Ric Komarek, CFP
  • Home
  • Blog
  • About
  • Contact Us
  • Mission Vision Values
  • Retirement Tax Class

Midterm Elections—What Do They Mean for Markets?

11/1/2018

0 Comments

 
While the outcomes of the elections are uncertain, one thing we can count on is that plenty of opinions and prognostications will be floated in the days to come. In financial circles, this will almost assuredly include any potential for perceived impact on markets. But should long-term investors focus on midterm elections?...
0 Comments

Quarterly Market Review for 2018 Q3

10/9/2018

0 Comments

 
0 Comments

NAFTA is Dead As USMCA is Born

10/2/2018

0 Comments

 
Picture
Understanding the United States-Mexico-Canada Agreement
While on the campaign trail, Trump repeatedly singled out NAFTA – the North American Free Trade Agreement – as being one of the worst deals for Americans that he’s ever seen.

Blasting former President Bill Clinton, Trump said, “[Clinton] approved NAFTA, which is the single worst trade deal ever approved in this country," adding "NAFTA was one of the worst things that ever happened to the manufacturing industry and the worst trade deal maybe ever signed anywhere, but certainly ever signed in this country."

Was Trump right? Or was it just bombastic campaign rhetoric? The answer, like most things, is complicated and depends on who you ask.

Nevertheless, the reality is that Trump fulfilled his campaign promise and NAFTA will be replaced by the United States-Mexico-Canada Agreement or USMCA.

Background of NAFTA
NAFTA – in theory – was designed to set the rules of trade and investment between the US, Canada, and Mexico. It was envisioned by President Ronald Regan and the concept was simple: reduce trading costs, increase business investment, and help North America be more competitive in the global marketplace.


NAFTA was signed by President George H.W. Bush, Mexican President Salinas, and Canadian Prime Minister Brian Mulroney in 1992. It was ratified by the legislatures of the three countries in 1993, including the US House of Representatives on November 17, 1993, the US Senate on November 20, 1993 and finally signed into law by President Bill Clinton on December 8, 1993. It went into effect on January 1, 1994.

NAFTA 2.0 – USMCA
The USMCA has a total of 34 chapters, 12 more than the original NAFTA, which only had 22 chapters. In addition, the USMCA has a staggering 1,809 pages – 1,572 pages for the treaty, 214 pages for annexes, and 23 pages for side letters.

In reading the new text of the USMCA, many would conclude that the original foundational pieces of NAFTA will remain largely in place. But according to proponents of the new USMCA, it was designed to increase labor protections, improve access to certain markets, remove barriers to certain trade and bolster reciprocity. Let’s explore a few of the key provisions:
  • Automobiles. Vans, light and heavy vehicles are now subject to more strict rules of origin, requiring at least 70% of a product's value to originate in the U.S., Canada or Mexico in order to benefit from USMCA rules. In addition, 40% of labor used in the region must meet high salary standards.
  • Labor standards. The U.S., Canada and Mexico agreed to abide by International Labour Organization standards and to prohibit any imports derived from forced labor.
  • Dairy. Canada's dairy, egg and poultry markets are now more open.

The USMCA will be revised every six years, allowing the countries to consistently renegotiate the trade deal and avoid another NAFTA-like scenario wherein a country could threaten to withdraw.

Implications for Stock Markets
As your financial advisor, I don’t know the answer to that question. I do note, however, that the day after the USMCA was announced, global markets advanced as did the Canadian dollar. The DJIA rose almost 200 points for a gain of 0.7%, the S&P 500 rained 0.4% and NASDAQ lost 0.1%. But one day does not make a trend by any stretch.

That being said, while the new USMCA will preserve a $1.2 trillion trade zone between the three countries, investors should keep an eye on how negotiations with China proceed. Because China is after all America’s largest trading partner.

In fact, according to the Office of the United States Trade Representative (where you can read all 1,809 pages of the USMCA): “U.S. goods and services trade with China totaled an estimated $710.4 billion in 2017. Exports were $187.5 billion; imports were $522.9 billion. The U.S. goods and services trade deficit with China was $335.4 billion in 2017.”

