Permanent Value

Week in Review – 01/30/2017

Bruce Doole
January 31st, 2017

It’s officially tax season, but before you start tracking down receipts and filling in income boxes, there are a few changes from last year that you need to know about.

Standard deduction
The standard deduction for heads of household jumps $50 to $9,300 for the 2016 tax year. The other standard deductions will stay the same as they were for 2015 — $6,300 for singles and married couples filing separate returns, and $12,600 for married couples filing jointly.

Increase in health insurance penalty
The Affordable Care Act (ACA), made it easier and more cost-effective for many Americans to attain health insurance. Unless you qualify for an exemption, individuals are required to have insurance. Those choosing to go three or more consecutive months without coverage must pay a penalty when they file their taxes.
For 2016, the penalty for not having healthcare rose to 2.5% of total household adjusted gross income or $695 per adult —whichever is higher (for 2015, it was $325 per person or 2% of household income). For children under 18, the penalty is $347.50 per child, and the maximum you will pay is is $2,085 per family.

With that said, there are several exemptions that will keep you from having to pay the penalty. Some of the most common include:
• If you lived abroad for more than a year
• If you’re exempt from filing a tax return because your income is too low
• If your religion objects to the use of insurance
• If you qualify for a hardship exemption due to an issue such as homelessness, bankruptcy, eviction and similarly trying circumstance.
• If you are in prison
If you believe you qualify for an exemption, you can claim it when you file your tax return, or apply on the website.

Tax Day is April 18
Tax Day is usually April 15. This year, however — just like last year — Tax Day also falls Emancipation Day, a state holiday observed in Washington, DC. Since the IRS can’t schedule the filing deadline to take place on a holiday or weekend, April 18 is the official IRS deadline for 2017. Procrastinators around the world rejoice! You’ll have 3 extra days to get your act together this year: don’t waste it!
Source: Yahoo Finance


  • The Japan PMI Manufacturing rate jumped to 52.8 in January, up from 51.9 the previous month. This was the strongest rate listed in nearly three years.
  • U.S. Existing Home Sales fell 2.8% in December, as the number of houses available on the market fell 11% for the month as well. The median price was also down 0.9%.
  • U.S. New Home Sales dropped 10.4% in December, to 536,000. This was far lower than the 593,000 expected, and 62,000 less than November.
  • U.S. GDP numbers for the fourth quarter were reported at 1.9%, down from 3.5% the quarter before. The main factor seemed to be a decrease in exports of soybeans. Steady consumer spending, however, suggested the economy will continue to expand.

Source: Ivy Weekly

Week in Review 01/24/2017

Bruce Doole
January 24th, 2017

The Power of Income in Our Current Environment

What does today’s market environment mean for income investors?
Income remains a challenge. While the prospect of higher rates is positive for yield-starved income investors, against this backdrop the price of fixed income and many yield-oriented equity sectors tend to suffer. This changes the challenge for income investors primarily from finding yield to managing the balance of risk, yield, and total return.

What are the most important economic themes being reflected in the moment?
The US remains the driver of global economic growth. Emerging markets had a strong run this year until the US election result. Although a more hawkish Federal Reserve (Fed) and a stronger US dollar could be headwinds for the asset class next year.

Where are attractive opportunities?
Despite the potential for continued rising rates, fixed income remains an important allocation in both an income and multi-asset portfolio. Government bonds and core fixed income offer very little protection against rising rates, which is why fixed income exposure is much more focused on credit.

Source: J.P. Morgan Asset Management


  • Great Britain CPI increased 0.5%, well above the expected 0.3% for the month.
  • U.S. CPI rose 0.3% in December, lifting the year-on-year rate to 2.1%.
  • U.S. Industrial Production surged 0.8% in December, led by a large increase in utility output.

Source: Ivy Weekly

Week in Review – 01/16/2017

Bruce Doole
January 16th, 2017
Do We Ever Really Know What to Expect From Rising Interest Rates?

In December, the Federal Reserve raised the federal-funds lending rate by .25%, only the second increase in the past decade.

Let’s consider what rising interest rates might bring to the various markets.

The first asset class we usually become concerned with is the bond market. This is where people and organizations lend money to corporations and governments, in turn receiving a fixed interest rate over a period of time that is typically 3, 5, 10 or even 30 years.

Suppose you bought a bond in which you loaned money to the US government for 30 years at 2.5%. If the going rate increased to 4.5%, you would not be very happy. You would be losing 2% a year in potential income you might earn if your money wasn’t tied up in the 30-year bond. Since the bond isn’t due to be repaid for 30 years, the only way you can get out of it is to sell it. No one is going to want a bond paying 2.5% when they can get 4.5%, so you are going to have to take a loss and sell the bond at a discount. So clearly, when interest rates rise the holders of long-term bonds get clobbered compared to shorter-term bonds.

The reverse is also true. If interest rates go down, the longer-term the bond the more valuable it becomes, as investors become willing pay a premium for bonds with a higher interest rate than the current market rate.

It’s hardly surprising, then, that when interest rates are rising many advisors recommend holding short-term or intermediate-term bonds that mature or pay off in 1 to 5 years. The idea is that when interest rates rise, the price decrease of shorter-term bonds is less because of the shorter time to maturity when you get your money back and can reinvest at the higher rates.

From this you might logically conclude that, when interest rates rise, long-term bond prices always fall. Not necessarily.

The bottom line is that we can’t depend on any markets to be logical. The bond market, like the stock market, is a free market driven by emotions. This human factor is a good reason not to take bets with your long-term investments on what the market response will be to anything.

Source: Rick Kahler


  • China Consumer Price Index rose 2.1% in December, down from the seven-month high of 2.3% recorded in November.
  • U.S. EIA Petroleum Status Report Crude oil inventories rose 4.1 million barrels in the January 6 week to 483.1 million, up 7.1% from last year at this time.
  • U.S. Jobless Claims remain very low, at 247,000 for initial claims in the January 7 week.
  • China Merchandise Trade Balance fell to $40.82 billion in December from $44.61 billion in November, somewhat below the consensus forecast.
  • U.S. Producer Price Index rose 0.3% in December.
  • U.S. Retail Sales posted a very solid gain in December, up 0.6%, but without autos the gain falls to only 0.2%

Source: Ivy Weekly