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Sacramento’s WHITE HOT Residential Real Estate Market! 04.02.21

Recently, our President, Joseph F. Eschleman, sat down at Old Soul Co. for a cup of coffee with 33-year-veterean real estate agent Brian Kassis, of RE/MAX Gold, sharing an in-depth discussion about the current and future status of the “ridiculously hot” Sacramento real estate market. In their conversation, Brian and Joseph covered a myriad of different current topics and issues, answering the following questions:

  • How does today’s hot market compare with the hot market back in 2005/2006?
  • Why are housing inventory levels so low?
  • How can I make my offer stand out (hint – CASH)?
  • How are historically low interest rates and sub 3% mortgage rates (!) affecting this market?
  • When and potentially why might the market cool off or begin to slow down?
  • How has the pandemic changed the residential real estate landscape here in Sacramento?
  • How has the migration from the Bay Area affected demand and real estate prices here in Sacramento?
  • What parts of the greater-Sacramento area may still offer decent value for buyers?
  • What should residential real estate investors be considering, and be optimistic about, in this environment?
  • What are Section 1031 tax-free exchanges, and how have they helped support real estate prices in Sacramento?

Click HERE to contact Joseph.

Click HERE to contact Brian.

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The Biggest Stock Market REVERSAL in History

It is normal for the stock market (in this case defined as the S&P 500) to experience intra-year declines. To wit: From the all time highs it set early in 2020, the S&P 500’s deep 34% decline in March.

And while stating that the stock market goes up and down is not at all profound, in this context it has a lot of meaning and important context. Just how common are these intra-year declines?

Put differently:

And while there are still three weeks until we turn the page on 2020 (HOORAY!), the tremendous swing we have experienced since the above-mentioned huge losses in March to the 15.5% gain through yesterday will likely make history as the largest stock market intra-year reversal in history. Did anyone see this coming?

Most of us continue to reel from and deal with a myriad of COVID-19-related challenges, but at Towerpoint Wealth we feel the light of optimism at the end of the tunnel is getting brighter, and anticipate:

In summary, while things certainly feel and look bleak right now, there are many reasons for cautious optimism heading into next year. To quote A Wealth of Common Sense:

The stock market can look like a raging lunatic in the short-term but that doesn’t mean you have to invest like a raging lunatic as well.

…not panicking, even when stocks are down big, remains one of the best investment strategies on the planet.

What’s Happening at TPW?

Please help us welcome our new Client Service SpecialistMichelle Venezia! We feel fortunate to add Michelle to our Towerpoint Wealth family, as she brings over 30 years of wealth management industry and operations experience to TPW. Our PresidentJoseph EschlemanDirector of OperationsLori Heppner, and Director of Research and AnalyticsNathan Billigmeier, are all keenly aware of Michelle’s skills and experience, having worked side-by-side with her for a number of years at Wells Fargo Advisors.

Michelle is a huge Denver Broncos fan, and enjoys traveling and wine tasting when not spending time at home with her two “fur babies,” Sissy and Mr. Blue. Please call (916-405-9140) or email her (mvenezia@towerpointwealth.com) with any service-related questions or needs, or simply to offer her a warm TPW welcome!

Michelle’s official signing day!

Lori and Michelle, deeply involved in a training session.

Decorating the office for the holidays!

TPW Service Highlight – Cash Management Consulting

Holding cash provides safety, stability, and liquidity / immediate availability (a.k.a. “dry powder“), or in other words, peace of mind. On the other hand, in today’s ultra-low interest rate environment, holding too much cash can be extremely unproductive, as most banks and credit unions are paying next-to-nothing in interest to account holders.

Towerpoint Wealth can help you make intelligent decisions regarding holding and managing your cash balances, working to maximize the interest you are receiving, while aiming to maintain the benefit of the “emergency blanket” that cash provides. In addition to providing clients with customized due diligence on the highest yielding local and national checking, savings, and money market accounts (and CD rates), we also leverage partners such as MaxMyInterest and Reich and Tang, as well as help clients evaluate cash equivalent exchange traded fund (ETF) strategies such as PIMCO’s MINT and First Trust’s FTSM. All of these can potentially put consistent additional interest into your pocket. Reach out to us by clicking HERE to discuss your circumstances further.

