Welcome Clients & Guests October 4, 2016

Transcription

1 Welcome Clients & Guests October 4, 2016

2 Presidential Election November 8, 2016 It s Impact On The Economy & Your Portfolio

3 The Status of the Race Brief Update Bryan Anderson

4 Current Polls: Conflicting popular vote is likely within 3 points Los Angeles Times Tracking Poll realclearpolitics.com latimes.com/politics Within the margin of error

5 Advantage Clinton. Trump must win 24 additional votes: Florida or Combo 270 Electoral Votes needed to win Forecasted flip from 2012: NV, CO, IA, OH, NE2 & ME2

6 Polls: difficult to know this time Do not measure voters intensity who will actually vote Are based on prior turnout models coverage bias & phone bias Can contain other biases sample size & self-selection With many polls within the margin of error, is this another BREXIT, or another Netanyahu, or Romney? Who is proud of their candidate and will admit it to a pollster?

7 The Election s Macro-economic Backdrop Lewis Spellman, PhD

8 Federal Reserve Quantitative Easing Fed adds nearly $3.8 Trillion Federal Reserve Bank of St. Louis Fed expanded their Balance Sheet by over 8x since the financial crisis

9 Result: The lowest interest rates in 5000 years! Implication for portfolios: Adjust out of bonds

10 Result: Federal Reserve created a bond bubble Stocks p/e range: High = 30 x Low = 12 x Bonds are historically expensive when compared to stocks Now = 18x (midrange) 10

11 Buying Bonds at a premium Example: $100,000 investment, 5% coupon rate, 5 years to maturity Premium Total Bonds Yield to Annual Tax Capital Net Gain Ending Paid Purchased Maturity Interest at 40% Loss Over 5 Yrs Balance 15% $86, % $4,348 $1,739 $13,043 $0 $86,957 10% $90, % $4,545 $1,818 $9,091 $4,545 $90,909 5% $95, % $4,762 $1,905 $4,762 $9,524 $95,238 Consider selling, especially if bonds are priced at a premium

12 Candidates Positions & Investment Implications Frank Beck

13 Candidates Web Sites Hillaryclinton.com/issues Donaldtrump.com/positions

14 Common Proposals Infrastructure spending Roads & bridges Roads, bridges & the border wall Subsidize cost of care Child care for working families Exclude cost from taxable income Price controls Pharmaceutical price reduction Negotiate Medicare prices

15 Contrasting Proposals: Taxes Raise marginal tax rates Target high income individuals Fair Share Surcharge of 4% on $5 mil+ incomes Restore the Estate Tax to 2009 level Eliminate the Carried Interest deduction End Corp Inversions by penalty Establish a Corporate Exit Tax Lower marginal tax rates 3 new individual rates: 33%, 25%, 12% Eliminate the Estate Tax Exception: Eliminate Carried Interest deduction End Corp Inversions by incentive Reduce Corp tax rate from 35% to 15% One-time tax rate of 10% for repatriation of capital

16 Current Corporate Tax Rates Cameroon 38.5% United States 35.0% Japan 32.1% Germany 29.6% Russia 20.0% Ireland 12.5%

17 Corporate Tax Rates Effect Of Trump s Proposal Cameroon 38.5% Japan 32.1% Germany 29.6% Russia 20.0% United States 15.0% Ireland 12.5%

18 Contrasting Proposals: Energy & Trade Increase regulation of oil/gas/coal Kill Keystone Pipeline permanently; restrict coal Alternative Energy: 500k solar panels in 4 years Trade Reform Re-negotiate TPP (?) Decrease regulation of oil/gas/coal Approve Keystone Pipeline Re-open Federal lands & Atlantic lease sales Promote coal Trade Reform Re-negotiate NAFTA Withdraw from the TPP Label China a currency manipulator Tariffs to countries & businesses who don t cooperate

19 Other Contrasting Proposals Debt-Free College Plan Free college for all Reduce existing college debt College Debt-Relief Plan To be announced Campaign Finance Reform Overturn Citizens United with new Supreme Court justices Temporary pause on regulations Require Depts. to rank regulations & Eliminate least cost effective regulations

20 Durable Investment Themes Online Retailing Communications & Data Storage Infrastructure spending Increasing worldwide consumption of LNG Drug discovery: Cancer, Alzheimer s, Parkinson s & MD Digital payment systems Self-driving vehicles Avoid: Banks & Pharma

21 Election-sensitive Investment Themes Municipal Bonds (+) Solar Energy (+) Firearms production (+) Domestic oil/gas/coal (-) U.S. Large Caps (+) U.S. Consumer Discretionary (+) Defense Contractors (+) Domestic oil/gas/coal (+)

22 Which proposals can get Congressional approval? If Clinton wins and Congress is controlled by Republicans = Policy Deadlock If Trump wins and Congress is controlled by Republicans = Policy Changes Lower taxes / repatriation = faster economic growth Increased production of domestic energy = lower energy prices Trade deals re-negotiated = increased US-based manufacturing Tighter immigration = possible upward pressure on wage rates Replacement of Yellen at the Federal Reserve = policy uncertainty

23 Brief Market Update

24 S & P 500 Uptrend is intact Fed comment BREXIT vote February 11 low

25 NASDAQ Composite Similar, but recent outperformance Fed comment BREXIT vote February 11 low

26 Sign of Market Health: Strong New Issues (IPOs) Recent outperformance

27 Sign of Market Health: Strong Semi-conductor group (SOXX) Semiconductor ETF Recent outperformance

28 The Wealth Scare Industry Don t fall for it!

29 Babies Thrown Out With The Bathwater Update

30 Passive Investing: growth in last 10 years Exchange Traded Funds (ETFs) Exchange Traded Funds (ETFs) 5x growth in assets 4x growth in number of funds Graph courtesy: Investment Company Institute Fact Book

31 ETF popularity leads to opportunity When capital flows out of an ETF, the manager sells everything in the basket XLE - Energy XBI - Biotech Babies thrown out with the bathwater

32 Normal relationship between earnings & stock price Earnings Price Price Earnings Time

33 Baby thrown out with the bathwater due to ETF selling Earnings Price Earnings Stock Price Time

34 Baby featured on our website February 19, 2016: Nat Gas pipeline company

35 Earnings Price Stock price performance

36 Current biotech baby we re tracking

37 Access Fidelity here

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40 Thank you for joining us tonight