Permanent Value

Week In Review – 02/01/2016

Bruce Doole
February 1st, 2016

Five Reasons Not to Panic Over the Markets

The S&P 500 Index has fallen by more than 8% in the first three weeks of 2016, and international markets such as Japan, China and the U.K. have fallen into bear market territory.
This market correction is an over-reaction to current conditions rather than the start of a financial crisis or a long-lasting bear market. Here’s five reasons why:

1. Collapse of energy and commodity prices. Energy and other commodity prices are severely distressed, with no turnaround in sight. However, energy is a relatively small contributor to the U.S. economy – with U.S. energy companies accounting for about 6% of the S&P 500, and oil and gas extraction employment less than one-eighth of 1% of total non-farm employment. We don’t see the downturn in oil and other commodity prices as a catalyst for another crisis for the U.S. economy. Falling oil prices are an economic nightmare for the governments of Russia, Venezuela and Saudi Arabia, but are good news for oil consumers throughout the world.

2. Slowdown in China. The symbolic impact of China’s slowdown is taking on outsized importance relative to the actual impact on the global economy. We expect the industrial slowdown in China to continue, creating challenges not only for China but for commodity exporters throughout the world who previously benefited from China’s seemingly insatiable appetite. The Chinese government has substantial financial resources and powerful motivation to keep their economy from falling into too steep a slowdown.

3. Bank health. U.S. banks are stronger than was the case in the prelude to the financial crisis, more than doubling equity capital since 2009 while significantly improving credit standards. European banks have made less progress, but are still stronger than they were at the depths of the European sovereign debt crisis.

4. Residential real estate. Real estate, according to BCA Research, represents half the share of GDP that it had in 2005. There is considerably less real estate-related leverage in the system, and delinquencies are not signaling a return to the systemic stress experienced in 2007-09. Although there may be some pockets of excess, real estate doesn’t seem to be a threat to the health of the U.S. or global economy.

5. High yield. The high yield market has been under pressure alongside falling oil prices since 2014, pressure that increased since the closing of Third Avenue Management’s distressed debt fund. Delinquencies and defaults are rapidly increasing among energy and commodities companies, but the rest of the high yield market is experiencing much lower levels of financial stress. In stark contrast to the collapse of the housing market in 2007, most high-yield debt is owned by non-leveraged investors and the derivatives structure that served as an accelerant to the financial crisis in largely absent from the high yield market.

Overall, we think economic conditions will continue to provide a backdrop of slow growth. Despite negative headlines from recent weeks, there are significant bright spots in the global economy. The employment picture is significantly improved in the U.S. and in Europe, monetary policy is still relatively “easy,” and fiscal austerity has eased in most countries. Despite contraction in the industrial economy, the services sector continues to be healthy in both the developed and developing world. We think this backdrop supports a slow, but still-growing global economy.

Sentiment often swings between extreme optimism and extreme pessimism, and emotional swings are often disconnected from fundamentals. In our view, the plunge to start the year is more a function of sentiment than of an impending crisis in most of the global economies.

Do your best to step away from the constant flow of headlines to distinguish between noise that distracts you and news that truly changes the outlook for your investments.

– Source: Think Advisor, by Daniel Kern

This Week’s Economic Data


  • Australia CPI was up 0.4% in December after increasing 0.5% in the previous quarter.
  • U.S. New Home Sales jumped 10.8% to a 544,000 annualized rate and was 44,000 over the Econoday consensus and 24,000 over the high estimate.
  • Great Britain GDP expanded at a 0.5% quarterly rate in the October to December period.
  • U.S. Durable Goods Orders fell 5.1% in December.
  • U.S. Jobless Claims fell a sizable 16,000 in the 23 week to a lower-than-expected 278,000.
  • Japan CPI was down 0.1% on the month but up 0.2% from a year ago.
  • U.S. GDP rose only at a 0.7% annualized rate during the fourth quarter.
  • Canada Monthly CDP increased 0.3% for the month which was in line with market expectations.

–  Source: Ivy Funds

Week In Review – 1/25/2016

Bruce Doole
January 25th, 2016

Tax Law Changes 2016 

Yes, it’s tax filing season again, already! And again for this year, we had some tax laws extended by Congress through 2016 or 2019, but some were actually made permanent.

Summary of Individual Tax Provisions Made Permanent

  • Charitable giving incentives: Taxpayers are now allowed to donate real property for conservation purposes.
    • IRA owners over 70.5 years old may now make charitable donations directly to a qualified charity, without being taxed on the distribution amount up to $100,000/year.
  • Itemized deduction for state and local sales taxes in lieu of income taxes.
  • Teacher’s supplies deduction: Teachers will now have a deduction option for K-12 supplies expense up to $250/year.
  • Enhanced earned income credit: The law made permanent the refundable incentive for low-income families, especially those with three or more children, and also increased the income phase-out ranges for married couples filing jointly.
  • The Enhanced American Opportunity tax credit remains at the current level of $2,500 of the first $4,000 in educational expenses for four years of post-secondary education. The phase-outs still remain at $80,000 single and $160,000 married, filing jointly of income limits.
  • Enhanced Child tax credit: The current law allows $1,000 credit per qualifying child with an additional refundable credit equal to 15% of the taxpayers’ earned income in excess of $3,000. This credit was set to expire beginning in 2017.
  • Due to fraud, another permanent provision included in the new law enforces that earned income credits or child tax credits cannot be filed for in amended returns, claiming those credits for any year that the taxpayer did not have a valid social security number or ITIN.

