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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!

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!

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

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All Along the Watchtower

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

All Along the Watchtower

There must be some way out of here
Said the joker to the thief
There’s too much confusion
I can’t get no relief


Businessmen, they drink my wine
Plowmen dig my earth
None of them along the line
Know what any of it is worth


No reason to get excited
The thief he kindly spoke
There are many here among us
Who feel that life is but a joke

But you and I, we’ve been through that
And this is not our fate
So let us not talk falsely now
The hour is getting late

All along the watchtower
Princes kept the view
While all the women came and went
Barefoot servants, too

(From “All Along the Watchtower”, by Bob Dylan, made famous by Jimi Hendrix, 1968)

As has been the case so many times over the past ten years, May’s sharp stock market sell-off was followed by an equally sharp “V-Shaped” recovery through most of June, and the markets are now once again at or near all-time highs.

As has also frequently been the case, not much changed in the underlying economy – the market movements were driven almost exclusively by headlines, tweets, and sentiment. Specifically, the market has now priced in an almost 100% certainty that the Fed will cut rates in July, and perhaps once or twice more over the remainder of 2019.

That was followed by some President Trump tweets indicating that he would meet with Chinese Premier Xi Jinping at the late June “G-20” talks in Japan which, in turn, gave the market renewed hope that ongoing trade negotiations might reach a successful conclusion.

And off to the races we went yet again…

It is true that the May sell-off was over-done, and the same probably can be said about the June bounce-back. The simple fact is that what are supposed to be the fundamental drivers of market performance simply have not changed that much over the past two months:

  1. The global economy remains positive but decelerating, especially outside the US, and especially in global manufacturing;
  2. Global revenues and earnings remain positive, though also decidedly decelerating;
  3. Inflation is nowhere to be found, and it is hard to imagine what might spark it upward, other than a protracted Middle East crisis between the US and Iran (which, by the way, is not off the table, though the market does not seem to be pricing in any huge concern that it may turn into an actual “hot” war);
  4. Global central banks remain uniformly accommodative – there is not a single major central bank that is even considering tightening right now;
  5. Global interest rates remain pegged to the floor, with no signs of increasing. There currently is in excess of $12 trillion in negative yielding sovereign bonds – investors are paying governments to hold their money! The 10-year US Treasury yield currently is fluctuating just above or below 2.00%, with no signs of rising quickly anytime soon;
  6. It is true that the 10-year minus 3-month Treasury curve has “inverted” for the past month or so, leading some to make the call that a recession is on the way;
  7. That said, the 10-year minus 2-year curve (the spread we prefer to follow) remains slightly upward sloping and, even if the curve is calling out an impending recession, historically we’ve had 9-18 months to prepare

Please understand – we will have the next recession at some point, but it does not seem very likely for a while – probably at least not through 2019, barring a turn for the worst in US/China trade talks, escalating tensions in the Middle East with Iran, or both.

All major governments seem dedicated to engaging in whatever fiscal and/or monetary stimulus is necessary to keep the economic growth engine running, albeit with diminishing marginal returns and at the expense of exploding national debts and deficits.

We suspect our children and grandchildren will not think very highly of us when that piper demands to be paid.

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

The Current Economic & Market Landscape

The global economy is still expanding, though slowly:

Through the end of June, the current estimate of US Q1 GDP growth remains at 3.1%, still positive but a slight decline from the early initial estimate of 3.2%. A fair amount of this expansion was due to inventory growth, which suggests lower growth in the future as the inventories are sold off (source: Bureau of Economic Analysis);

• US Growth is expected to slow to roughly 1.6% – 1.9% over the next 2-3 quarters, and estimates for all of 2019 have fallen to the 1.6% – 2.0% range
(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. Specifically, the markets reacted positively to the news that President Trump and Chinese Premier Xi will “talk” at the G-20 summit in Japan at the end of June. The hope is that progress toward a positive trade outcome is back on the table. 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;


• President Trump remains unpredictable in his trade announcements, but there does seem to be progress in the negotiations between the US and its primary trading partners (specifically, China, Canada, Mexico, and Europe). The market certainly is pricing in assumptions about deals being agreed to over the course of 2019;

• Given the rhetoric and partisanship in Washington, DC, we do not anticipate any agreement for additional fiscal stimulus prior to the 2020 elections;

• 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 reach the end of June, the market (as measured by Fed Funds Futures) is pricing in an almost 100% certainty that the Fed will cut rates by at least 25 basis points when it next meets in July (after announcing no rate cut at its June meeting), and the assumption is that there will be at least one and possibly two rate cuts by the end of the year;


• The market has reacted very positively to this assumption of a rate cut, but we have a bit of difficulty understanding what the excitement is about. Interest rates already are as low as they have been in years – what difference will a 25 (or even 50) bp cut in rates make? It seems the market simply is rewarding the Fed for not raising rates, versus pricing in the actual market impact of a cut;


• Frankly, we see the risk profile of the market as being 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 (52.1) and services (56.9) sectors remained in expansionary mode in May (any reading above 50 is considered expansionary). The PMI (manufacturing) index continued its fairly steady month-over-month decline, but the NMI (services) index reversed course and ticked up for the month
(source: The Institute for Supply Management);

• The IHS Markit estimates for June suggest declines in the PMI (down to 50.1) and the NMI (down to 50.9)
(source: IHS Markit);

• As the summer continues, increased attention will be paid to ongoing federal budget negotiations, including a required raising of the debt ceiling sometime in September or October. The federal debt and deficit are exploding and neither political party is the least bit interested in addressing the issue. There is no spending discipline in Washington, DC right now;


• Inflation remains muted (US CPI was just 1.8% year-over-year in May), 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, 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, though wages ticked down in May (up 3.11%year-over-year, down slightly from their recent high of 3.4% in February). Automation and globalization remain firm dampeners on wage growth, despite the low levels of unemployment –3.6% in May (source: The St. Louis Federal Reserve Bank);

