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Outen the Lights!

In today’s modern society, it is hard to remember or even fathom that some people live their entire lives with the use of electricity. The Pennsylvania Dutch and one of the more amusing, and this week, apropos, calques from their dialect comes to mind: “Outen the lights.

This week, more than 1 million people in the greater San Francisco Bay Area who live in targeted high-wind and drought conditions had their lights “outened” by the embattled utility PG&E.

While it is difficult to argue that the economic and social costs of another major wildfire outweigh the costs of a planned power outage, planned outages like this cost more than money. Not having electricity is more than an inconvenience – it creates its own new set of safety and health issues, and many have justifiably questioned how the tech center of the universe and the world’s fifth largest economy does not have a better preventative solution.

While the shutoffs helped to protect customers from potential wildfires caused from downed power lines – and also PG&E from new wildfire liabilities – it effectively shut down any public support for the company. In addition to the turmoil surrounding its electricity shutdown, PG&E’s stock plummeted 28% on Wednesday due in part to the bankruptcy judge covering PG&E’s restructuring case allowing for the consideration of alternative restructuring plans for PG&E, plans that would potentially result in a complete loss of value for current PG&E shareholders.

So, putting aside the immensely important societal consequences, there is an important economic lesson to be learned here as well: Owning a concentrated position in any one stock is dangerous and risky, and even blue chip stocks, like PG&E, can and oftentimes do suffer unexpected and precipitous declines.

However, and not surprisingly, emotions, overconfidence, and taxes can get in the way of making intelligent, objective decisions when owning a heavy concentration of stock in just one company, and common questions almost always arise:

  1. Should I continue to just hold it?
  2. Should I sell all of it? Some of it? When?
  3. Should/how can I hedge it?
  4. What if the price goes up? What if it moves down?
  5. How can I at least begin to unwind it?

All very important questions, the answers to which can have a hugely important impact on your shorter- and longer-term financial health and independence, and questions we regularly help clients answer here at Towerpoint Wealth. While we have not been blessed with a crystal ball (at least not with one that actually works!) and cannot predict the future, we do have the expertise, experience, and tools to help you assemble an intelligent and well-thought-out plan, and also, behaviorally, be disciplined and objective in executing on it.

Get started by clicking the Own a Concentrated Stock Position? story found below, and follow up by calling or emailing us to discuss your circumstances further. Unlike employees who work for any of the major Wall Street firms, we have a legal fiduciary obligation to you, and look forward to helping you make well-thought-out and smart decisions.

TPW CLIENT UPDATE – Black Diamond Client Portal

Black Diamond provides an all-in-one portal for Towerpoint Wealth private clients, who are able to monitor ALL of their accounts, assets, and liabilities within one singular headache-free platform and secure online portal. Clients enjoy daily aggregated net-worth reporting and viewing, leveraging Black Diamond’s technology to centralize their financial affairs by connecting to over 800 custodians for real-time data flows.

Click HERE to log in.

The Black Diamond investor platform automatically adapts to the device being used for optimal viewing, on a smart phone, tablet, or desktop, offering Towerpoint Wealth clients greater convenience through anytime, anywhere easy access to all of their financial data, and to their complete wealth picture.

Napkin Finance: Financial Advisors

Credit to Napkin Finance. Click HERE for details.

Wealth + Health: The Ultimate Wellness Prescription – TPW’s Fall, 2019 Client Appreciation Event

We were fortunate to have 45 clients, colleagues, and friends join us for the Wealth+Health: The Ultimate Wellness Prescription client appreciation event we hosted last week at Shasta Smith’s amazing and unique venue in Sacramento, The Vintage Monkey.

We are proud to have brought together such an amazing group of people to not only socialize and mingle, but also to listen to and synthesize the important message that Dr. Bill Lloyd delivered during his presentation. Marrying the inseparable lifelong connection between financial and physical wellness, Dr. Lloyd discussed the key concepts of 1.) awareness, 2.) connection, 3.) resources, 4.) preparation, and 5.) trust, and their pertinence when navigating the most effective and comprehensive approach to growing older.

Client education (and fraternization!) will always be a central philosophy of the Towerpoint Wealth experience, as we relish opportunities to assemble fun and educational events that help to both enrich and educate our clients and friends on a myriad of different themes, subjects, and current issues.

Click HERE to see a few additional photos!

Trending Today

In addition to mingling and motorcycles, a number of trending and notable events occurred over the past two weeks:

As always, we encourage you to reach out to us (info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place. We are here for you, and look forward to connecting with, helping, and being a direct, fully independent, and objective expert financial resource for you.

– Joseph, Jonathan, and the entire Towerpoint Wealth team

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Your Emotion Is Creating A Commotion

Wealth doesn’t come from managing money. Almost without fail, wealth comes from managing the emotions behind the money.

Unquestionably, emotions hold an important (even essential) place in everyday life, and evolution has hard-wired them into our brain. As human beings, we get angry and fearful, we get joyful and sad, and we also can become greedy. Each of these emotions is innate and universal, and all are designed to ensure we demonstrate behavior with a high “survival value.”

However, emotions can both connect and disconnect us, and what produces this high survival value in normal settings can quickly become our enemy when managing money and wealth.

In today’s 24/7 news cycle, rational and considerate thought can often take a back seat to immediate judging and reactionary decision-making. When dealing with our finances, it can be extremely difficult to consistently make objective financial decisions, especially when we are innately wired to be fearful and greedy.

Recognizing our emotional financial weakness is important, as is working to overcome it. The word “disciplined” is one we oftentimes use when describing the planning and work we do with our clients at Towerpoint Wealth, and as many industry veterans will tell you, both “regular” retail investors and bigger institutional investors too often deviate from a well thought out plan. Instead, they oftentimes fall prey to making decisions based on “gut feeling,” or said differently, based on their inherent emotional biases.

We know our clients at Towerpoint Wealth expect both professional stewardship and behavioral coaching from us as we act as their legal fiduciaryThe importance of having a defined process when establishing a comprehensive wealth management methodology and plan, and then having the discipline to consistently follow it (most often during times of euphoria and panic), will have a huge influence over an investor’s longer-term success in building and protecting their net worth. Concurrently, this strongly enhances one’s financial security and peace-of-mind, a virtually universal goal of investors. Helping to take emotions out of our financial planning and decision-making is essential. At Towerpoint Wealth, our goal with each of our clients is to recognize what is important, understand what we can control, and then focus our time, planning, and resources accordingly.

Put simply, we have your back.

TPW CLIENT UPDATE – Schwab Account Security Enhancement

In the ever-evolving environment of cybercrime, we continue to be vigilant when it comes to client data. That means investing in technology designed to protect our clients, while at the same time training our team to also be highly attentive.

Cybersecurity will always be one of our top priorities, and we recommend you take action right now to improve the protection of your accounts held at our custodian, Charles Schwab, by doing the following:

  1. Initiate two-step (“multi-factor”) verification. Enhanced authentication adds a layer of security to your Schwab login IDs and passwords. You can sign up for this security enhancement by logging in at schwab.com/Securitycenter and selecting ‘Manage Two-step Verification’
  2. Review the Protecting Your Identity, Data, and Assetspresentation found below

Towerpoint Wealth – First Annual Retreat A Hit!

