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Challenges, Choices, Consequences

How do you treat the things in life that you value the most? Your family, health, faith, or finances? As I pondered this question recently, I decided that the question starts a bit higher in the order of things. We don’t change our behavior or impression about something or someone until we let it marinate around in our head.

The best Christmas gift I can offer you is a word of encouragement: your mind and the thoughts that permeate it have incredible power. Your thinking can change your future. Conversely, a sedentary mind leaves a wasted existence. This Christmas find some quiet time away from the noise that competes for your attention.



Invest in a solitary moment to reflect on the question above. What do you think are most important in your life? How much thought have you given to this list? What is the result of your thoughts and decisions this year? What choices can you exert control over and what differences can you expect to make if you change your thinking about the things you value most?  

Superficially, this has nothing to do with money and yet everything to do with it. A significant investment in clear-headed thinking will produce more life change than any stock or bond investment. The Good Book states it this way in Romans 12:2, "Don’t copy the behavior and customs of this world, but let God transform you into a new person by changing the way you think." Stephen Covey called this exercise, “Begin with the end in mind.”  I think it’s a good way to end the year too.

Are You Ready for Winter?

My daughter came home from college to visit with us for a few days. After a long hot summer in East Tennessee, temperatures have finally started to feel like Autumn here. We took advantage of her visit by trekking to Dollywood for their Great Pumpkin Luminights event.



The next morning as we loaded my daughter's car for her 2 1/2 hour drive to Nashville, she explained that her portable tire inflator was broken. Back story - a few years ago, I found a great deal (aka cheap!) on some easy to use, portable tire inflators on Amazon and I bought them for everyone in my family. When they opened them on Christmas morning, I got plenty of puzzled looks. Since then, my family members have learned to appreciate the convenience and utility of the devices. 

The big drop in temperatures caused a tire on my daughter's car to deflate.

 


She noticed it and tried to hook up her inflator to fix it. Her dad was proud for a couple of reasons:

  1. She took the initiative to fix the problem
  2. She used the tool that I provided to her
  3. When that didn't work she asked for help 
    
Fathers are problem solvers and when we see our kids learn to solve their own problems, it's satisfying. It is even more so when they rely on tools (physical, spiritual, emotional, intellectual) that you equipped them with. Since mom had the same unit in her car, I gave that one to her so she could inflate the tire and hit the road. As she drove away, I was reassured from this incident that my daughter was becoming very responsible.

Seasonal changes can insert unexpected events into our life. Some things, like a low tire you can prepare for. Others, like an unseasonal snowstorm, you may only be able to react to. 

The global economy is heading into the holiday period where things are normally strong. Unfortunately, there are signs of "unseasonal" weakness that investors should prepare for. The Federal Reserve is conducting open market operations in the bank funding repo market to inject liquidity into the banking system. This was unexpected when the need arose at the end of summer. The problem is worse now and the Fed was forced to ramp up their intervention. 

This is a serious problem percolating in the banking system at a time of year when we normally don't worry about such things. Despite their assurances that this action isn't QE, the market is behaving like it is. 

It may be a bit early, but maybe stock investors should get their winter tire chains ready now. If you're within 6 years of retirement, think about paring back your risk exposure until we see signs that consumers aren't spooked.

Happy Halloween.

Flip a Coin

Undoubtably, you've seen the recession headlines in recent months and I'm sure you're asking if the warnings are credible or not.

The simple answer: it depends. The US economy is driven by three factors: Government spending, business spending and consumer spending. Of these, consumer spending exerts the most influence.

Consumer spending itself is a function of employment, discretionary income, sentiment and credit utilization. If consumers are employed (unemployment is around 3.5% so, check yes), they have income to pay their bills. If they receive pay raises (not much progress on this one), they have extra discretionary income for non-essential spending (clothes, cars, vacations). If they are confident in their job and income stability (positive sentiment), they are more willing to obligate their future and borrow money to finance very large purchases.



Tariff and trade war headlines dented consumer sentiment this summer. When the next data point is released, impeachment talks won't help. If these two issues persist, recession concerns may very well become reality.

Chinese leaders are meeting with US officials in October for another round of trade negotiations. Most of our news outlets offer a skewed view of these negotiations because of the media's hatred for President Trump. The economic reality in China is that their economy is slowing dramatically and this is putting pressure on leaders to do something. Pork prices skyrocketed after an African virus wiped out 1/3 of China's massive pig herd. Pork is the primary protein in the Chinese diet so this price spike is hitting every dinner table in the country. Protests in Hong Kong are creating instability and economic uncertainty. It looks like waiting for the next presidential election will be a high-risk and potentially costly strategy.