• With the Q2 earnings season set to begin in another week or two, current expectations are for decided deceleration. S&P 500 earnings for Q2 are expected to fall 3.1% year-over-year, on an estimated 4.3% increase in revenues. For the full year of 2019, current estimates are for earnings to increase 1.1% on revenue increases of 2.5% — still positive growth but a dramatic decrease in comparison to 2018;
(source: Zachs Earnings Outlook, June 19, 2019);

• The primary threats to continued economic expansion remain tenuous trade and tariff negotiations, ongoing political “re-adjustments” in Europe, especially in the UK, and escalating geo-political tensions between the US and Iran;


• 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 June, there is only ~30 basis points difference between the yield on the 2-year and 10-year Treasury – the yield curve fell considerably over the course of the month, and the 10-year Treasury rate currently is fluctuating just above or below the psychological boundary of 2.00%
(source: YCharts);

• Although the yield curve has not inverted as measured by the 10-year / 2-year spread (our preferred measure), it has inverted (and remained so for more than a month) 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 and are not overly concerned that (a) the curve will invert for any extended period of time or (b) should it invert it does not necessarily mean we are headed into a recession any time soon
(i.e., any time this year);

• Given the strongly held assumption that the Fed will cut rates in July, the US dollar weakened against both the euro and the yen over the past month, despite dovish sentiments expressed by Mario Draghi at the European Central Bank (ECB);

• President Trump has been explicit that he desires a weaker dollar and lower interest rates, and has threatened Fed Chairman Jerome Powell with demotion or firing if he doesn’t deliver. We continue to believe this is inappropriate behavior, and that it is important for the Fed to remain an independent agency acting on behalf of smoothly functioning capital markets, not the political desires of any given President. No central bank is omniscient, and they have made and will continue to make mistakes, but they should remain independent;

• 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 the 3rd quarter of 2017
(source: TradingEconomics);

• Manufacturing all across the Euro area continues to slip and remains in non-expansionary territory – 47.8 in June, the fifth straight monthly decline and the lowest reading since April 2013
(source: IHS Markit and TradingEconomics);

• On the other hand, the Euro area Services index remains expansionary (53.4 in June, up from 52.5 in May) (source: TradingEconomics);
• Euro area unemployment fell slightly in May to 7.6%, and remains at its lowest level since 2008
(source: TradingEconomics);

• Inflation is a non-issue in Europe (1.2% year-over-year in May, down from 1.7% in April, and at its lowest level since April 2018), and the ECB has turned decidedly dovish again. Deflation represents the bigger risk at this point
(source: TradingEconomics);

• Japan’s GDP is back in positive territory (1.8% in Q4 2018 and 2.2% in Q1 2019), 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 Q1 2019 was 6.4% (annualized), the same as Q4 2018, and represented the lowest reported growth rate since the Financial Crisis in 2008. 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 remained barely expansionary in May, at 50.2 (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 during the market panic toward the end of the month, but generally have stabilized since then;


• Global central bank policies remain “synchronized” around an easing theme, and this should be beneficial for risk assets;


• Market volatility spiked in May as investors showed increased nervousness over trade tensions, Brexit, and the perception of slowing economic growth. The bounce-back through most of June once again brought volatility back down to repressed levels – investors so strongly believe that trade tensions will ease and central banks will remain accommodative that they have slipped back into complacency;


• The June rally raised US valuations back to historically high levels – once again, nothing looks cheap to us;


• 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 US yield curve remains incredibly flat (there currently is a ~30 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 June, the 10-year Treasury rate was trading just above or below 2.00% – its lowest level since Q3 of 2017
(source: YCharts);

• The yield curve has actually inverted if measured by the spread between 3-month rates and 10-year rates. As of the end of June, there was a negative spread of roughly 11 basis points, and that spread has been negative for most of the past month – its longest “inversion” in years
(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 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);

• 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;


• 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;


• Liquid alternatives (alternative investment strategies that trade in mutual fund form) continue to struggle, though they “did their job” in May and June with respect to mitigating market volatility and downside market movement;


• Real assets generally have been stable to slightly rising. Oil prices may be affected by ongoing geo-political tensions between the US and Iran, but that is not yet in evidence as we reach the end of June;


• 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 “summer doldrums” are over;


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

As we review the general state of the global economy and investment markets, the word that keeps running through our mind is “asymmetrical”. We believe that the underlying fundamentals remain generally positive, but the market increasingly is “priced for perfection” and subject to downside shocks if what’s being priced in turns out differently than expected.

As Sergeant Phil Esterhaus used to say on the iconic 1980s TV cop show Hill Street Blues, “Let’s be careful out there”…

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

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“The stock market is too high…”

“The stock market is too high…” – a fairly typical response offered up by shorter-term traders and/or novice investors.

The S&P 500 hit a historic peak on Friday, touching an intraday record high of 2,964.15 subsequent to the U.S. Federal Reserve seemingly telegraphing an “easy-money” posture last week, with many experts believing that an interest rate cut may be forthcoming.

Independent of what the Fed may or may not do for the rest of 2019, the phrase “It’s too high” has been one that has been uttered for decades. Noting that the Dow Jones Industrial Average (or simply “The Dow”) is oftentimes the more favored or recognized index by retail investorsinstitutional investors perceive the S&P 500 as more representative of the U.S. stock market because it comprises more stocks across all sectors – 500 companies, versus only 30 for the Dow.

The S&P 500 opened on January 1, 1950 at 16.88. By January 1, 1955, it had more than doubled to 35.60. Less than ten years later, it more than doubled again, to 76.45 on January 1, 1964. And so on, and so on, and so on:

– January 1, 1973: 118.40
– January 1, 1984: 166.40
– January 1, 1988: 250.50
– January 1, 1992: 416.08
– January 1, 1998: 963.36
– January 1, 2002: 1,140.21
– January 1, 2007: 1,424.16
– January 1, 2015: 2,028.18
– January 1, 2018: 2,789.80 

Click HERE for source.