The Towerpoint Wealth family enjoyed bonding at our first annual TPW Retreat last Friday and Saturday morning. We had breakfast together at Awful Annie’s in Auburn. We hiked the Donner Summit Abandoned Railroad train tunnels together. We convened at Steve Pitchford’s cabin to discuss the current and future state of affairs at Towerpoint Wealth together. We enjoyed dinner at Cottonwood Restaurant in Truckee together, and breakfast together the next morning, prepared by our own partner and wealth advisor, Jonathan LaTurner.

Operative word – together! It was truly a fun, productive, and memorable 24 hours, and we all look forward to the second annual TPW Retreat next year.

Click HERE to see a few additional photos!

Trending Today

In addition to TPW family bonding, a number of trending and notable events occurred over the past two weeks:

Lastly, please take three or four minutes to review the curated content found below, highlighted by:

  • President Joseph Eschleman attended the Amplifying Your Value workshop, learning best practices for articulating and communicating the value we bring to our clients and preferred network partners, and how we are differentiating ourselves, adding value to our clients lives, and continually enhancing our suite of wealth management services and client service objectives.
  • An interesting article discussing why the current level of U.S. Federal debt may not be as problematic as is commonly believed.
  • The Hopper app, which helps you save up to 40% by using advanced data science to predict the future of airfare and hotel prices.

As always, we encourage you to reach out to us (info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place. We are here for you, and look forward to connecting with, helping, and being a direct, fully independent, and objective expert financial resource for you.

– Joseph, Jonathan, and the entire Towerpoint Wealth team

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Passive is Becoming MASSIVE

Do you prefer active or passive?

In the world of investing, this continues to be a HUGE debate.

Yesterday, Morningstar released its semi-annual analysis of actively managed funds (those that have higher internal expenses and attempt to beat a corresponding index or benchmark) compared to passively-managed peers (those that have low internal expenses and seek simply to mirror a corresponding index or benchmark), and the results were compelling: Only 23% of actively-managed funds exceeded the average of their passive “opponents” over a ten year period ending June, 2019. Does this confirm Jack Bogle’s quote?

In other words, every dollar you save by not paying the higher fee an active money manager charges is an additional dollar in your pocket.

Like much in life, we feel this active vs. passive decision should not be a binary one for our clients, and instead believe there are many shades of gray to this question. Expenses (along with income taxes) are a “necessary evil” when investing to build and protect net worth, and we aggressively seek to manage and minimize these for our clients.

However, expenses are only one of a myriad of considerations when analyzing what type of investments are most economically beneficial to a disciplined, informed, and purposeful portfolio. While we maintain a fairly strong bias (supported by an abundance of empirical evidence) towards recommending our clients own lower cost passive investments, we also believe there may be pockets in a portfolio where the costs of active management are justified.

Confused yet? It is a lot to wrap one’s head around. Call or email us to discuss your circumstances further, and/or click HERE to learn more about the investment philosophy and strategy at Towerpoint Wealth.

Towerpoint Wealth – Eating Well!

The TPW team is always diligently working to ensure the peace of mind and comprehensive financial well-being of each of our clients, and we also recognize how important it is for our family to have fun together. And more often than not, having fun means having food!

The team was recently treated to some light, crispy, and DELICIOUS homemade lumpia, made by our Client Service Specialist, Raquel Jackson and her mother, Susan York. Rumor has it that Raquel’s two-year-old daughter, Daijah, also helped with the lumpia-making.

And earlier this week, the crew enjoyed a sugary snack – one of the most divine creations ever to come out of the confectionery field, an original Boston Cream Pie, shipped directly from the historic Omni Parker House in Boston!

In addition to the good eating that was happening at Towerpoint Wealth’s headquarters, a number of trending and notable events occurred over the past two weeks:

Lastly, please take three or four minutes to review the curated content found below, highlighted by:

  • Please RSVP and join us at The Vintage Monkey for our upcoming Wealth + Health – The Ultimate Wellness Prescription event, featuring Dr. Bill Lloyd, MD, FACS
  • Our newly-published August, 2019 Monthly Market Lookback, Against the Wind
  • An excellent commentary discussing upcoming changes to the Social Security system in 2020

As always, we encourage you to reach out to us (info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place. We are here for you, and look forward to connecting with, helping, and being a direct, fully independent, and objective expert financial resource for you.

– Joseph, Jonathan, and the entire Towerpoint Wealth team

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Against the Wind

“An Investment in Knowledge Pays the Best Interest” (Ben Franklin)

And I remember what she said to me
How she swore that it never would end
I remember how she held me oh so tight


Wish I didn’t know now what I didn’t know then

Against the wind
We were runnin’ against the wind
We were young and strong, we were runnin’
Against the wind…

(From “Against the Wind”, by Bob Seger & The Silver Bullet Band, 1980)

There is an old tongue-in-cheek market adage that says that portfolio managers are “never wrong, but sometimes they are early.” Well, in our case, that expression was flipped — We were exactly right, but late.

Back in July, we wrote the following:

…[W]e have entered a new phase of the market cycle, and we expect increased volatility and periodic bouts of investor panic as we move through the year, especially once the “dog days” of summer are over…

We then closed the July Commentary as follows:

[W]e expect a generally quiet period as we head into and through the heart of the summer. But while the risks may lie dormant due to general inattention, they certainly have not gone away. Enjoy the more relaxed market environment while you can – we suspect things will get “interesting” again once the summer months have passed…

So, we got “the call” correct but were “late” in expecting market volatility to stay subdued until after Labor Day. Instead, it exploded in late July and all the way through August.

August was a bad month for the equity markets (though an equally stupendous month for bonds). As we reach the final days of the month, US markets posted four consecutive weeks of negative performance and, depending on the market, were down between 3% and 7% for the month. To put this performance in better perspective, the YTD performances of all major equity markets are still positive (and the US markets in particular are still very positive). However, when looked at over the past twelve months, which includes the severe disruptions of Q4 2018, the heavy declines in May 2019, and the current downdraft of the past few weeks, we see a very different picture.

Over the past twelve months, every major global equity market has posted a flat-to-negative performance and, in the cases of the EAFE, EM, and US Small Cap markets, fairly severe negative performance. We believe it is safe to say that market volatility is once again alive and well.

Conversely, US Treasuries are on absolute tear, driven by a “flight to quality” and the fact that they still offer a positive (albeit small) yield, in comparison to the $17 trillion in negative yielding global debt. As we approach the end of the month, the 10+ year US Treasury index is flirting with a 10% return in August alone, and is up close to 22% for the year.

What is going on? For most of the past year, we have encouraged investors to focus on market signals versus market noise and, after a very “noisy” August, that advice still holds. We believe the drivers of recent market volatility fall into four broad categories:

  1. Trade tensions: The on-again / off-again trade negotiations between the US and China – now very off-again following a recent incredible “tweet rant” by President Trump – is beginning to have tangibly negative global economic effects. We remain reasonably optimistic that both sides will calm down and eventually settle, but it will take far longer than originally anticipated, and it may get worse before it gets better.
  2. Geopolitical anxiety: The most important issue on the geopolitical horizon remains uncertainty over “Brexit”. Upon becoming Prime Minister, Boris Johnson promised to bring “Brexit” to a successful conclusion, but it is not clear how he plans to – or can – pull that off. A “hard” exit – one where the UK simply leaves the European Union with no specific agreements in place regarding trade, immigration, labor mobility, and the issues regarding the internal Irish border (i.e., between Northern Ireland (part of the UK, and so “exiting”), and the Republic of Ireland (which will remain in the EU) – will have significant effects on the UK and European economies.