If the two sides come to an agreement in October, that could flip the recession script 180 degrees. The global economy could snap from the economic doldrums back to life. This flip would happen when global interest rates are ridiculously low. This in turn, would help convince borrowers commit their future to their local banker.

We don't like to be reactionary in our investment decisions but the unpredictable nature of "Trump vs China" requires a patient wait-and-see approach.

Mortgage Rate Roundup

Rates this year have plummeted from the peaks of 2019. I spoke with a couple of mortgage loan originators this week to get the low down here. In East Tennessee you can get around 3 1/2% on a conventional 30 year fixed rate mortgage without buying down the rate. 15 year fixed are slightly above 3%. These rates are hovering around all time lows in the United States. 

Maybe you should consider buying a house in Denmark or Amsterdam though. Why? Mortgage rates there are getting really weird. Negative rate weird. They will pay you 1/2% to take out a mortgage in Denmark. Here's a link to the details in case you don't believe me. 



Before you start looking for a job and a house overseas, think about a couple of things. Taxes in Europe are out of control and so are home prices. 

Even if a move to Amsterdam isn't in the cards, you may want to call a mortgage originator and ask them to run your refinance numbers.

Which Way From Here?

In a controversial 1945 cartoon, Bugs Bunny pops up from burrowing underground. He realizes that he is in the Black Forest of Germany controlled by Nazis (note the release date). Bugs famously quips, "I knew I should've made a left turn at Albuquerque!"

A contemporary, seven minute viewing of "Herr Meets Hare" would require some viewers to look past Bugs fat shaming a rotund, lederhosen wearing Hermann Göring character, donning "blackface" to spoof Hitler and finally Bugs as Joseph Stalin in the climax scene. It added up to spicy political commentary at the end of World War II that was shown as propaganda to German POWs while Warner Bros prohibited it from being broadcast. 



As investors are trying to decide how to get to their destination, potential detours and distractions abound.

This week the entirety of Germany's government bond issuance rallied to produce negative yields. Every Bund, as they are called, from 3 month to 30 year maturities now return less at maturity than what an investor would pay for one.



If this illogical financial condition existed in the 1940's, Germany may have won WWII. This negative rate phenomenon isn't unique to Germany. This is a pan-European head-scratcher. Swiss bank/broker UBS announced that they will start charging their wealthiest customers 3/4% for the privilege of leaving funds on deposit. Thanks to the European Central Banks policy actions, more than 1/3 of all bonds on the continent now have a negative yield. 



In the face of these negative rates from Europe washing up on our shores, our own central bank, The Federal Reserve, announced a 1/4% rate cut. This rate cut was anticipated by investors but Fed Chairman Jerome Powell stunned markets by obfuscating the Feds future intentions at his press conference with a quagmire of double speak. Will they cut again later this year or was this a one-and-done move?

A bevy of weak macroeconomic data released this week justified the Fed's near-term nervousness though. The economy is clearly slowing down. The question we've pointed out is a simple but profound observation: Is this weakness a natural by-product of the Feds rate increases last year or is the problem cyclical in nature and foreshadowing a deeper downturn or heaven forbid, a recession.


To add fuel to the fires of uncertainty, Trump poured pressure on China by adding new tariffs on imported Chinese products. By doing so, Trump's trade shaming is designed to bring China back to the negotiation table instead of waiting until the Presidential election in 2 years. It remains to be seen if his strategy will be effective before the drag from tariffs stilts consumer activity.

Taken in totality these three signposts point to different potential outcomes. Investors need to think through this crazy set of events to assess what could impact their investment accounts. If Trump brings the trade battle with China to a successful conclusion, that would be viewed as pro-growth by markets. The Fed would walk back talk of further rate cuts and the bond market would have a migraine headache.

If this tariff impasse persists, US consumers, who are already signaling spending fatigue, will be shouldered with keeping the world out of recession. That's a really big "ask". With the never-ending, adversarial political tone in our country right now, Americans are being constantly cajoled in opposite directions. Don't let these distractions affect you. Stay diligent and clear headed even if you find yourself in the minority. That's the best advice to avoid ending up in the "Black Forest".