Notice a trend? While it is important, if not essential, to note that there have been extended periods of time when the stock market (as measured by the S&P 500) has been in decline, what is clear is that if you have a ten year window, the probability of generating positive returns is extremely high:

In summary, we feel very comfortable that as long as you have this discipline to follow a well-assembled and objective plan and strategy that ensures you: Don’t Panic during pullbacks, speed-bumps, and recessions (which can last for years), that the probability is quite high you will enjoy the continued growth of this:

Billigmeier Sits for CFA® Level 2 Exam

Locally, our Director of Research and Analytics, Nathan Billigmeier, sat for his Chartered Financial Analyst (CFA®) Level 2 exam last Saturday at the Sacramento Convention Center in downtown Sacramento. With pass rates below 50% for each Level, the CFA series of tests is one of the most difficult sets of financial certifications, with a minimum of 300 hours (!) of study recommended for each exam.

A globally-recognized professional designation, and arguably the highest distinction in the investment management profession, the CFA® gives a strong understanding of advanced investment analysis and real-world portfolio management skills. Measuring and certifying the competence and integrity of financial analysts, candidates are required to pass three levels of exams covering areas such as accounting, economics, ethics, money management, and security analysis.

From 1963 to 2018, 1,696,451 candidates have sat for the Level 1 exam, with only 246,654 ultimately going on to pass the Level 3 exam. That represents a weighted average completion rate of only 14.5%.

We are very proud of all of the energy and time Nate has already invested in his CFA® curriculum, and are confident it is not “if” but “when” he ultimately earns the certification. In the meantime, after his grueling Level 2 exam, he definitely earned a few days earlier this week to decompress, during which time he enjoyed a round of golf on Tuesday (while representing TPW) at Old Greenwood in Truckee.

Putting aside stock market gyrations and cramming for exams, a number of trending and notable events have occurred over the past two weeks:

NBA Finals 2019: Amidst key injuries, the Golden State Warriors lose to the Toronto Raptors in six games
Trump, Biden trade barbs amid dueling Iowa campaign visits
Fashion icon Gloria Vanderbilt, dead at 95
Happy Father’s Day 2019
The U.S. women’s soccer team ends group stages of 2019 World Cup with a third shutout victory
– Juneteenth celebrated on June 19, commemorating the end of slavery in the United States
Escalating hostilities between President Trump and Iran heighten war worries
Phenom Zion Williamson selected first at the 2019 NBA draft
Solstice 2019 – summer officially arrives today in the Northern Hemisphere

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

– Our most recent May-June 2019 Monthly Market Lookback publication, “Danger Zone
– Additional details about the CFA® program and curriculum
– Information on the GasBuddy app, which helps you find where the nearest gas stations are, and identify which are the cheapest today

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

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Danger Zone

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

Revvin’ up your engine
Listen to her howlin’ roar
Metal under tension
Beggin’ you to touch and go

Highway to the danger zone
Ride into the danger zone

Headin’ into twilight
Spreadin’ out her wings tonight
She got you jumpin’ off the track
And shovin’ into overdrive

Highway to the danger zone I’ll take you
Ridin’ into the danger zone…

Out along the edges Always
where I burn to be The further on
the edge The hotter the intensity

Highway to the danger zone
Gonna take you
Right into the danger zone

(From “Danger Zone”, performed by Kenny Loggins for the film “Top Gun”, 1986)

“Sell in May and go away” is, perhaps, our least favorite market cliché. It strikes us as simplistic and slightly juvenile. Except for the fact that it often proves true – the summer months do tend to exhibit less trading volume and, therefore (perhaps counterintuitively), the markets often react more violently to transitory news.

Many investors probably wish they had sold this May and gone away – it was a volatile and chaotic month, with all major equity markets posting negative performances. The primary drivers seem to be (a) a perception that both global economic growth and earnings are slowing down, and (b) the ongoing (and escalating) trade tensions between the US and China (and, now, potentially between the US and both Mexico and the European Union).

The collapse of Theresa May’s Conservative government in the UK over the issue of “Brexit” did not help, either. While we continue to believe that things will work out over time with respect to both trade negotiations and Brexit, we also believe both issues may get much worse before they get better, and many investors seem to agree with us.

In addition to a dramatic increase in market noise (i.e., trade tensions and Brexit), the market signals we encourage investors to focus on – earnings, economic growth, inflation, interest rates, and global central bank policy – are somewhat mixed:

  1. There seems to be little disagreement that both economic growth and earnings are decelerating, though actual recession still seems to remain fairly far down the path;
  2. Inflation has shown some signs of accelerating as both input prices and wages slowly increase, but for now it remains well under control, and the bigger risk in Europe is actually deflation;
  3. Interest rates should remain low into the foreseeable future; and
  4. All major global central banks remain accommodative. In fact, the markets are actually starting to price in an assumption of a Fed rate cut (or perhaps even two) at some point in 2019.

The shape of the US yield curve, which is incredibly flat and which at times over the past few months has temporarily inverted, seems to be signaling an impending recession, and perhaps that is true, but we do not think it will happen in 2019.

Because we do believe there will be an eventual end to the ongoing trade negotiations between the US and its trading partners (and a collective market “sigh of relief” when it occurs), and because we do believe the Brexit issue will also work itself out, we remain generally constructive on both the global economy and the overall investment markets. But we also are increasingly cautious.

It is true that things tend to slow down as we head into and through the summer months, but it is also true that for the past several years we’ve experienced a sharp uptick in volatility as we head into the fall.

We fully expect that to be the case again this year, and investors should manage their expectations and their portfolios accordingly.