    But “Brexit” is by no means the only geopolitical issue facing investors. The growing tension between Hong Kong and China, North Korea’s apparent “ramp up” in its nuclear activities (including the possible launch of a submarine capable of launching nuclear weapons), India and Pakistan’s perpetual and recently escalated animosity over the Kashmir Province, and the escalating tension between the US, Europe, and Iran are all contributing to increased investor anxiety.
  3. Investor Sentiment: Our office has a TV turned on all day to one of the “financial news” networks. Over the past several weeks, especially since Congress is in recess and, therefore, the circus that passes for our government is quiet (ex-President Trump), it has been almost non-stop “doom and gloom” headlines and stories, especially with respect to the yield curve and the Fed. With respect to the latter, it certainly did not help when President Trump wondered in a tweet if the Fed or China represented the bigger threat to America (?!). Faced with a declining stock market and 24/7 fear-mongering, it is no wonder that investor optimism is beginning to wane. The danger is that it becomes a self-fulfilling prophesy – if enough investors get scared enough to significantly “de-risk” their portfolios, it could initiate a fairly vicious downturn.
  4. The Summer Doldrums: We stick to our advice that investors should not overreact to summertime market volatility. Trading volume tends to be lower and therefore volatility can be magnified. We are not suggesting that investors should not be paying attention, but simply that what we’ve witnessed over the past several weeks may not be entirely representative of broad market sentiment. What we do suggest, however, is that if volatility spiked up so significantly in August, we may be in for a rough September and fourth quarter, when market professionals are fully back and focused.

So, there is plenty of noise right now that is most definitely spooking investors.

However

At the risk of being repetitive, let us examine the underlying market fundamentals (signals):

  1. The trends that have been in place for many months continue relatively unabated. The global economy is still growing, though decidedly slowing down, especially in manufacturing (most non-US PMI readings are at or below the “expansionary” 50 level and, according to the IHS Market estimate, the US is likely to fall below 50 in August – the first time it has done so since September 2009);
  2. With the S&P 500 earnings season effectively complete, both earnings and revenue growth is slightly positive year-over-year, though at a lower growth rate than recent comparable periods;
  3. Inflation is non-existent, despite a full-employment economy and increasing wage growth;
  4. Interest rates are as low as they have been in years, with no signs of rising anytime soon;
  5. Global central banks remains completely synchronized on easy money policies

We don’t agree with some of the current monetary and economic policy decisions – they are far too invasive for our free-market capitalist tastes. But, undeniably, they are attempting to “goose” the economy and the markets, and we ignore that at our own peril.

With that as a backdrop, looking out over the current economic and investment landscapes, here is what we see.

The Current Economic Landscape

The global economy is still expanding, though slowly:

