three dollars in cash for every dollar paid in dividends. Marlboro is owned by Altria (MO), which has a forward P/E of 18.5, pays a dividend of 3.65%, has an ROE north of 200%, and has more than a dollar in cash for every dollar of dividends paid.
Addictive substances, such as tobacco, alcohol, and chocolate, can be problematic for some, from an investment standpoint. From an investment perspective, companies that know how to make stuff, sell it for a profit, build liquidity, and know how to allocate resources well, are hard to beat.
According to recent U.S. Census Bureau report, the median age for widowhood in 2011 was 59.4 years. The report said that one third of women who become widows are under age 65.
Each February, the President formulates a budget request for the Federal government, which Congress then considers in coming up with its own budget resolutions. The Presidential suggestions range from recommendations on appropriations for specific agencies to a variety of potential tax law changes, which are recorded in the Treasury Greenbook.
Some of those from this year, few of which are likely to pass, include a “Buffet Rule” tax, or 30% minimum income tax on ultra-high income households, an increase in the maximum cap gains rate to 24.2% (28% for those subject to the 3.8% surcharge on investment income), and a reduction in the estate tax exemption to $3.5 million.
Other items on the radar, many of which are trial balloons for future sessions of Congress, include doing away with back-door Roth’s, adding RMDs to Roth IRAs, elimination of stretch IRAs for non-spouse beneficiaries, and the repeal of NUA rules for employer stock in employer retirement plans.
A couple of other items of note would be the elimination of the basis step-up for assets at death, and the application of the 3.8% Medicare Surtax on S-Corp dividends. You can read more here.
Shigemitsu Kongo specialized in building Buddhist temples. He migrated to Japan from Korea in 578 AD, at the invitation of the Japanese royal family, to build a temple. His company, Kongo Gumi, continued to build temples for more than 1400 years, and became the world’s oldest continuously operating family business. In 2006, Kongo Gumi was sold to, and became a subsidiary of, Takamatsu. The sale was driven primarily by Kongo’s inability to service its debt. You can read more here.
Here are four tips for surviving during rocky markets. First, maintain stock or equity exposure. Most of us will need or want equity returns, to support our households across decades. Second, use differing maturities for bonds. Have some short term, and some intermediate term, bond exposure. Third, be wary of hedges, including hedge funds, bearish options strategies, and other investments offering to minimize losses during volatile markets. Finally, think long term. Measure performance over at least five year measuring periods.
Quote of the week:
“Find a way to say yes to things…a new country, to meet new friends, to learn something new. Yes is how you get your first job, your next job, your spouse, even your kids.” – Eric Schmitt
Randy Brunson is the founding shareholder of Centurion Advisory Group. Mr. Brunson
has invested most of his thirty five year career in the area of financial services.