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

The Current Economic & Market Landscape

The global economy is still expanding, though slowly:

  • The current estimate of Q1 GDP growth in the US is 3.1%, still very positive but a slight decline from the initial estimate of 3.2%. A fair amount of this expansion was due to inventory growth, which suggests lower growth in the future as the inventories are sold off (source: Bureau of Economic Analysis);
  • We suspect future estimates of Q1 GDP will show lower but still positive growth. Growth is expected to slow to roughly 2% over the next 2-3 quarters, and estimates for all of 2019 remain in the 2.0% – 2.5% range (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. Specifically, US/China trade talks have stalled, and the markets are beginning to price in escalating tensions, tariffs, and mutual retaliation. Some estimates suggest that a protracted trade war could shave as much as 0.5% off of projected US growth;
  • Additionally, at the end of May, President Trump unexpectedly announced an escalating series of tariffs on Mexico if it doesn’t do more to stop Central American immigrants from crossing the country to get to the United States. This throws the impending ratification of the USMCA trade treaty into question (USMCA is the replacement to NAFTA);
  • AND Trump is also threatening potentially higher tariffs on European imports. As we go to publication it is too early to tell what the impact of these newly announced potential tariffs may do to the global economy, but it won’t be positive, and the markets are reacting accordingly (on the news the equity markets dropped sharply and the US 10-year Treasury rate fell below 2.20%);
  • Given the rhetoric and partisanship in Washington, DC, we do not anticipate any agreement for additional fiscal stimulus prior to the 2020 elections;
  • That said, there may be additional monetary stimulus in the form of Fed rate cuts. The markets previously had priced in no movement from the Fed in either direction for the remainder of 2019, but sentiment has shifted in the wake of recent volatility and market movement, and there now seems to be a belief that the Fed will cut rates (maybe even twice) prior to year-end;
  • Both the US manufacturing (52.8) and services (55.5) sectors remained in expansionary mode in April (any reading above 50 is considered expansionary), but both have showed signs of deceleration for the past several months. The IHS Markit estimates for May for these indicators are 50.6 and 53.2 for PMI and NMI, respectively (source: Institute for Supply Management and IHS Markit);
  • The federal debt and deficit are exploding and neither political party is the least bit interested in addressing the issue. There is no spending discipline in Washington, DC right now;
  • Inflation remains muted (US CPI was 2% year-over-year in April) but is showing signs of increasing slowly as both wages and oil prices tick up. There seems to be an insatiable demand for US Treasury paper, and May saw a distinct “flight to quality” when the equity market entered its downturn. All of these factors are keeping longer- term interest rates very low;
  • The employment picture in the US remains robust, and wage increases are finally showing up (up 3.27% year-over-year in Q1) – not commensurate with the low levels of unemployment and not enough to spark inflation (yet), but workers definitely are making more money, across almost all industry sectors (source: The St. Louis Federal Reserve Bank);
  • With the Q1 earnings season in the US largely behind us, both the revenue (56.4%) and earnings (62.5%) “beat rates” are positive and generally in line with historical averages, though both showed declines from previous quarters (source: Bespoke Investment Group);
  • The primary threats to continued economic expansion remain escalating trade and tariff tensions and ongoing political “re-adjustments” in Europe (Brexit, Italy, France, and Germany);
  • With low inflation, signs of a decelerating economy, and huge investor demand or 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;
  • Through the end of May, there is only ~14 basis points difference between the yield on the 2- year and 10-year Treasury – the yield curve both flattened and fell over the course of the month as market fears increased;
  • There seems to be growing investor sentiment that the flatness of the curve may evolve into an inversion (when short-term rates are higher than longer-term rates) and signal an impending recession. We think this is a bit over-stated and are not overly concerned that (a) the curve will invert for any extended period of time or (b) should it invert it does not necessarily mean we are headed into a recession any time soon (i.e., any time this year);
  • Though showing some signs of stabilizing, the US dollar generally has strengthened over the course of the year. We attribute this to the “cleanest dirty shirt” syndrome – despite the dovish tone of the Fed, the US economy is outpacing the rest of the world and investment flows are responding accordingly;
  • The Euro area reported a Q1 GDP 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 the 3rd quarter of 2017 (source: TradingEconomics);
  • Manufacturing all across the Euro area continues to slip and remains in non- expansionary territory – 47.7 in May, which represented the lowest reading since April 2013 (source: IHS Markit and TradingEconomics);
  • The Euro area Services index remains slightly expansionary (52.5 in May, down from 52.8 in April), but continues to decline (source: TradingEconomics);
  • Euro area unemployment is stable at 7.7%, and remains at its lowest level since 2008 (source: TradingEconomics);
  • Inflation is a non-issue in Europe (1.7% year-over-year in April), and the ECB has turned decidedly dovish again. Deflation represents the bigger risk at this point (source: TradingEconomics);
  • Japan’s GDP is back in positive territory (1.6% in Q4 2018 and 2.1% in Q1 2019), but remains sluggish and sensitive to changes in exchange rates. A strengthening dollar (should it continue) will help slightly with exports (source: TradingEconomics);
  • China’s (official) GDP growth in Q1 2019 was 6.4% (annualized), the same as Q4 2018, and represents the lowest reported growth rate since the Financial Crisis in 2008. That said, fairly massive fiscal and monetary stimulus has had the expected results in catalyzing improved economic activity (source: TradingEconomics);
  • The Chinese manufacturing index inched into expansionary territory (above 50) in March and April, but slid back to 49.2 in May (source: Deutsche Bank);
  • Should Chinese expansion continue (and we expect it will), it will be beneficial to the global economy, specifically Europe and other EM countries.