That’s why I preach diversification

0 Comments

STOCKS MIXED AGAIN THIS WEEK AS THE FED RAISES RATES FOR THE THIRD TIME IN 2018 AND A GREAT THIRD QUARTER ENDS

10/2/2018

0 Comments

 

Weekly Market Update — September 29, 2018

Weekly Economic Update
  • The major U.S stock market indices ended the week mixed again — just like last week — although the technology-laden NASDAQ turned in a pretty decent gain
  • The S&P 500 retreated from its all-time high as investors were inundated with drama from Washington and the latest rate–hike announcement from the Federal Reserve
  • The Fed announced its third rate hike in 2018 and signaled a path to raise rates for a fourth time before the year is over
  • The Fed also appears to be on track to raise rates another 25 basis points in December, with the CME FedWatch Tool putting the chances at 76%. Fed–watchers are further predicting three rate hikes in 2019 and one in 2020
  • Along with technology stocks, consumer discretionary shares outperformed, while the materials sector and financial sector declined
  • The week saw the U.S. implementing tariffs on $200 billion worth of Chinese goods, and then the expected response of retaliatory tariffs from China on $60 billion worth of U.S. goods
  • OPEC was in the news this week after it and non–OPEC nations ended meetings without an agreement to increase output in order to react to declining supply from Iran. President Trump lambasted OPEC in front of the UN, saying the oil cartel is “ripping off the rest of the world”

Weekly Market Performance

  Close Week YTD
DJIA 26,458 -1.1% 7.0%
S&P 500 2,913 -0.5% 9.0%
NASDAQ 8,046 0.9% 16.6%
MSCI EAFE 1,986 -0.5% -3.2%
*Bond Index 2,013.24 0.15% -1.62%
10-Year Treasury Yield 3.06% 0.00% 0.66%

*Source: Bonds represented by the Bloomberg Barclays US Aggregate Bond TR USD. This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.

A Great Third Quarter

A fantastic third quarter has pushed 2018 into a pretty good year as U.S. stocks finished the third quarter with a 7.2% gain — the best quarter since 2013.

Very solid corporate earnings, historically low unemployment, increased wage growth and still relatively low interest rates have all caused the U.S. markets to handily outpace global markets. Lost in all the good news is that the bull market is still very much alive, as the S&P 500 is up over 14% since February, when the bears were starting to make noises.

The Fed Raises Rates for the 3rd Time in 2018

On Wednesday, the Federal Reserve increased short term rates by 25 bps in what was probably the most predictable and predicted rate movement the markets have ever seen. Here are the exact words from the Fed’s release:

“Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12–month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer–term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent.”

Tesla in More Trouble?

One of the biggest stories of the week was the SEC’s grenade thrown at Tesla and its CEO, Elon Musk. On Thursday, the SEC announced that it was going after Musk for his tweet about taking the electric automaker private. According to sources, Musk and the SEC were close to reaching a no-guilt settlement that would have barred him from being chairman for two years, but Mr. Musk walked away from the agreement at the last minute.

To understand how serious the SEC is, here is their release from Thursday:

“The Securities and Exchange Commission today charged Elon Musk, CEO and Chairman of Silicon Valley-based Tesla Inc., with securities fraud for a series of false and misleading tweets about a potential transaction to take Tesla private.

On August 7, 2018, Musk tweeted to his 22 million Twitter followers that he could take Tesla private at $420 per share (a substantial premium to its trading price at the time), that funding for the transaction had been secured, and that the only remaining uncertainty was a shareholder vote. The SEC’s complaint alleges that, in truth, Musk had not discussed specific deal terms with any potential financing partners, and he allegedly knew that the potential transaction was uncertain and subject to numerous contingencies. According to the SEC’s complaint, Musk’s tweets caused Tesla’s stock price to jump by over six percent on August 7, and led to significant market disruption.