  • Through the end of August, the current estimate of US Q2 GDP is 1.8%, positive but low. Early estimates for Q3 and Q4 growth are 2.0% and 1.9%, respectively, and growth for all of 2019 is estimated to be 1.8% – not recessionary, but clearly slowing (source: The Wall Street Journal);
  • US growth estimates for 2020 are also roughly 1.8% (source: The Wall Street Journal);
  • Continuing trade tensions and additional monetary stimulus could change the economic outlook for the US over the course of the year. Trade talks between the US and China show no real signs of progress and, in fact, the rhetoric and tariff “wars” continue to escalate, to the detriment of both countries. There is tangible negative economic effects from the ongoing stalemate, especially in China and in the American Midwest. President Trump has little chance of reelection if he cannot maintain the upper Midwest and Pennsylvania;
  • Although there has been no formal fiscal stimulus out of Washington, the agreed upon increase in the debt ceiling and the increase of both domestic and military spending caps will have a stimulative economic effect (at the expense of exploding national debts and deficits, but NO ONE in Washington cares about deficits right now– our children will curse us one day);
  • As expected, the Fed cut rates by 25 bps at the end of July and the market consensus is that there will be additional cuts of 25 bps in September and then again in December. We maintain our contrarian view on these cuts – they are not needed – the economy is still expanding, employment is strong, and inflation is slowly rising – why “shoot the bullets” of additional rate cuts when the economy and inflation don’t seem to need it? President Trump is “demanding” lower rates and a weaker dollar ahead of next year’s election. We could not disagree more with his attempted interference into Fed policy. The last time that happened – when Fed Chair Arthur Burns “folded” to President Richard Nixon back in the late 1960s-early 1970s, things ended very badly for the US (14-15% inflation and 20% short- term interest rates, anyone?);
  • The market sell-off of the past 3-4 weeks does not change our concern that the risk profile of the market is very asymmetrical right now – in the wrong direction. We wrote back in July that “the market seems to have fully priced in a lot of positive assumptions about trade and interest rates. If something else happens (as is always a possibility), we fear the market may react quite negatively”. Well, we were right, though President Trump’s “tweets” had more to do with the sell-off than we could have anticipated;
  • Both the US manufacturing (51.2) and services (53.7) sectors remained in expansionary mode in July (any reading above 50 is considered expansionary), but both slipped versus prior months, suggesting a slowing economy, (source: The Institute for Supply Management);
  • The IHS Markit estimate for August suggests a decline in the PMI (manufacturing index) down to below 50 (49.9) – a 118-month low. The IHS Markit estimate for the August NMI (services index) is barely above expansionary (50.9) (source: IHS Markit);
  • Inflation remains muted (US CPI was just 1.8% year-over-year in July), and remains below the target rate of 2% set by the Fed. In a world where there is more than $17 trillion in negative yielding debt (both sovereign and corporate), there seems to be an insatiable demand for US Treasury paper, even at rates as low as they have been in several years – the 10-year US Treasury rate closed out August at a level of ~1.50% (source TradingEconomics);
  • The employment picture in the US remains robust, and wages ticked up 5.2% year- over- year in July. The unemployment rate is at a remarkable 3.7% – historically, 5% has been considered the nation’s “full employment” level (sources: The St. Louis Federal Reserve Bank and TradingEconomics);
  • With the Q2 earnings season more or less complete, the overall picture is positive but showing signs of deceleration. The earnings growth rate was roughly +0.5% year- over-year, on roughly 4.7% higher revenues. 76% of reported companies beat their earnings expectations, but only 57% beat their revenue expectations, suggesting that financial engineering (primarily stock buybacks) is alive and well (source: Zachs Earnings Outlook, August 22, 2019);
  • More troubling is the general decline in corporate capital expenditures, suggesting CEOs are worried about trade tensions and the potential for continued economic expansion, and withholding capital investment accordingly;
  • The primary threats to continued economic expansion are trade “wars”, the tension between Hong Kong and China, signs of renewed nuclear aggression by North Korea, the looming threat of a “hard Brexit” and escalating tensions in the Middle East;
  • With manageable inflation, signs of a decelerating economy, and insatiable “flight to quality” investor demand for US Treasuries, there is no upward pressure on interest rates and, in fact, rates have fallen to multi-year lows;
  • The yield curve remains very flat. Much has been made of the recent “inversion” of the 10-year / 2-year yield curve spread, but we hold a contrarian view here. The curve inverted temporarily (a matter of days) and by an insignificant amount (less than 10 bps). We just don’t see any reason to panic.
  • We think the inversion has more to do with demand at the long end of the curve than with impending recession fears. It is true that an inverted curve has preceded each recession of the past generation, but it is also true that not every inverted yield curve was an accurate harbinger of eventual recession.
  • Furthermore, even if an inverted yield curve WAS suggesting an eventual recession, history indicates that we have 15-24 months to prepare. The primary risk that we see is one of a self- fulfilling prophesy – investors and consumers get so “spooked” by the non-stop negative news coverage that they begin to stop spending and “de-risk” their portfolios, leading to a vicious cycle downward. But we are not there yet;
  • As we reach the end of August, the yield curve is completely flat – the difference between the yield on the 2-year and 10-year Treasury is essentially zero – both rates hover at around 1.50%, while the 30-year rate has dropped below the psychological barrier of 2.00% (source: YCharts);
  • The US dollar is behaving strangely. Over the past several weeks it has strengthened against the euro (due to weak European economic news, increasing political friction, and a decidedly dovish ECB) but weakened against the yen (a relative “flight to quality” plus a dovish tone to recent Fed pronouncements) (source: YCharts);
  • It seems apparent at this point that President Trump does not mind the see-saw nature of the US / China trade negotiations because he believes it keeps the pressure on the Fed to remain accommodative. He has been outspoken (inappropriately, in our view) in his desire for lower rates and a weaker dollar, which he believes will reduce our trade imbalances. In a recent tweet (released after Fed Chair Jerome Powell spoke “dovishly” at the annual Jackson Hole Economic Summit, but apparently not “dovishly” enough), President Trump publicly questioned whether Fed Chairman Powell or Chinese President Xi Jinpeng was a “bigger threat” to the US. With all due respect to the President, our response is, “Are you serious?”;
  • The Euro area reported a Q2 GDP growth rate of 1.2%. Germany, Europe’s most powerful economic engine, has slipped into economic contraction, though not quite recession. The slowing global economy (especially in Europe and China) is riding roughshod over Germany’s export-driven economy (source: TradingEconomics);
  • Manufacturing all across the Euro area continues to slip and remains in non- expansionary territory – 47 in August, the lowest reading since April 2013 and the seventh consecutive month of contractionary readings (source: IHS Markit and TradingEconomics);
  • The Euro area Services index remains slightly expansionary (53.4 in August, up from 53.2 in July) (source: TradingEconomics);
  • Euro area unemployment remained at 7.5% in July, and remains at its lowest level since 2008 (source: TradingEconomics);
  • Inflation is a non-issue in Europe (up 1.0% year-over-year in August, but remaining at its lowest level since November 2016), and the ECB under retiring President Draghi and incoming President Christine Lagarde has turned and will remain once again decidedly dovish. Deflation still represents the bigger risk at this point (source: TradingEconomics);
  • Japan’s GDP is back in positive territory (1.8% in Q2 2019 and 2.8% in Q1 2019), but remains sluggish and sensitive to changes in exchange rates. A strengthening yen (should it continue) will hurt Japanese exports, a critical factor in its economic activity (source: TradingEconomics);
  • China’s (official) GDP growth in Q2 2019 was 6.2% (annualized), the lowest reported growth rate since Q1 of 1992. Fairly massive fiscal and monetary stimulus has had some positive effect, but the Chinese economy has been hit much harder than the US economy during the on-again / off- again trade negotiations. The simple fact is that China needs the US more than the US needs China (though both sides lose in an extended or escalated trade war) (source: TradingEconomics);
  • The ongoing political tension between Hong Kong and mainland China is adding to the economic uncertainty. China has been, essentially, “boxed into a corner”. If it allows the Hong Kong protests and riots to continue, it will “lose face” on the national stage (though the residents of Hong Kong are completely in the right with respect to their protestations). If it intervenes militarily, it will become a global pariah, even if the US continues to evade taking a strong position on the issue due to the ongoing trade negotiations;
  • The Chinese manufacturing index upticked back into expansionary mode in August, coming in at 50.4 (source: TradingEconomics).

The Towerpoint Wealth Economic & Market Outlook:

  • The global economy shows a decided deceleration of growth, and ongoing trade tensions are having a tangible negative effect;
  • US economic growth, interest rates, inflation, and earnings all remain at least slightly expansionary. We are slowing down but not (yet) headed into recession;
  • Globally, inflation simply is not a problem, due to slow growth and stable input prices. As we reach the end of August, Brent Crude oil prices have once again dropped below $60 per barrel;
  • Global central bank policies remain “synchronized” around an easing theme. There will be no tightening of interest rates anytime soon;
  • The public credit markets continue to look expensive to us, with Investment Grade and High Yield credit spreads trading at extremely low levels not seen since 2014;
  • We remain concerned about high yield liquidity and refinancing risk and the growing level of “covenant lite” bank loans. Additionally, more than 50% of non-financial investment grade debt is rated BBB – the lowest investment grade level. If and when we head into the next recession, there could be a liquidity crisis if more than a modest amount of this debt falls into non- investment grade territory (source: FocusEconomics);
  • The global capital markets are “spooked” – pricing in historically falling yields, a decidedly slowing global economy, and afraid of “trade wars”. We think this is overblown. Please don’t mistake our thoughts – we think the market is over-priced relative to underlying fundamentals, specifically economic and earnings growth potential;
  • But we are not “at the brink of disaster”, especially here in the US. The economy is growing (albeit slowly), earnings are still positive, employment and consumption remain strong, interest rates are going to stay low for a long time, and inflation is not an issue.
  • President FDR’s famous comment comes to mind – “The only thing we have to fear is fear itself”;
  • When we consider the fundamental drivers of market performance – economic growth, earnings, interest rates, inflation, and central bank policy – we remain generally optimistic, but we have entered a new phase of the market cycle, and we expect increased volatility and regular bouts of investor panic as we move through the year, especially now that summer is over – and the volatility began sooner than we expected – we thought we had until after Labor Day;
  • With that in mind, we maintain our belief that a heightened focus on quality, liquidity, and diversification is an appropriate course of action.

Barbeques are firing up as we semi-officially “end” summer. A friend of ours suggested the following paraphrase of the iconic Don Henley “Boys of Summer” song (changes added and emphasized):

I can see you
Your brown skin shining in the sun You got that hair slicked back

And those Wayfarers on, baby
And I can tell you my love for you will still be strong

After the low vol of summer is gone

No more white clothes, pools are closing, and our children return to school. Batten down the hatches…we suspect we are in for some stormy fall weather.

Warm Regards,
Joseph F. Eschleman, CIMA® President
Towerpoint Wealth, LLC

Disclosures: Towerpoint Wealth is a Registered Investment Advisor. This platform is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Towerpoint Wealth and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Towerpoint Wealth unless a client service agreement is in place. No portion of any content within this commentary is to be interpreted as a testimonial or endorsement of Towerpoint Wealth investment advisory services and it is not known whether any clients referenced herein approve of Towerpoint Wealth or its services; nor should it be assumed that any references to our clients are representative of all our clients’ experiences.