The Towerpoint Wealth Economic & Market Outlook:

  • The global economy continues to expand, though there is a deceleration of growth;
  • US economic growth, interest rates, inflation, and earnings all remain generally 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, but have stabilized since then;
  • Global central bank policies remain “synchronized” around an easing theme, and this should be beneficial for risk assets;
  • Market volatility spiked in May as investors showed increased nervousness over trade tensions, Brexit, and the perception of slowing economic growth. There was a decided “flight to quality”, which drove US Treasuries to extremely low yields;
  • The May sell-off dropped US valuations, but they remain elevated by historical standards. Much of the market rally over the first four months of the year was driven by multiple expansions versus robust earnings growth, which was barely positive year-over-year in Q1;
  • The emerging markets were punished more severely than the US market in the May sell-off, but for longer-term investors we still like EM valuations relative to US valuations. Returns in US terms will be significantly impacted by what happens to the US dollar over the remainder of the year
  • The US yield curve remains incredibly flat (there currently is a ~14 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;
  • As of the end of May, following the announcement of the Mexican and European tariff threats from President Trump, the 10-year Treasury rate dropped below 2.20% – its lowest level since Q3 of 2017;
  • The yield curve has actually inverted if measured by the spread between 3-month rates and 10- year rates (though we prefer to follow the 2-year / 10-year spread). As of the end of May, there was a negative spread of roughly 10 basis points;
  • 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 that was driven as much by the decline in Treasury rates as it was by an actual increase in credit spreads;
  • We remain concerned, however, about high yield liquidity and refinancing risk and the growing level of “covenant lite” bank loans. Additionally, roughly 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);
  • 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 compressed premiums versus historical levels, driven by huge investment flows over the past 24-30 months;
  • Hedge funds generally are performing as expected, and given valuations and renewed volatility in traditional equity and credit markets, there is growing investor interest in considering lower- correlated investment strategies;
  • Liquid alternatives (alternative investment strategies that trade in mutual fund form) continue to struggle, and have experienced fairly extensive investment outflows as a result. It is difficult to say with certainty that the issue is structural, though we do believe that hedge funds face less constraints with respect to leverage and liquidity – two important drivers of potential performance;
  • Real assets, after a nice rally through the end of April (especially oil), showed signs of stabilizing or even declining as we moved through May;
  • When we consider the fundamental drivers of market performance – economic growth, earning, 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 “summer doldrums” are over;
  • With that in mind, clients need to have their expectations managed as to what their portfolios can deliver over a full market cycle, and we believe a heightened focus on diversification is an appropriate course of action.

We closed our April Commentary as follows: “We are not losing any sleep just yet, but we think there may be some sleepless nights ahead. Pay attention, stay diversified, and keep your investment horizon aligned with your financial plan.”

In May, investors were re-introduced to market volatility – and perhaps some sleepless nights. And we think our advice is even more valid now than it was at the end of April – pay attention, stay diversified, and keep your investment horizon aligned with your financial plan.

Joseph F. Eschleman, CIMA®
Towerpoint Wealth, LLC

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“The Great Interest Rate Debate”

Interest rates are headed back down, at least according to recent market consensus. Understanding the almost constant stream of news we hear about rates moving up or down, why should an ordinary investor care? Here’s why:

Many people believe that the stock market tends to do well when the U.S. Federal Reserve System, commonly known as “The Fed,” lowers interest rates. “We have now reared an entire generation of investors that buy stocks because interest rates go down,” said Brian Belski, chief investment strategist at BMO Capital Markets. The thinking: Easier monetary policy will help boost borrowing, pad corporate earnings, and possibly free up more cash for stock buybacks. However, history has repeatedly shown that it is best to turn a deaf ear to the Fed’s and to the market’s interest-rate chatter, and that rising rates have actually been good for stocks:

The central banking system of the United States was created primarily to alleviate financial crises; however, over the years, the roles and responsibilities of the Federal Reserve System have expanded. And while it is of great debate whether or not the Fed has too much control and power, what is certain is when the Chair of the Federal Reserve (currently Jerome Powell) speaks, investors and the markets pay attention.

There are current concerns that the growth of the U.S. economy is slowing, and with those concerns comes speculation that the Fed will reduce interest rates to stimulate the economy. However, at Towerpoint Wealth, we do not get too excited at the prospects of lower interest rates, and we do not become too worried at the prospects of higher rates, for reasons evidenced above. We follow a disciplined process and philosophy with our clients to help them build and protect their wealth, with shorter-term movements in the markets, in the economy, in politics, and in interest rates typically being of little concern. While we certainly pay attention and are attuned to what is happening, we rarely are reactionary.

TPW Celebrates Two Year Anniversary at Frank Fat’s
Locally, the Towerpoint Wealth family had an opportunity to let our hair down last week as we celebrated the firm’s two year anniversary, and enjoyed a fun long lunch at the iconic Frank Fat’s in downtown Sacramento. Fat’s was recently honored with a listing as a Bib Gourmand by Michelin Guide (customers must be able to order two courses and a glass of wine or dessert for $40 or less), and everyone agreed the meal did not disappoint!

There will always be a clear expectation for everyone to work their butts off at TPW, but there is also a clear expectation that we are a family, and will be having a lot of fun along the way!

Aside from downtown dining and interest rate scrutiny, 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 excellent article discussing whether or not a recession may be around the corner here in the United States
  • An article in the well-known wealth management industry periodical Financial Advisor IQ, featuring TPW’s President, Joseph Eschleman
  • Seek, an app that gives you detailed information on any plant or animal you take a photograph of by using image recognition technology

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

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‘Tarrified!’ – Trade War Hysterics

Right or wrong, good or bad, here are the two MAIN reasons we are in a trade war with China:

Here is what each country is importing from and exporting to each other:

And while we believe tariff increases will not help the U.S. economy in the shorter-term, we also believe it is not time to hit the panic button, as $250 billion of tariffs, spread over $14 trillion of consumer spending, is not necessarily recession-inducing. It certainly is true that some U.S. businesses, like soybean farmers, are hurt. However, after trade talks with China ended without agreement earlier this month, President Trump increased direct payments to farmers by $14.5 billion, plus another $1.6 billion in related aid.