SECURE ACT Update - Rights Can't Offset Wrongs

This is why Washington is broke but politicians aren't

Background

On the surface, changing IRS rules to delay required minimum distributions from 70 1/2 to 72 years old looks like a major win for older taxpayers. In fact, the SECURE Bill making it's way through Congress with bipartisan sponsorship would do this along with a few other attractive changes:
  • Repeals the maximum age of worker contributions to company sponsored retirement plans
  • Make it easier for small business owners to cooperatively offer retirement plan benefits to their workers
  • Require companies to open eligibility to non-seasonal, part time workers

These features of the bill are net savings for workers, so what's there to not like?

Lobbyist Step In

Currently, workers can comfortably contribute to their company retirement plans with the knowledge that their money is going into an account that is well-protected from financial thievery. IRS "safe harbor" rules require company plan sponsors to meet stringent rules that help keep costs in line and junk out of these retirement accounts. This is why you don't see annuity products in 401k plans. Insurance company products are notoriously expensive for consumers which, conversely, makes them very lucrative for insurance companies. Insurance companies know how to use their profits to buy influence in Washington. Purists call it lobbying, I call it what it is - bribery. 

Congressman Richard Neal (D-Mass), who co-sponsored the SECURE act, receives thousands of dollars from the insurance industry. In this bill those corporate donors are getting what they paid for from Neal. The SECURE ACT grants IRS safe harbor status to annuity products so they can be used to pilfer your retirement accounts through unnecessarily high fees and commissions. 

To make matters worse, an appealing amendment from Rep. Kevin Brady would have allowed home school families to tap into 529 education accounts to pay for education related expenses. This measure made it out of committee but was stripped out of the final bill before a vote. Who would be against this? 

The Bull Elephant in the Room

Here's where things get ironically interesting. Rep. Neal (who obviously feels zero compunction from taking money from insurance companies in exchange for favorable language in legislation that he drafted and co-sponsored) smugly invoked an arcane IRS regulation, to demand 6 years of Donald Trumps tax returns. Neal sent this letter on April 3rd the DAY AFTER his SECURE ACT passed in the house with bipartisan support. That tells us everything we need to know. 



This bill has merit for many taxpayers. Sadly, the eventual costs to worker's retirement plans from allowing annuity salesmen in don't offset these benefits. Another bill is working it's way through the US Senate. Let's hope it's better than this. 

Lessons Learned from Warren Buffett's $377 Million Ponzi Scheme Loss

Imagine coming home from work and telling your spouse that you lost $377 million dollars in a Ponzi Scheme. Now imagine that you are legendary investment guru Warren Buffett and admitting this to shareholders in his company, Berkshire Hathaway. #BadDayAtWork.

Mr. Buffett has more investment wins than losses. That's why he's known as the Sage of Omaha and Berkshire's annual shareholder meeting looks like a cult meeting. Buffett and his 95 year old Vice Chairman, Charlie Munger have decades of wisdom, experience and a vast team of corporate talent that provides research. This gives Berkshire a massive advantage in weeding out good opportunities from bad ones.

None of that mattered in this loss. He got swindled out of $377 million dollars!

Here's the scene when it all fell apart:





We need to learn from his loss to hopefully avoid some of our own. Let's look at his potential mistakes.

Mistake #1- The investment was in a new company with little financial history. As I write this, Uber just priced their initial public offering. Customers know the company and enjoy the transportation benefits. Uber has a limited financial history which consists of losing money not earning profits. This type of "investment" is for speculators only. Stick to investments that have been making money for a decade or more. This alone will dramatically reduce the potential for fraudulent outcomes.  

Mistake #2- His solar investment thesis apparently focused on tax-related benefits more than investment activity returns. We invest our money to earn a return from the investment activity of the business. If the company's business turns a profit, you have a strong chance of earning a positive return. Real estate limited partnerships in the 70's and 80's relied on complicated tax benefits to entice wealthy investors into parting with their cash. With a simple IRS tax law change, these benefits were wiped away over night and so were most LP's. Nowadays, insurance products are often marketed as tax savvy "investments" but at the end of the day, it's an indemnity policy that should insure you against some sort of specific loss (life, income, health etc.) period.    

Mistake #3 - He didn't recognize the problem soon enough. Berkshire made investment in DC Solar from 2015 all the way through 2018. At LeConte, we tend to be deep value investors which means we like to buy cheap investments. The trick is to differentiate when something is cheap (for a reason) and when it is worthless. After 3 years, Berkshire should have realized their solar play had issues. 

Mistake #4 - Buffett was a victim of his own hubris. Over time investors can fall victim to attribute their success to skill rather than good fortune. The Good Book reminds us that Pride comes before a fall. Stay humble or markets will make you humble. 