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Are We Stuck Like Andrew Luck?

Many of us who follow sports were very surprised when former No.1 draft pick Andrew Luck retired from the National Football League this past Saturday evening.

The reasons for Luck’s decision, which caught most of the sports world entirely off guard, centered around being stuck in a cycle of injury, pain, and rehab, and losing the enjoyment of playing football because of it. A telling quote from Luck:

“…the only way forward for me is to remove myself from football and this cycle that I’ve been in.”

Luck’s dilemma draws a parallel to what many investors are dealing with today, an extremely unpleasant environment never historically seen before — that of negative interest rates. Or more simply put, an environment where when you invest money, you are immediately informed of how much you will lose!

So, if we said we wanted to borrow $100 from you, but will only pay you back $98 or $99 a year later, would you “lose the enjoyment” of investing and building wealth?

Don’t laugh — while it sounds absurd (to us at Towerpoint Wealth, downright offensive), increasingly this is now the global bond market. A rising share of government and corporate bonds are trading at negative interest yields — a financial twilight zone that took hold after the ’07-’08 financial crisis, and has accelerated on fears that a fragile global economy will be further damaged by the U.S.-China trade war.

A headline from a Business Insider article written almost three years ago sums up this new and perplexing environment:

Unlike Andrew Luck, who was simply able to extricate himself from his bad circumstances and rigors of being an NFL quarterback, most retail and institutional investors cannot just turn their backs on this perplexing investment environment. Investors have to find a home somewhere for their capital. So while a scenario in which interest rates in the U.S. turn negative is no longer unthinkable, it does not mean there are not ways to build wealth in this type of environment. Regardless of what may happen, at Towerpoint Wealth we stand ready to help you, and encourage you to call or email us to discuss your circumstances further.

Towerpoint Wealth at Schwab’s SOLUTIONS® conference

Our Director of Client Services, Lori Heppner, Client Service Specialist, Raquel Jackson, and Director of Research and Analytics, Nathan Billigmeier, spent a full day out of the office in San Francisco last week attending the 2019 Charles Schwab SOLUTIONS® conference.

In the interests of maximizing operational efficiencies, learning more about cybersecurity protection, as well as leveraging Schwab’s research, trading, and innovations in financial technology (FinTech) capabilities, Nate, Lori, and Raquel sharpened their professional saws and took a deep dive into SOLUTIONS®, learning more about how the myriad of Schwab’s tools and resources can help us better and more efficiently serve our clients at Towerpoint Wealth.

* Click the Solutions tile below to view the SOLUTIONS® agenda and session details *

In addition to the aforementioned interest rate and FinTech developments, a number of trending and notable events have occurred over the past two weeks:

Lastly, please take three or four minutes to review the curated content found below, highlighted by:

  • What might Andrew Luck do next, after his surprise retirement from the NFL? Click below to find out.
  • A well-written article discussing whether a recession in the United States will follow the now-inverted yield curve.
  • Have a dog? Pinched for time and unable to walk poor Fido? The Wag! app may be the perfect solution for you!

As always, we encourage you to reach out to us (info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place. We are here for you, and look forward to connecting with, helping, and being a direct, fully independent, and objective expert financial resource for you.

– Joseph, Jonathan, and the entire Towerpoint Wealth team

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Whiplash for Your Cash

We’ve seen this movie before:

The media knows that nothing captures eyeballs better than photos of distressed traders during periods of extreme market volatility, and the performance of the Dow Jones Industrial Average this week has certainly given shorter-term speculators whiplash:

  • Monday, August 12                           -391        (trade war anxiety)
  • Tuesday, August 13                          +373       (delayed tariffs)  
  • Wednesday, August 14                     -800        (yield curve inverts)
  • Thursday, August 15                        +100        (strong consumer spending at retailers)
  • Friday, August 16 (as of 10:57AM)   +296        (Treasury yields recover from multi-year lows)

The media also glorifies this uncertainty; sensible, veteran investors (dare we say most Towerpoint Wealth clients) see it for what it is – noise. The daily, weekly, monthly, and even yearly machinations of the stock market are inevitable, and the sooner that fact is internalized, the higher the probability of success in building and protecting net worth. Craziness like this happens REGULARLY, as evidenced by one of our favorite illustrations:

Level-headed investors should appreciate the above illustration, especially within the context of this one, reflecting the probability of earning positive returns in the stock market, as measured by the S&P 500:

When things get temporarily crazy, we find ourselves asking: WWWD? Translated – What Would Warren (Buffett) Do? His answer:

Big swings in the markets may not be enjoyable, but they are definitely a fact of life, and for those who have implemented a disciplined strategic investment plan, volatility should be expected and embraced, not feared.

Towerpoint Wealth at Oracle Park

Our President (and Philadelphia Phillies fan) Joseph Eschleman, Partner – Wealth Advisor, Jonathan LaTurner, and Director of Tax and Financial Planning, Steve Pitchford, were fortunate to be hosted by Laura McDowell of Charles Schwab in the Schwab suite at Oracle Park for the Phillies – Giants game this past Saturday.

Choosing to partner with Charles Schwab as our custodian was unquestionably one of the most important early decisions we made when launching Towerpoint Wealth as a fully independent registered investment advisory (RIA) firm. From executing transactions to holding and clearing client assets, as well as monthly account and annual tax reporting, product and client management, investment research, and technology, working with the right custodian is an essential responsibility we have in being a legal fiduciary to our clients.

It quickly became obvious to us that partnering with Charles Schwab, the biggest, most experienced, and longest-tenured RIA custodian, was the right move to make for our clients, and we sincerely could not be happier with our partnership with “Chuck” and Co.!

In addition to market volatility and Bay Area baseball, a number of trending and notable events have occurred over the past two weeks:

Lastly, please take three or four minutes to review the curated content found below, highlighted by:

  • Our recently-published July, 2019 Monthly Market Lookback, Summer in the City
  • A snapshot of the new custom Towerpoint Wealth sustainable investment offering
  • A tongue-in-cheek and well-written article that suggests spending money to buy expensive coffee drinks won’t necessarily derail your retirement! 

As always, we encourage you to reach out to us (info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, we are here for you, and look forward to connecting with, helping, and being a direct, fully independent, and objective expert financial resource for you.

– Joseph, Jonathan, and the entire Towerpoint Wealth team

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Summer in the City

“An Investment in Knowledge Pays the Best Interest” (Ben Franklin)

Hot town, summer in the city
Back of my neck getting dirty and gritty

Been down, isn’t it a pity
Doesn’t seem to be a shadow in the city

All around, people looking half dead
Walking on the sidewalk, hotter than a match head

But at night it’s a different world
Go on out and find a girl
Come-on come-on and dance all night
Despite the heat it’ll be alright

(From “Summer in the City”, by The Lovin’ Spoonful, 1966)

The “dog days” of summer are upon us, and the “out of office” email bounce backs have increased accordingly. But while many Northern Hemisphere workers may be taking their summer breaks, the global economy continues to grind along.