Why are we pursuing this trade policy? Two primary reasons:

  1. China has stolen hundreds of billions of dollars of research and development (R&D) and intellectual property (IP) from companies that are at the leading edge of growth. This has been a glaring issue that the World Trade Organization (WTO) has failed to address for decades.
  2. As illustrated above, the large and growing trade deficit the United States has with China, partly due to the fact that China has higher tariffs on imports than the US does. The current U.S. administration believes that working to eliminate these lopsided tariffs is worthwhile.

Clearly free trade benefits all involved parties and economies. But leveling the playing field and fighting the massive theft of IP is extremely important for the longer-term health of our economy. Such violations — from counterfeiting famous brands and stealing trade secrets, to pressuring companies to share technology with local companies to gain access to China’s vast market — have long angered many of China’s overseas competitors. As a result, companies are wary of doing business there.


And right or wrong, good or bad, if tariffs nick our economy, China’s gets hammered.  Last year we exported $180 billion in goods and services to China, which is 0.9% of our GDP.  Meanwhile, China exported $559 billion to the U.S., which is 4.6% of their economy. We have enormous economic leverage that they simply cannot match. An extended U.S.-China trade battle means U.S. companies will shift supply chains out of China and toward places like Singapore, Vietnam, Mexico, or back home here in the USA. If that happens, the Chinese economy will be hurt for decades.

Quoting Don Rissmiller, chief economist at institutional research firm Strategas, “This is not the best time for a trade war. [However], it might be fair to say there is no good time for a trade war.” While we agree, and let’s hope President’s Trump and Xi do too, we feel it is important to simply understand the reasons why this is happening.

Eschleman and LaTurner in the Windy City


Shifting gears to somewhat closer to home, President, Joseph Eschleman and Partner – Wealth Advisor, Jonathan LaTurner, spent two full days in Chicago last week, keeping their professional saws sharp at a wealth management conference hosted by First Trust Advisors. Joseph and Jonathan enjoyed a thorough financial “deep-dive” at the conference, learning more about the current and future state of the U.S. and global economy and financial markets, in addition to presentations about practice management and also the current U.S. political landscape.


However, you can’t go to Chicago and have the trip be all work and no play! Joseph and Jonathan managed to fit in a Chicago Cubs game at Wrigley Field, and a business dinner at Gibsons Bar & Steakhouse as well!

In addition to trade wars and trips to the Windy City, there have been 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:

  • Special Market Update we just published today, “Trade Wars, Volatility, and Fear, Oh My!”
  • A well-written article that discusses the many considerations associated with California residency rules, from both a personal and an income tax standpoint
  • Calorie Mama, an app that gives you nutritional information on any food you take a picture of!

We encourage you to reach out to us (info@towerpointwealth.comwith 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

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“George Costanza – Investment Guru?”

Is George Costanza smarter than we give him credit for? While he may be the self-professed “Lord of the Idiots,” one of the ideas that George advanced during his character’s tenure on Seinfeld is directly applicable to the mindset needed to successfully build net worth and handle the temperamental stock market.

As we are all aware, the financial markets are extremely volatile. Tariffs and a concurrent trade showdown with Chinacorporate earnings announcementsinterest rate fluctuationsdaily economic announcements, and the ongoing Washington D.C. political soap opera are just a few of the myriad of drivers (read: noise) contributing to the shorter-term fluctuations of the financial markets.

We feel the more important question is: How much of this noise should matter to an investor looking to grow their portfolio and net worth? And we feel the answer is: Not very much.

We believe it is good to be skeptical of market advances, and conversely, to expect (we would argue, even embrace) market pullbacks, a very healthy philosophy that can none-the-less seem counter-intuitive. In other words (and as a shout-out to you Seinfeld fans out there), consider applying the George Costanza approach to investing, do the opposite of what you are hearing from your friends and from the media, and do the opposite of what also, instinctually, may feel right to you:

Two final illustrations supporting our point:

1. Expect pullbacks.

2. Bulls are bigger and longer than bears. The average bull stock market period lasted 9.1 years, with an average cumulative total return of +480%; the average bear stock market lasted 1.4 years, with an average cumulative loss of -41%.

Closer to home, we trust it is evident that at Towerpoint Wealth we take great pride in serving our clients as a fully independent wealth management firm; but being independent does not mean being alone. The partnerships we continue to develop with financial industry leaders allows us to leverage the expertise of important external resources, as evidenced by our meeting on Wednesday with Erik Feldmanof Schwab Advisor Services, and Tom Glamuzina of Dynasty Financial Partners, at TPW’s downtown Sacramento headquarters.


Both Erik and Tom, along with Dynasty and Schwab, provide us direct support and counsel as we refine and improve our client service offering and internal systems and procedures, and we feel extremely fortunate to have them as part of the Towerpoint Wealth team.


In addition to the TPW firm development activities mentioned above, there have been 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:

  • Our most recent April, 2019 Monthly Market Lookback“This Is It!”
  • An excellent illustration that reviews just how important it is to diversify your portfolio, and just how cyclical the investment markets are
  • An excellent app, if you never want to rent a boring ride again

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

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This is It

This is It

There’ve been times in my life, I’ve been wonderin’ why

Still, somehow I believed we’d always survive Now, I’m not so sure

You’re waiting here, one good reason to try

But, what more can I say? What’s left to provide?

