Weekly Market Commentary February 19, 2019

Fast Facts

Digging for Dough- Officials called to investigate a sinkhole in Florida stumbled upon a 150-foot-long tunnel being dug in the direction of a Chase bank. Authorities found the 3-foot-wide shaft in Pembroke Pines after a sinkhole opened above it on a public roadway. FBI Special Agent Michael Leverock said that since the diggers were headed toward the bank, it was being classified as an attempted bank robbery. “I don’t think they were doing that for any other reason,” Leverock said.

Roaring 20’s or 2000’s?- The 400 richest Americans have more wealth than the 150 million adults who make up the bottom 60 percent of the country’s wealth distribution, according to a new study by University of California at Berkeley economist Gabriel Zucman. “U.S. wealth concentration seems to have returned to levels last seen during the Roaring Twenties,” Zucman writes.

Ferrari, O2 Rooms and Planes, Oh My!- A U.S. Marshals auction in Chino Hills, Calif., drew a stream of visitors, thanks to its collection of seized Ferraris, said Suhauna Hussain in the Los Angeles Times. The star attraction: a 1991 Ferrari F40 that had been refurbished on a reality TV show. Its last owner was Richard Scott, a parking-lot operator who pled guilty to bilking $13 million from the Department of Veterans Affairs. “Cities like Los Angeles, where white-collar crime and wealth live in symbiosis, are a regular source of such auctioned seizures.” Past auctions have included a two-seater plane and an oxygen chamber similar to Michael Jackson’s. Corvettes and other Ferraris, though not quite as rare as Scott’s F40, are “pretty much common” in federal sales of confiscated assets. While civil asset forfeiture has many critics, the buyer of the Ferrari, who paid $760,000, likely wasn’t one of them.


Weekly Focus – Think About It

“Wealth consists not in having great possessions, but in having few wants.”

-Epictetus, Greek philosopher


The Markets

Why did the stock market do that?

The great mystery of stock markets reared its head last week. With no clear driver, the Dow Jones Industrial Average gained more than 3 percent, while the Nasdaq Composite and Standard & Poor’s (S&P) 500 Index moved higher by about 2.5 percent. It was a puzzler. Ben Levisohn of Barron’s explained:

“Given those gains, we’d expect a heaping helping of good news, but not much was forthcoming. Earnings reports from [two large multinational companies] left investors wanting. And economic data were either bad or terrible in the United States – industrial production declined in January, the first drop in eight months, while December’s retail sales fell the most for any month since 2009. But who needs good news when the United States and China are reportedly making progress on trade talks? Yes, the details remain a little fuzzy, but at least the tone is more constructive.”

It probably wasn’t just optimism about China that pushed markets higher. Consumer Sentiment, which gauges Americans expectations for the economy, was up more than 4 percent month-to-month. One driver of consumer optimism was relief the government shutdown had ended. Another driver is a change in inflation expectations, which are at the lowest level seen in half a century. Americans think inflation will remain low and they anticipate wages will rise. The Federal Reserve’s newly accommodative attitude hasn’t hurt, either.

Investor sentiment was leaning bullish last week, too. Willie Delwiche of See It Market reported the Investor Intelligence survey of financial advisors showed 49 percent bullish and 21 percent bearish. The AAII Investor Sentiment Survey reported bulls (40 percent) edged bears (37 percent) by a neck. Those indicators were balanced by the Daily Trading Sentiment Composite from Ned Davis Research which suggested optimism was too high.

When markets rise, as they have during the past few weeks, it may be tempting to take a more aggressive stance and tilt your portfolio toward U.S. stocks. This may not be a good idea.

What’s in your wallet? You’re at the checkout. How do you pay for your purchase? Do you reach for a credit card, debit card, cash, check, or some form of electronic payment, such as a mobile wallet or wearable?

The Federal Reserve Bank of San Francisco’s 2018 Findings from the Diary of Consumer Payment Choice (DCPC) found participants preferred to pay using debit cards. The order of payment preference was like this:

Payment TypePreference
Debit cards42 percent
Credit cards29 percent
Cash24 percent
Check2 percent
Other methods2 percent
Prepaid1 percent

Here’s an interesting side note. The more money a household earned, the more likely they were to pay by credit card.

HH EarningsCreditDebitCash
$25,000 – 49,99913 percent29 percent36 percent
$50,000 – 74,99919 percent31 percent27 percent
$75,000 – 99,99921 percent29 percent31 percent
$100,000 – 124,99930 percent23 percent24 percent
$125,000 or more33 percent21 percent24 percent

The shift in preference begs the question: Do wealthier people have more debt? Some do, but wealthier households are more likely to pay off credit card debt each month, according to author Tom Corley who was cited by Credit.com writer Gerri Detweiler.

If you use credit cards frequently and haven’t been paying down your balance each month, it may be a good idea to do a simple calculation to determine how much you are paying in interest each year. Just multiply the interest rate you pay by the amount of debt you carry. The amount may surprise you. Nerdwallet’s American Household Credit Card Debt Study reported, “Households with revolving credit card debt will pay an average of $1,141 in interest this year.”

If retirement is 10 years in the future, saving $1,141 a year, and earning 6 percent annually on the money, could provide about $16,000 in additional savings. If retirement is 30 years away, you could increase your savings by about $96,000*. It’s food for thought.

*This is a hypothetical example and is not representative of any specific investment. Your results may vary.


Best regards,

John Klevens, CFP


Sources: The Week Magazine, The New York Times, The Washington Post
Portions of this newsletter has been prepared by Peak Advisor