The SEC’s complaint, filed in federal district court in the Southern District of New York, alleges that Musk violated antifraud provisions of the federal securities laws, and seeks a permanent injunction, disgorgement, civil penalties, and a bar prohibiting Musk from serving as an officer or director of a public company.”

Data, Data, Data

  • Personal income climbed 0.3% in August
  • Personal spending rose 0.3% in August
  • The PCE Price Index rose 0.1% in August and the core PCE Price Index, which excludes food and energy, was flat
  • Year-over-year, the core PCE Price Index is up 2.0%, unchanged from July
  • The University of Michigan Consumer Sentiment Index for September moved down to 100.1
  • The Chicago PMI Index declined to 60.4 in September from 63.6 in August (the dividing line between expansion and contraction is 50.0)

Sources

sec.gov; sca.isr.umich.edu; ism-chicago.org ; bls.com; cmegroup.com; commerce.gov; standardandpoors.comv commerce.gov; bls.gov; msci.com; dol.gov; cboe.com; federalreserve.gov; nasdaq.com; dowjones.com; morningstar.com; edwardjones.com; bloomberg.com

0 Comments

Equity Opportunity in Emerging Markets

11/19/2013

0 Comments

 
Picture
Stocks in the U.S. have rocketed to big double digit gains for 2013, leaving investors wondering, "when is it time to sell high?" Consider the options. For example, despite the recent emerging market stock rebound, EM equities were still trading at a 36% discount to U.S. stocks [link]

0 Comments

Big Importer to Bigger Exporter?

11/19/2013

0 Comments

 
Picture
Transformative changes are taking place in the U.S. energy sector. The United States is fast becoming a major oil producer, with some estimates indicating it could surpass production levels of Saudi Arabia and Russia within the current decade. One potential implication: The U.S., once a major energy importer, could possibly emerge as an energy exporter. [link] 

0 Comments

An Impending Energy Revolution

11/19/2013

0 Comments

 
Picture
The United States is likely on the verge of an energy revolution. In fact, both companies and consumers are already feeling some benefits, as natural gas prices have dropped and the price of oil has stabilized. What does this mean for your investments? [link]

0 Comments

Consumption is Key to US GDP

10/16/2013

0 Comments

 
Picture
The rise in home values has had a positive influence on consumers in the US, through a so-called “wealth effect.” And consumption is critical in the US economy. The dependency of consumption on consumer confidence and the subsequent reliance of the economy on consumption leaves the economy too vulnerable to financial market conditions. [link]

0 Comments

The Inverse Relationship Between Wealth and Savings

10/10/2013

0 Comments

 
Picture
As stock, bond and housing values rise, consumers tend to feel wealthier, leading them to spend more. That increase in spending comes about not from rising incomes but because consumers are saving less. However, without growing incomes, the economy remains too vulnerable to financial market conditions such as interest rates. The Fed has focused on this recently, but what will they do next? http://goo.gl/FcaFw3

0 Comments

    Archives

    November 2020
    August 2020
    July 2020
    June 2020
    May 2020
    April 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    August 2015
    December 2013
    November 2013
    October 2013
    June 2013
    May 2013
    April 2013
    March 2013
    January 2013
    December 2012
    August 2012
    May 2012
    April 2012
    October 2011
    August 2011
    July 2011

    Categories

    All
    401k
    College
    Economy
    Financial
    Insurance
    Investing
    IRA
    Life Insurance
    Market
    Medicare
    Politics
    Quarterly Market Review
    Retirement
    ROTH
    Saving
    Social Security
    Taxes

    RSS Feed

ABOUT RIC

Ric is a CERTIFIED FINANCIAL PLANNER and investment advisor. Click here to learn more.

LEARN MORE

Blog
Contact
​Voicemail
​

FOLLOW RIC

  • Home
  • Blog
  • About
  • Contact Us
  • Mission Vision Values
  • Retirement Tax Class
Facebook Chat Widget by Digital Inspiration