You think that maybe it’s over, Only if you want it to be

Are you gonna wait for a sign, your miracle? Stand up and fight

This is it

Make no mistake where you are This is it

Your back’s to the corner This is it

Don’t be a fool anymore This is it

The waiting is over

No, don’t you run No way to hide

No time for wonderin’ why

It’s here, the moment is now, about to decide

(From “This is It”, by Kenny Loggins and Michael McDonald, 1979)

Why does the back of our neck itch right now? The economy seems to be doing fine, the stock market is booming, earnings are solid, inflation is non-existent, interest rates remain low, and global central banks remain accommodative.

All of the “signals” we’ve been focusing on in the past several months remain solidly “in the green”. So why are we apprehensive? Perhaps we shouldn’t be, and simply are falling prey to our inner “Chicken Little” who always thinks the sky is falling. We’ve been guilty of that before.

We think complacency is the root of our itch. Market volatility once again has become somnambulant, with the VIX trading below 15% since February (the historical norm is closer to 20%). The markets seemingly are ignoring geopolitical issues (trade tensions, Brexit, Italy, France, North Korea, etc.) and are trading in a very 

“Candide-ish” manner (“All is for the best in this the best of all possible worlds”). Nothing is moving the needle.

And that’s what’s bugging us. Nothing is moving the needle – the markets just keep trading higher. We hated the days when market movement revolved around Fed policy announcements

– when bad news was good news because the Fed would ride to the rescue – but we seem to be back in that mode.

Please don’t misunderstand – there is a lot to like about the global economy and corporate earnings right now. Frankly, we would be positively giddy if the rest of the world wasn’t in that same state already. We are reminded of Bob Farrell’s “10 Rules for Investing”:

  1. Markets tend to return to the mean over time
  2. Excesses in one direction will lead to an opposite excess in the other direction
  3. There are no new eras — excesses are never permanent
  4. Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways
  5. The public buys the most at the top and the least at the bottom
  6. Fear and greed are stronger than long-term resolve
  7. Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names
  8. Bear markets have three stages — sharp down, reflexive rebound and a drawn-out fundamental downtrend
  9. When all the experts and forecasts agree — something else is going to happen
  10. (emphasis added)
  11. Bull markets are more fun than bear markets

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

The Current Economic & Market Landscape

The global economy is still expanding, though slowly: 

  • The first estimate of Q1 GDP growth in the US is a whopping 3.2%, much higher than earlier expectations. A fair amount of this was due to inventory growth, which suggests lower growth in the future as the inventories are sold off (source: Bureau of Economic Analysis). We suspect future estimates of Q1 growth will show lower but still positive growth. Growth estimates for all of 2019 remain in the 2.0% — 2.5% range (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. Specifically, US / China trade talks seem to be progressing (though our expectations are muted), and the table seems to have been set for a massive ($2 trillion) infrastructure project in the US. There are no details yet, no final agreement, and no suggestions as to how a deal of this magnitude might be paid for;
  • Both the US manufacturing and services sectors remain in expansionary mode (52.8 in April and 56.1 in March, respectively; any reading above 50 is considered expansionary) (source: Institute for Supply Management);
  • The federal debt and deficit are exploding and any infrastructure project will balloon these numbers, but neither political party is the least bit interested in addressing the issue – it is all about spending, all the time. There is no spending discipline in Washington, DC right now. This may be good for the current economy, but the piper will be paid;
  • Inflation is nowhere to be seen and there seems to be an insatiable demand for US Treasury paper. Both of these factors are keeping longer-term interest rates very low;
  • The Fed is in a bit of a “pickle” – high economic growth and low unemployment might suggest a “tightening” stance, but inflation is non-existent (for now), and the markets would probably react violently to a rate hike. We anticipate no movement – either higher or lower – from the Fed for the remainder of this year;
  • The employment picture in the US remains robust, and wage increases are finally showing up – not commensurate with the low levels of unemployment and not enough to spark inflation (yet), but workers definitely are making more money, across almost all industry sectors;
  • As we wade through the heart of Q1 earnings season in the US, both the revenue and earnings “beat rates” are positive and generally in line with historical averages;
  • The primary threats to continued economic expansion remain trade policy negotiations with China and ongoing political turmoil in Europe (Brexit, Italy, France, and Germany);
  • With little movement expected from the Fed, low inflation, and (perhaps) a slowing economy, there is little upward pressure on interest rates;
  • We maintain our outlook, however, that rates in the US generally will inch steadily higher, with periodic reversals during market disruptions;
  • The yield curve remains very flat, although it has steepened slightly from previous months, but the long end remains “tamped down” by high demand for US Treasuries and a lack of inflation fears;
  • Through the end of April, there is only ~21 basis points difference between the yield on the 2-year and 10-year Treasury – this is incredibly flat but actually represents a slight steepening from previous months;
  • We maintain our position that we do not fear an inverted yield curve – should one occur, we believe it will be because of investment flows and, even should it be a harbinger of recession, we will have 12-18 months of “lead time”;
  • Contrary to our expectations, the US dollar has strengthened over the past few months. We attribute this to the “cleanest dirty shirt” syndrome – despite the relatively dovish tone of the Fed, the US economy is outpacing the rest of the world and investment flows are responding accordingly;

Manufacturing all across the Euro area continues to slip and remains in non- expansionary territory – 47.8 in April, the second lowest reading since April 2013 (source: IHS Markit and TradingEconomics);

  • The Euro-area Services Index remains expansionary (52.7 in March), but is decidedly slowing (source: TradingEconomics.com);
  • Eurozone unemployment is stable at 7.8%, and remains at its lowest level since 2008 (source: TradingEconomics.com);
  • Inflation is a non-issue in Europe, and the ECB has changed course from its planned “tapering” of quantitative easing. Deflation is a bigger risk than out-of-control inflation at this point;
  • Japan’s GDP is back in positive territory, but remains sluggish and sensitive to changes in exchange rates. A slowing global economy and a weakening dollar (should it occur) will not help;
  • China’s (official) GDP growth in Q4 was 6.4% (annualized), the lowest reported growth rate since the Financial Crisis in 2008;
  • The Chinese manufacturing index remains in non-expansionary territory, for the first time since May 2017. There are signs, however, that Chinese fiscal and monetary stimulus is beginning to have a positive effect.
  • Should this continue, it will be beneficial to the global economy, especially Europe and other EM countries.