We are never too old (or too smart) to learn and improve. I suspect that Buffett will make adjustments after this loss. Don't feel sorry for him though. $377 million is a chunky loss but Berkshire has more than 100 Billion sitting in cash. Warren and Charlie will be fine. 

The Value of Nothing

In The Picture of Dorian Gray, novelist, Oscar Wilde wrote “Nowadays people know the price of everything and the value of nothing.” I am mindful of how applicable this quote is to investor behavior over the past few years. We have the price of everything available instantly on our mobile devices, but we’ve lost our curiosity about the true value of things. When this bull market ends, investors who have grown complacent in this area will pay a hefty financial price.

This is the lesson of market volatility. We have experienced nine years of consistent, increases in the broad stock market averages with little in the way of normal corrective price action along the way. There are sound arguments about the suspect nature of this low volatility bull market. Most of these observations cast a critical eye toward the powerful yet secretive Federal Reserve Bank system. The Federal Reserve’s unprecedented use of “creative” techniques after the housing bubble contributed to the bull market in ways that will take decades to understand. The deluge of stock buybacks which were often funded by corporations' ability to borrow money at near zero interest rates are one example of suspect behavior that the Fed's policies promoted.  

Long bull markets also tempt investors to consider two familiar forks in the behavioral road. Without the occasional price correction to jolt slumbering investors, they can drift into lazy thinking and numbly follow herd behavior. They forego the hard work of calculating the true value of their financial assets and simply trust in the masses. Other investors take the fork to blind hubris. They misinterpret market action as an affirmation of their intellect and ability to discern future price action. These investors adopt the mindset of short-term traders, churning through tweets, blog posts and charting software. They begin to trade higher risk instruments that they have little experience or understanding of but, as the bull rages, their risks pay off frequently enough to amplify their behavioral miscalculations.

We highlighted Tesla and Netflix in January as prime examples of the price/value conundrum. Netflix generates revenue but returns no money to shareholders. In fact, the company is burning through billions of dollars creating original shows with little expectation for how profitable the shows will be. The price of Netflix stock increased from $190 in January to $423 per share in June. Now (October 2018) it is on the verge of breaking $300.


This 122% jump followed by a 29% decline demonstrates the gap between the price of the company and the value of it’s shares. Placing a tangible value on Netflix requires making many unknowable assumptions about the future. Investors are left following a price trend that could reverse violently at any time.

I have a name for opportunities like Netflix and Tesla – uninvestable. There are other examples of companies whose stock price bears little resemblance to the intrinsic value of their products, services and financial assets. The Federal Reserve started reversing the housing crisis recovery experiments a couple of years ago. Stock investors were slow to understand the Fed’s persistence. Price volatility this year is an indication that investors are beginning to examine the price they have paid versus the value they bought. We have further to go before this price/value gap returns to historical norms.

Once they acknowledge the disconnect between prices and values in domestic stocks, investors can look at foreign markets where the price/value ratio is more favorable to long term appreciation. Pursuing value is our preferred path to build long term wealth.

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Welcome Our Newest LeConte Team Member

LeConte Wealth Management, LLC, announced today that Alex Willard has joined the firm as a Planning Associate. In that role, he will support the firm’s financial planning and tax preparation services.   

      

A former LeConte intern, Alex joins the firm after graduating Magna Cum Laude from Maryville College with a degree in Finance and Accounting in 2017. While an undergraduate, he was recognized as the Maryville College Outstanding Senior, received the Judson B. Murphy Endowed Business Award and was a winner of the Maryville College Spirit of the Covenant Award.  He served as an RA during his four years on campus and was recognized for his leadership with the Resident Life Distinguished Service Award in 2017.  He played Wide Receiver for the Fighting Scots football team and served as Co-Chair of the Peer Mentor program.

“We are excited to have Alex as a full-time team member after his internship this past spring,” said Jon Dockery, Director of Financial Planning.  “His character and work ethic make him a perfect fit as we continue to expand our practice.  He was an integral part of our tax team during his internship, and we look forward to further involve him in supporting our clients.” A Clinton native, Alex resides in his hometown and enjoys spending time outdoors and spending time with his family.

Join the LeConte Team



O̶p̶e̶n̶ ̶P̶o̶s̶i̶t̶i̶o̶n̶:̶ ̶P̶l̶a̶n̶n̶i̶n̶g̶ ̶A̶s̶s̶o̶c̶i̶a̶t̶e̶


Update

We have filled this position. Stay tuned to meet our new associate!