The trends that have been in place for many months continue relatively unabated:

1. The global economy is still growing, but is decidedly slowing down, especially in manufacturing;

2. Less than halfway through the S&P 500 earnings report season, earnings growthis slightly positive year-over-year, but at a much lower growth rate than recent comparable periods;

3. Perhaps more troubling, the “revenue beat rate” is lower than historical averages. Put differently, companies are matching or beating their earnings expectations, but via financial engineering (e.g. stock buybacks) rather than by way of organic top-line revenue growth;

4. Interest rates remain low and, in fact, have fallen due to slowing global economies and the absence of inflation. According to Deutsche Bank, roughly 25% of all publicly traded sovereign and corporate debt is currently trading at negative yields!

5. Adding fuel to that fire, both the Fed and the ECB are expected to announce further monetary easing over the next month or two, especially in Europe as Mario Draghi prepares, later this year, to hand over the ECB reins to the former. Head of the International Monetary Fund, Christine Lagarde. Lagarde is widely viewed as a fairly extreme “dove”, and so the ECB is expected to remain very accommodative into the foreseeable future;

6. Inflation remains a non-issue in all major economies, though there are slight signs of upward pressure in the US as wages rise slowly but steadily; and

7. All major central banks remain completely accommodative, with not a single one even contemplating tightening measures.

The primary risks to the global economy remain geo-political – the on-again / off-again trade negotiations between the US and its major trading partners (especially China), renewed aggressive activity by North Korea, increasing tension with and actual aggressive activity by Iran in the Middle East and, perhaps most importantly (at least in the short term), the uncertainty over “Brexit.”

Theresa May was unable to negotiate a successful conclusion to “Brexit”, and it cost her the Prime Minister’s office. She has been replaced by the iconic and flamboyant Boris Johnson, a former Mayor of London and Cabinet Member in Theresa May’s government. Johnson promises a successful conclusion to his respective negotiations with the European Union and his own parliament over the issue of “Brexit,” but the markets do not share the same confidence – UK interest rates and the pound are both falling, the economy is slipping, and Bank of England Head Mark Carney continues to support “easy money” policies to try and stem the tide.

In our opinion, the global markets have become entirely too dependent on central bank policy. Central bankers are neither omniscient nor all-powerful and, besides, they may be running short of policy bullets to shoot. We fear this may not end well.

The Current Economic Landscape

The global economy is still expanding, though slowly:

• Through the end of July, the current estimate of US Q1 GDP growth slid slightly again to 3.0%, still positive but a slight decline from the early initial estimate of 3.2%. The initial estimate for Q2 GDP growth came in at 2.0% (source: The Wall Street Journal);

• US growth estimates for all of 2019 are roughly 2.2%, with further declines in later years (source: The Wall Street Journal);

• Ongoing trade negotiations and additional fiscal and/or monetary stimulus could change the economic outlook for the US over the course of the year. There does appear to be some progress in the negotiations between the US and China, but the market reacts strongly to the on-again / off-again nature of the discussions. The consensus is that some sort of deal will be reached toward the end of this year, but the “devil is in the details.” Some estimates suggest that a protracted trade war could shave as much as 0.5% off of projected US growth, and it is having an even worse effect on Chinese growth;

• Although the rhetoric and partisanship in Washington, DC suggest that therewill be no formal fiscal stimulus ahead of the 2020 elections, the two sides recently verbally agreed to lift the debt ceiling and increase both domestic and military spending caps, which will have a similar stimulative economic effect (at the expense of exploding national debts and deficits);

• That said, the market is pricing in a locked-down assumption that there will be additional monetary stimulus in the form of Fed rate cuts. As we go to publication, the Fed is widely expected to cut rates by 25 basis points when it next meets at the end of the month. The early talk of a 50 bps cut has faded, but the possibility remains, and the market is still pricing in expectations of additional cuts later this year;

• We maintain our concern that the risk profile of the market is very asymmetrical right now – in the wrong direction. What we mean is that the market seems to have fully priced in a lot of positive assumptions about trade and interest rates. If something else happens (as is always a possibility), we fear the market may react quite negatively;

• Both the US manufacturing (51.7) and services (55.1) sectors remained in expansionary mode in June (any reading above 50 is considered expansionary), but both slipped significantly versus prior months, suggesting a slowing economy, (source: The Institute for Supply Management);

• The IHS Markit estimate for July suggests a decline in the PMI down to 50.0 – a 118- month low (source: IHS Markit);

• Inflation remains muted (US CPI was just 1.6% year-over-year in June), and remains below the target rate of 2% set by the Fed. In a world where there is more than $12 trillion in negative yielding sovereign bonds and $600 billion in negative yielding corporate bonds, there seems to be an insatiable demand for US Treasury paper, even at rates as low as they have been in several years (source TradingEconomics);

• The employment picture in the US remains robust, and wages ticked up 3.6% year- over-year in May. Automation and globalization remain firm dampeners on wage growth, despite the low levels of unemployment – 3.7% in June (sources: The St. Louis Federal Reserve Bank and TradingEconomics);

• With the Q2 earnings season less than halfway through, the overall picture is positive but with signs of deceleration. Of the roughly 150 companies in the S&P 500 that have reported as we go to publication, the earnings growth rate has been roughly 2.8% year-over-year, on roughly a 3.4% higher revenues. Fully 79% of reported companies have beat their earnings expectations, but only 59.4% have beaten their revenue expectations, suggesting financial engineering (primarily stock buybacks) is alive and well; (source: Zachs Earnings Outlook,

• The primary threats to continued economic expansion are tenuous trade and tariff negotiations (specifically between the US and China), signs of renewed aggression by North Korea, ongoing political “re-adjustments” in Europe, especially in the UK, Germany, and Italy, and escalating geo-political tensions between Iran and the “West”;

• With low inflation, signs of a decelerating economy, and huge investor demand for US Treasuries, there is little upward pressure on interest rates;

• The yield curve remains very flat, and the long end remains “tamped down” by high demand for US Treasuries and a lack of inflation fears;

• As we approach the end of July, there is only ~22 basis points difference between the yield on the 2-year and 10-year Treasury – the yield curve was fairly stable over the course of the month, and the 10-year Treasury rate currently is trading just above the psychological boundary of 2.00% (source: YCharts);

• Although the yield curve has not inverted as measured by the 10-year / 2-yearspread (our preferred measure), it is slightly inverted if measured by the 10- year / 3-month spread. Some analysts believe this to be a harbinger of an impending recession. We continue to think this is a bit over-stated, at least through the remainder of this year (source: YCharts);

• The US dollar generally weakened against the yen over the past month, but has strengthened versus the euro, given the explicit dovish sentiments expressed by Mario Draghi at the European Central Bank (ECB), as well as the assumption that his successor, Christine Lagarde, will remain equally if not more dovish (source: YCharts);

• There is a school of thought that President Trump does not mind the see-saw nature of the US / China trade negotiations because he believes it keeps the pressure on the Fed to remain accommodative. He has been outspoken (inappropriately, in our view) in his desire for lower rates and a weaker dollar, which he believes will reduce our trade imbalances. This strikes us as slightly too cynical but, regardless of motivation, it is a fairly accurate representation of where things currently stand with the Fed;

• The Euro area reported a Q1 GDP growth rate of 1.2%, the same as the previous quarter and in line with expectations. While not in a recession, European economic growth has fallen fairly steadily since 3Q, 2017, and is expected to fall further as we head through 2019 – early estimates for the Q2 growth rate are below 1% (source: TradingEconomics);