The Towerpoint Wealth Economic & Market Outlook: 

  • The global economy continues to expand, though there is a deceleration of growth;
  • US economic growth, interest rates, inflation, and earnings are all weakening but remain generally expansionary. Wages and input prices are starting to increase, though slowly, and we do not see them as threats (yet) to continued expansion;
  • Outside the US, inflation simply is not a problem, due to slow growth and relatively stable input prices (despite the fairly steady rise in oil prices);
  • Global central bank policies remain “synchronized” around an easing theme, and this should be beneficial for risk assets;
  • Market volatility is low, and we are concerned that “complacency” has set in;
  • US valuations are once again steep. We still like EM valuations relative to US valuations (though they are only average relative to their own historical norms);
  • The US yield curve remains incredibly flat (there is currently a ~21 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;
  • The public credit markets continue to look very expensive to us, although investors seem to be fairly compensated for default risk, as corporate balance sheets generally are in very good shape. We remain concerned, however, about high yield liquidity and refinancing risk and the growing level of “covenant lite” bank loans;
  • 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 compressed premiums versus historical levels, driven by huge investment flows over the past 24-30 months;
  • Alternative investments, both Hedge Funds and Liquid Alts, disappointed investors in 2018, and both spaces witnessed extensive investment outflows as a result (as we expected). 2019 so far seems to be a continuation of this trend, although we believe that the current stage of the market cycle suggests the need for lower-correlated investment strategies;
  • We believe that real assets, after a nice YTD rally, will more or less stabilize as we move through the remainder of 2019;
  • While we generally are constructive on the global economy and overall market potential, investors should not extrapolate now into forever – the market will turn;
  • With that in mind, clients need to have their expectations managed as to what a globally diversified portfolio can deliver over a full market cycle.

So, we find ourselves in a bit of a conundrum – most of the market signals remain “green”, and we generally are optimistic about the potential for risk assets over the remainder of 2019.

This is the consensus view and, frankly, that is what gives us pause. “When all the experts and forecasts agree — something else is going to happen”. We are not losing any sleep just yet, but we think there may be some sleepless nights ahead. Pay attention, stay diversified, and keep your investment horizon aligned with your financial plan.

Towerpoint Wealth No Comments

“We Have a Hunch You Can Take a Punch!”

“Everyone has a plan until they get punched in the mouth.”

A big part of a financial advisor’s job is to help clients develop a well-thought-out and comprehensive financial, investment, and retirement plan. Yet no matter how thorough and detailed a client’s plan is, what good does it do them if they abandon the plan during an inevitable bout of market volatility?


This is a very important question the wealth management industry continues to ask itself. Advisors can attempt to educate clients about, and prepare them for, these pullbacks and downturns, but until they actually happen it can be difficult to predict or measure just how prepared a client is to be “punched in the mouth.” At Towerpoint Wealth, we believe that developing the intestinal fortitude to tolerate, and even flat-out accept, temporary declines in account balances is one of the primary factors in helping clients build their net worth over time.

Recognizing that we are currently in the throes of the longest bull market in history, stock prices have basically moved in one direction (UP!) for the greater part of the past ten years. And while this remarkable decade-long run has been enjoyable for many investors, witnessing almost linear growth in their account balances and personal net worth, it is atypical.

At Towerpoint Wealth, we are not suggesting that we expect things to change, nor are we predicting an immanent pullback – we are quite humble in our ability (or lack thereof) to consistently and accurately predict the future. And we do remain optimistic that this current expansion can continue. But we will always be pragmatic, and are sober to the reality that building personal net worth is not easy, takes discipline and time, and rarely occurs in a straight-line fashion. Mike Tyson’s professional record was 37-0 before he was knocked out by Buster Douglas in one of the biggest upsets in sports history, and along the same vein, we recognize that a big part of our responsibility is to not only help our clients plan and prepare for the unexpected to happen, but to expect the unexpected to happen. It is essential that we work diligently with our clients to objectively construct a disciplined and customized wealth management plan in times of stability, to ensure we do not change it during inevitable times of instability. In other words, learn how to expect, and take, “a financial punch,” and just as importantly, learn how to minimize its impact.

Speaking of working with clients, our President, Joseph Eschleman, spent two days in Washington, DC last week conducting a comprehensive client financial review meeting. At Towerpoint Wealth, we believe strongly in face-to-face communication, and do not let geography stand in the way of the partnerships we have with our clients.


Additionally, we gave a big thank you earlier this week to one of our trusted business partners, Brian Kassis, of RE/MAX Gold – Sierra Oaks, for the lovely Edible Arrangements fruit basket he gave us. Comprehensive wealth management entails us helping our clients not just with their investments and portfolio, but with the proper coordination of ALL of their financial affairs, including tax minimizationinsurance and risk management, estate planning, income generation, personal liability managementcompany and employee benefits analysis, and real estate portfolio management. It is for this reason that we have formed close partnerships with professionals like Brian; we are afforded, and can offer our clients, a “deep bench” of wide-ranging financial experts who stand ready to help in a myriad of economic areas.

It has been two weeks since we last published Trending Today, and there have been a number of newsworthy and notable events that have occurred:

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

  • A YouTube video featuring Shirl Penney, CEO of Dynasty Financial Partners, discussing the myriad of resources that Towerpoint Wealth draws from Dynasty, leveraging their very deep bench
  • An excellent, up-to-date, “insiders look” at what is happening in Washington, DC politics, including fresh perspectives on the 2020 Presidential election
  • A must-have app if you travel internationally

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