LeConte Wealth Management, LLC is a full-service wealth management firm located in Maryville, TN. We provide counsel that helps people make good choices with their financial resources to help them achieve financial independence and fulfillment. We rely on teamwork, technology and decades of experience to deliver results for our clients.

Status: Exempt, health insurance and profit sharing benefits available. Two weeks paid vacation after probationary period.

Reports to: Managing Partners, Director of Financial Planning
This is a summary outline of the responsibilities initially required of a Junior Planning Associate for LeConte Wealth Management.
Our Planning Associate is an integral part of our ensemble organization. With financial planning responsibility for the firm's clients, a Planning Associate learns to be an advisor-- first, by assisting in building the business while allowing the Lead Advisor to focus on advising the clients. A successful Planning Associate may then move up to advising clients, dependent on licensing, experience and expertise.

SUMMARY OF ESSENTIAL DUTIES

A Planning Associate supports the firm’s ensemble of advisors by aiding with a variety of tasks so the advisors are more efficient and focused on business development and professional responsibilities. They must be passionate about helping individuals achieve their goals by overcoming their financial and behavioral shortcomings. The candidate must enjoy working on a collaborative team to learn from other team members. Specific areas of responsibility include, but are not limited to:

PLANNING SUPPORT

  • Attend client meetings; take, assemble and transcribe notes relative to action items, tasks and decisions made during appointments.
  • Assist with signature collection from clients, copying of documents or other tasks required during client meetings
  • Monitor and follow up with all action items from client meetings
  • Monitor and follow up with all work-related notes with members of staff, reps or clients
  • Schedule client appointments according to work or Advisory Report mailings
  • Calendar, confirm and start appointment preparation for each client appointment set
  • Can maintain a flexible weekly work schedule, which will include working evenings as needed and may include an occasional weekend day.
  • Prepare and analyze personal and business tax returns (training provided)

ADVISORY OPERATIONS SUPPORT

  • Update asset values and run reports from database
  • Assist Operations Manager where needed, have a strong desire to learn the operations aspects of the organization

GENERAL SUPPORT

  • Assist with document scanning
  • Maintain client files in appropriate order
  • Respond to client inquiries and assist with client request to provide the highest level of client service
  • Maintain appointment calendar according to Planner’s protocol
  • Assist with answering telephones when needed
  • Assist Operations Manager when needed
  • Assist with answering client questions when needed
  • Assist with workshops, seminars and client educational events

MINIMUM REQUIREMENTS

  • Bachelor’s degree required
  • Series 65 or 66 (if not licensed, then desire to attain license within 120 days)
  • Insurance Certification preferred or a strong desire to obtain Insurance Certification
  • Licensed or enrolled in Certified Financial Planner® program a plus – if not licensed or enrolled, must want to become a Certified Financial Planner® in the future
  • Excellent written and verbal communications skills; strong typing and note taking skills, including being able to transcribe client meeting notes efficiently and accurately
  • Superior customer service skills
  • Advanced level computer skills; strong knowledge of Microsoft Office Suite
  • Exceptional organizational skills; ability to multi-task in dynamic environment
  • Comfort with being a "team player" and doing whatever is needed, big or small
  • Able to manage and get along with diverse personalities
  • Professional appearance and demeanor
  • Well-developed interpersonal skills
  • Attention to detail with a perfectionist’s eye
  • Successful sales experience a plus
  • A willingness to succeed!

ESSENTIAL MENTAL FUNCTIONS

  • Impeccable ability to maintain confidentiality and integrity
  • Exemplary planning and organizational skills; efficient multi-tasker
  • Effective follow-up, deadline focused
  • Ability to learn new computer programs quickly and embrace technology
  • Detail oriented with high degree of accuracy
  • Energetic, eager to learn, willing to cooperate
  • Self-motivated with ability to work independently as well as under direction
  • Positive, cooperative attitude is a must
  • Enjoy working in a calm, stress-free environment
  • Appreciate the values and appeal of East Tennessee, its residents and its culture.
  • Able to process constructive critiques to learn and grow professionally

ESSENTIAL PHYSICAL FUNCTIONS

All positions in our office require interaction with people and technology while either standing or sitting. To best service our customers, stores and vendors, all employees must be able to communicate face-to-face and on the phone with or without reasonable accommodation.

EQUIPMENT USED

Constant use of computer and telephone
Use of office equipment, including copier, fax, scanner, shredder, etc.

ADDITIONAL COMMENTS:

Nothing in this job description restricts management’s right to assign or reassign duties and responsibilities to this job at any time.

 

Submit your contact information and resume here:

      

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