• Manufacturing all across the Euro area continues to slip and remains in nonexpansionary territory – 46.4 in July, the steepest monthly decline since December 2012, and the lowest reading since April 2013 (source: IHS Markit and TradingEconomics);

• The Euro area Services index remains slightly expansionary (53.3 in July, down from 53.6 in June) (source: TradingEconomics);

• Euro area unemployment fell slightly in June to 7.5%, and remains at its lowest level since 2008 (source: TradingEconomics);

• Inflation is a non-issue in Europe (up 1.3% year-over-year in June, but remaining at its lowest level since April 2018), and the ECB has turned decidedly dovish again. Deflation represents the bigger risk at this point

• Japan’s GDP is back in positive territory (1.8% in Q4 2018 and 2.2% in Q 12019), but remains sluggish and sensitive to changes in exchange rates. A weakening dollar (should it continue) will hurt Japanese exports, a critical factor in its economic activity (source: TradingEconomics);

• China’s (official) GDP growth in Q2 2019 was 6.2% (annualized), the lowest reported growth rate since Q1 of 1992. Fairly massive fiscal and monetary stimulus has had some positive effect, but the Chinese economy has been hit much harder than the US economy during the on-again / off-again trade negotiations. The simple fact is that China needs the US more than the US needs China (though both sides lose in an extended or escalated trade war) (source: TradingEconomics);

• The Chinese manufacturing index slipped back into contractionary mode in June, coming in at 49.4 (source: TradingEconomics).

The Towerpoint Wealth Economic & Market Outlook:

• The global economy remains non-recessionary, though there is a decided deceleration of growth, and ongoing trade tensions are beginning to have a tangible negative effect;

• US economic growth, interest rates, inflation, and earnings all remain at least slightly expansionary. Wages and input prices are slowly increasing, but we do not see them as threats (yet) to continued expansion;

• Globally, inflation simply is not a problem, due to slow growth and relatively stable input prices. Oil prices rose steadily through mid-May, fell off sharply toward the end of that month, but generally have stabilized since then at around the $60-$65 per barrel range (for Brent Crude);

• Global central bank policies remain “synchronized” around an easing theme, and this should be beneficial for risk assets. The UK and the ECB in particular have ramped up their “easing” activities, ahead of what could be a messy “Brexit” and the continued slowdown of economic activity in Europe;

• Market volatility spiked in May as investors showed increased nervousness over trade tensions, Brexit, and the perception of slowing economic growth. Since then, however, volatility (as measured by the VIX) has drifted back down to repressed levels – trading below 15% for most of July. Investors so strongly believe that trade tensions will ease and central banks will remain accommodative that they have slipped back into complacency (source: The St. Louis Fed);

• The ongoing market rally since June has raised US valuations back to historically high levels – once again, nothing looks cheap to us. More worrisome is that the rally is being driven by multiple expansion. Earnings are positive but soggy, but investors are willing to pay more and more for every dollar of earnings. By definition, this dampens the potential for longer-term returns;

• For longer-term investors we still like EM valuations relative to US or EAFE (developed international) valuations. Should the dollar continue to weaken, that will be beneficial for non-US market returns for US investors. The aggressive easing activities in Europe may prove beneficial for European-based EAFE risk assets;

• The US yield curve remains incredibly flat (there currently is a ~22 bps difference between the 2-year and 10-year yields), as lower longer-term expected growth rates and investment flows combine with only modest inflation expectations to “tamp down” the long-end of the curve (source: YCharts);

• As of the end of July, the 10-year Treasury rate was trading just above 2.00% – its lowest level since Q3 of 2017 (source: Charts);

• The yield curve remains slightly inverted if measured by the spread between 3-month rates and 10-year rates. As of the end of July, there was a negative spread of roughly 2 basis points (source: YCharts);

• The public credit markets continue to look expensive to us, although investors seem to be fairly compensated for default risk, as corporate balance sheets generally are in pretty good shape;

• Both investment grade and high yield credit spreads widened over the course of May, especially high yield spreads, but those spreads drifted generally lower over the course of June, and at the end of July remain incredibly tight by historical standards (source: YCharts);

• We remain concerned about high yield liquidity and refinancing risk and the growing level of“covenant lite” bank loans. Additionally, more than 40% of non-financial investment grade debt is rated BBB – the lowest investment grade level. If and when we head into the next recession, there could be a liquidity crisis if more than a modest amount of this debt falls into non-investment grade territory (source: FocusEconomics);

• As we go to publication, the yield on 10-year Greek sovereign debt is trading below that of the yield on 10-year US Treasuries. This is due to a slowing European economy and high anticipation of additional monetary easing by the ECB. When considered from a relative credit risk perspective, however, this is absurd, and is simply another illustration of how excessive central bank intervention can distort the global capital markets;

• For investors who can access the private markets and handle some degree of illiquidity, we still believe there are better opportunities in the private versus public markets, though investors face increasingly compressed premiums versus historical levels, driven by huge investment flows over the past 24-30 months. At this point in time, we have higher conviction in the private equity market versus the private credit market;

• Hedge funds generally are performing as expected and, given valuation levels for the traditional public equity and credit markets, there is growing investor interest in considering lower-correlated investment strategies. Despite low interest rates and low volatility, many hedge funds seem to have “found their footing” and are generating returns more in line with historical expectations;

• Liquid alternatives (alternative investment strategies that trade in mutual fund form) continue to struggle, though they, like their hedge fund cousins, are showing signs of improvement;

• Real assets and commodities generally have been stable to slightly rising over the past few months, helping to keep input price inflation well in check;

• When we consider the fundamental drivers of market performance – economic growth, earnings, interest rates, inflation, and central bank policy – we remain generally constructive, but we have entered a new phase of the market cycle, and we expect increased volatility and periodic bouts of investor panic as we move through the year, especially once the “dog days” of summer are over;

• With that in mind, we believe a heightened focus on quality, liquidity, and diversification is an appropriate course of action.

People are on vacation and, here in the US, Congress is about to head off for a 5-6 week recess. So we expect a generally quiet period as we head into and through the heart of the summer. But while the risks may lie dormant due to general inattention, they certainly have not gone away. Enjoy the more relaxed market environment while you can – we suspect things will get “interesting” again once the summer months have passed.

Warm Regards,
Joseph F. Eschleman, CIMA® President Towerpoint Wealth, LLC

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Are You Old Enough To Remember When…?

An entertaining hashtag on Twitter, #ImOldEnoughToRememberWhen, has been trending recently. Are you old enough to remember when this was the price of food at McDonalds?

We also couldn’t resist including this one:

Yesterday, the U.S. Federal Reserve, led by Chair Jerome Powell, cut short-term interest rates by 1/4 percent, the first interest rate cut by the Fed since 2008. This came as a surprise to virtually no one, as Powell had been strongly signaling for months that the Fed was planning on doing so.