Summary of Individual Tax Provisions Extended through 2019

  • The new markets credit: An individual or corporate tax credit for making qualified equity investments in qualified community development entities.
  • Bonus Depreciation: 50% immediate expensing is good through 2017, but it drops to 40% in 2018, and only 30% in 2019, before expiring altogether.

Tax provisions extended through 2016

  • Tuition deduction of $4,000 will continue for tuition costs of higher education, as an above-the-line deduction.
  • A $500 credit on the purchase of non-business energy-efficient items.
  • On commercial property related to heating, cooling and lighting improvements, the section 179D expensing option remains intact.
  • Probably the most beneficial is the exclusion of COD income on a principal residence, where a taxpayer is forced to sell the home in foreclosure or short sale, and does not repay the lender. This previous exclusion of income up to $2 million has been extended for this cancellation of indebtedness.

So while many of the tax extenders are not new or just more of the same, the permanent changes provide some solid, known tax provisions we can all bank on going forward.
Source: Andrew Rice, Think Advisor

This Week’s Economic Data

  • China Industrial Production for December was up a less-than-expected 5.9% compared to last December.
  • China GDP for the fourth quarter was up 6.8% from a year ago, just shy of expectations of 6.9% growth.
  • Great Britain CPI was marginally firmer than expected in December but still close enough to zero to make no significant difference to the overall picture.
  • Great Britain PPI was again weak in December with a 0.2% fall.
  • U.S. CPI slipped 0.1% in December.
  • U.S. Housing Starts and permits both fell back in December with 2.5% and 3.9% declines, respectively.
  • U.S. Jobless Claims posted a sizable 10,000 rise in the 16 week to a much higher-than-expected 293,000.
  • U.S. Existing Home Sales were deeply depressed in November and are expected to bounce back strongly in the December report.

– Source: Ivy Fund

Week in Review 1/18/16

Bruce Doole
January 18th, 2016
The 5 Most Important Numbers in your Financial Life

There are a lot of numbers in finances, so it’s understandable that some of us get confused from time to time. That said, there are some numbers that are essential when it comes to understanding your overall financial health. To help you get a better handle on the state of your finances, here are the five numbers you should know.

1. How Much Money You Have Coming In

This might seem like a no-brainer, but you would be surprised how many people don’t know how much money they bring home every month. Most folks might be able to rattle off their salary pretty easily, but their net and gross income don’t come to mind as quickly.

Having an accurate count of how much money you bring in every paycheck is vital to building and maintaining a good budget. So if you find yourself struggling to recall your income, you may want to consider taking a closer look at your next pay stub. There you’ll be able to see how much you make (before and after taxes) and how much you may be contributing towards a pension or retirement account.

2. How Much Money You Have Going Out

Knowing your expenses is vital when trying to maintain financial wellness. If you’re unsure how much you money you spend each month, consider tracking your purchases for four weeks. Not only will this let you discover how much money is leaving your wallet, but it will also let you see where it’s going. This could help you determine whether you’re overspending in certain areas of your life, find new ways to save and better optimize your budget to achieve your goals.

3. How Much Money You Owe

Your debt-to-income ratio is a great way to understand how much debt you’ve taken on and whether or not it’s in a manageable state. If you’re unsure of your debt-to-income ratio, you can start by pulling up your most recent credit report , ideally one from all three bureaus, just in case there’s a minor discrepancy.

From there, you can tally up your monthly debt payments and divide that by your monthly income (gross; before taxes and other deductions). The lower the number, the better off you are. (For best credit scoring results, you generally want to keep the amount of debt you owe below at least 30% and ideally 10% of you available credit.)

4. Your Net Worth

Your net worth is essentially the difference between how much you own and how much you owe. What you own includes your bank accounts, investments and property like houses and cars. What you owe is essentially the sum total of all your debts. Your net worth can provide you with a general overview of your financial situation. If your number is positive, you’re in good shape! If your number is negative, it might be time to take a look at your finances and see if there’s a problem you need to fix.

5. How Much You Have Saved

Do you know how close you are to saving up for your current financial goal? Tracking your savings is a great way to make sure you continually contribute and can even help motivate you when times get tough! If you’re unsure how much you have saved for retirement, an emergency fund, or any other savings goal, you can consider constructing some sort of visual to help you keep track.

While it can be challenging to keep track of your finances, you’ll be better of in the long run for putting in the time and effort. Providing you’re able to stay on top of these five numbers, you should be in solid financial shape.

– Source: by Leslie Tayne

This Week’s Economic Data

  • Canada Housing Starts were surprisingly soft in December with an 18.4% monthly fall to 172,965.
  • Great Britain Industrial Production had an unexpectedly poor November with a 0.7% drop.
  • European Union Industrial Production was surprisingly weak in November with a 0.7% monthly fall.
  • U.S. Jobless Claims were up 7,000 to 284,000 in the Jan. 9 week.
  • Italy Consumer Price Index was unrevised in the final data for December.
  • U.S. PPI-FD fell 0.2%, nearly reversing November’s 0.3% increase.
  • U.S. Retail Sales proved disappointing in December, down 0.1%.
  • U.S. Industrial Production was unchanged for December.


Source: Ivy Fund