What we find interesting is not the rate cut itself, but the motivation behind it and the potential consequences of the Fed arguably deviating from its legal mandate. With the passage of the Federal Reserve Reform Act of 1977, the Fed was formally assigned a specific directive, commonly known as the “dual mandate,” to pursue the following goals:

  1. Maximum employment
  2. Price stability and moderate long term interest rates (these two can effectively be treated as a single mandate)

The interesting part:

  1. Employment is maximized – the United States is currently at full employment, meaning unemployment here in the United States, currently 3.7% (!), has fallen to the lowest possible level that will not cause inflation.
  2. Price stability has (arguably) been achieved – the U.S. inflation rate is currently 1.6%!

And while there is little to suggest the U.S. economy and current business cycle are struggling (which would justify a rate cut), what we view as problematic is the fact that the Fed is supposed to act independently of any political agenda or influences. However, President Trump has been vociferous in advocating for rate cuts to further spur our economy. In addition to the political harm to its credibility, a more immediate risk for the Fed in cutting rates is that it could limit the central bank’s arsenal in fighting the next recession, not if, but when it occurs.

At Towerpoint Wealth, we are old enough to remember (well, at least some of us, considering the TPW birthdays mentioned below) when the Fed lowered rates to ward off recession or when it saw substantial risks of an economic downturn. We believe, at least as of today, that the probability of either scenario is low.

What is more certain is that borrowing costs will come down (is it time for a refi of your home or student loan?), and interest earned on savings and money market accounts will decline.

Does any of this make sense to you? It certainly is complicated. At Towerpoint Wealth, we philosophically believe it is better to adapt to the future rather than trying to predict it. In lieu of trying to unpack all of this yourself, call or email us to discuss your circumstances further if you agree with this logic.

Birthdays at Towerpoint Wealth!

The Towerpoint Wealth family celebrated two birthdays this past week: The crew helped our Director of Tax and Financial Planning, Steve Pitchford, turn 32 by enjoying a breakfast of some hot and fresh Buffalo Breakfast Pizza. Our Partner – Wealth Advisor, Jonathan LaTurner, turned 35, and in the image below is flanked by President Joseph Eschleman‘s two children, Henry and Josephine, during a small party the guest of honors home.

If you would like a quick laugh, click HERE to watch a short video of Steve getting embarrassed while being serenaded by his TPW family for his birthday!

In addition to rate cuts and pizza parties, a number of trending and notable events have occurred over the past two weeks:

Lastly, please take three or four minutes to review the curated content found below, highlighted by:

  • An on-site visit to Towerpoint Wealth by First Trust bond portfolio manager Nick Novosad
  • A well-assembled article discussing planning strategies that can help to reducethe tax consequences of IRA and 401(k) accounts
  • An excellent non-partisan analysis of the upcoming 2020 U.S. presidential election cycle

As always, we encourage you to reach out to us (info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, we are here for you, and look forward to connecting with, helping, and being a direct, fully independent, and objective expert financial resource for you.


Joseph, Jonathan, and the entire Towerpoint Wealth team

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Opportunity is Knocking – Are You Listening?

Capital gains tax – nobody likes paying it.

However, with the passage of the Tax Cuts and Jobs Act (TCJA) of 2017, there is now a very tangible opportunity to deferreduce, and to some degree, eliminate having to pay federal capital gains tax on the sale of an asset that has grown in value. How? By investing in an investment vehicle known as a Qualified Opportunity Zone Fund.

Twelve percent (8,762, to be exact) of U.S. census tracts have been designated as Qualified Opportunity Zones (QOZs) by the Department of the Treasury, and there are a plethora of QOZ funds that have been created to invest in them. 

Not surprisingly, there are a host of economic considerations and risks that investors need to be acutely aware of when evaluating an investment in a QOZ fund. However, if you are holding a stock, bond, mutual fund, or piece of real estate primarily because you are looking to avoid paying the capital gains taxes associated with selling it, we believe exploring QOZs, and the funds that invest in them, would be a worthwhile investment of time for you.

At Towerpoint Wealth, we recognize the potential financial benefits, and understand the recent attention and momentum that QOZs have garnered over the past year, and have helped a number of qualified clients and prospective clients (in conjunction with their tax advisors) more closely evaluate the merits of Qualified Opportunity Zone investing. To further highlight and share our expertise in this burgeoning area, we just last week published a new white paper (Opportunity Knocks) that discusses this tremendous opportunity. We encourage you to call or email us to discuss in greater detail how QOZ investing may complement your current financial and investment plan and strategy.

TPW Hosts Ice Cream Social at Shriner’s Hospital

The Towerpoint Wealth family had a great time last week setting up an ice cream social for patients at the local Shriners Hospital for Children – Northern California. It was great putting a smile on the kids’ faces with some fresh vanilla, chocolate, and strawberry ice cream from the best ice cream joint in Sacramento, Gunther’s Ice Cream!

In addition to sharing ice cream and investment opportunities, we thought we we’d share a number of trending and notable events that have occurred over the past two weeks:

Lastly, please take three or four minutes to review the curated content found below, highlighted by:

As always, we encourage you to reach out to us (info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, we are here for you, and look forward to connecting with, helping, and being a direct, fully independent, and objective expert financial resource for you.

Joseph, Jonathan, and the entire Towerpoint Wealth team

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Take the Bait or Be Patient and Wait?

When it comes to deciding at what age you elect to initiate your Social Security benefit, waiting can make all the difference.

We have found that many investors are tempted to take Social Security early, before their full retirement age (FRA), even as early as age 62. However, giving in to this temptation can oftentimes be a costly one.

For every year you delay Social Security benefits after your FRA, you receive a guaranteed 8% annual increase in your benefit amount!

Obviously everyone has unique personal and economic circumstances, and sometimes either life expectancy considerations or current cash flow needs can influence the decision on how and when to take Social Security. However, waiting to claim your benefit can pay off handsomely for years to come. Nothing is easy when it comes to the government, and Social Security is no exception. There are a myriad of considerations and variables involved in the oftentimes multi-tiered decision, and we firmly believe that optimizing a Social Security election strategy is essential for maximizing the economic benefits to our clients. We encourage you to contact us to better understand and plan for this very nuanced and important lifetime financial decision.

New Summer Intern and Philly cheesesteak breakfast at Towerpoint Wealth

We are pleased to welcome our new summer Wealth Management Intern, Alex Poulos, to the Towerpoint Wealth family. Alex comes to us from University of California, Davis, where he will be a senior this fall looking to complete his BS in Managerial Economics (and minor in Statistical Data Science). Alex is also treasurer of his fraternity, Theta Chi, and enjoys weightlifting and sprint cycling in his free time. We are very excited to have him on board, so please be sure to give Alex a warm hello and help us welcome him with open arms!

It did not take long for Alex to ingratiate himself into Towerpoint Wealth’s culture last week, as the TPW family enjoyed a breakfast of authentic Tony Luke’s cheesesteaks, flown in from South Philadelphia in advance of the Independence Day holiday!

Aside from a complicated government benefit program and a cholesterol-laced breakfast party, a number of trending and notable events have occurred over the past two weeks:

Lastly, please take three or four minutes to review the curated content found below, highlighted by:

We encourage you to reach out to us (info@towerpointwealth.com) with any questions, concerns, or needs you have. The world continues to be an extremely complicated place. We are here for you, and look forward to connecting with, helping, and being a direct, fully independent, and objective expert financial resource for you.

– Joseph, Jonathan, and the entire Towerpoint Wealth team