Investment return and principal value will fluctuate with most cash equivalent strategies, so fund shares may be worth more or less than their original cost when sold. Past performance is no guarantee of future results, and most cash equivalent strategies are not FDIC insured.

Chart of the Week

Despite the ugly-sounding acronym, FAANG stocks (Facebook, Apple, Amazon, Netflix, Google) have earned significant attention his year – understandable, considering their performance has had a substantial influence on the overall return of the stock market in 2020.


The chart below is a microcosm of this FAANG influence – Apple’s $2.1 trillion market capitalization (a common measure of the size of a company) is more than double the size of the “market cap” of the entire energy sector!  

As always, we sincerely value our relationships and partnerships with you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.

– Joseph, Jonathan, Steve, Lori, Nathan, Matt, and Michelle

CLICK Here To Download Towerpoint Wealth PDFs
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No Outcome? No Surprise. No Problem!

We expected it to be this way, right? Historically, the market has always gotten a bit crazy both before, and after, the election:

Since Election Day on Tuesday, the S&P 500 has rallied 4%, and has enjoyed its best start to the month of November ever, up 7.4% in four days.

At Towerpoint Wealth, we believe there are a few reasons for this big jump:

  1. While investors do expect a fiscal stimulus package out of Washington D.C. in the near future, perhaps before January, the size of a deal reached in a divided Congress is likely to be much smaller than it would be under a Democratic-controlled Congress. However, sometimes bad news equals good news on Wall Street, and this had led investors to believe that more pressure will be on the U.S. Federal Reserve (“the Fed”) to pump more funds into the financial system, theoretically supporting stock prices. Just yesterday, Fed Chair Jerome Powell said more stimulus is “absolutely essential” to economic recovery.
  2. Assuming Republicans hold the Senate, the likelihood of significant increases in both regulations and income taxes is significantly decreased.
  3. Interest rate and inflation expectations have recently dropped:
         Interest Rates       
Inflation

Additionally, as the Chart of the Week towards the bottom of this newsletter indicates, gridlock has historically been good for the equity markets. And while ballots are still being tallied, and Arizona, Georgia, Nevada, and Pennsylvania remaining in focus, it does appear that Joe Biden is on the brink of victory, and that we are much closer to having a clear winner, possibly by tomorrow or Sunday. The betting markets on the Presidency sure seem to agree:

There are many reasons for us here at Towerpoint Wealth to be paying close attention to events out of our control, but no reason to be reactionary to any of them. In addition to the recent interest rate and inflation-expectation adjustments, some of the other post-election, split-Congress items bearing scrutiny include:

  1. Renewed weakness in the financial sector
  2. Growth stocks outperforming value stocks
  3. Industrial and materials sector stocks lagging
  4. The volatility of the U.S. dollar
  5. Strengthening emerging market stocks
  6. Continued strengthening of technology sector stocks
  7. Potential weakness in tax-free municipal bond prices
  8. Weakness in healthcare sector stocks
  9. Weakness in renewable energy stocks


All of these moving parts and variables can make it tempting to consider second-guessing your investment strategy and philosophy. The constant struggle between the desire for growth and protection is natural, and the goal of managing a well-diversified portfolio is to be prepared for any market environment or political change.


Ultimately, when we put aside all of those “uncontrollables,” we keep the following graph in focus (hopefully the trend is an obvious one):

What’s Happening at TPW?

The Towerpoint Wealth family enjoyed an afternoon of teambuilding and camaraderie on the Sacramento river earlier this week, taking a quick voyage on the Sacramento Brew Boat up and back to the iconic Virgin Sturgeon restaurant for lunch.

While on their adventure, they also helped our newest family member and wealth advisor, Matt Regan, celebrate his birthday!

TPW Service Highlight – Morningstar Portfolio “Instant X-Ray”

Often enough, clients ask us what stocks they have exposure to within the various mutual funds and exchange traded funds (ETFs) that comprise their portfolio. We now have a sophisticated tool available to us that not only does a deep-dive in evaluating your specific asset allocation and sector weightings, but also the actual individual underlying holdings you have exposure to.

Think you are properly diversified? There is only one way to find out for sure – ask us to run a Morningstar portfolio Instant X-Ray report, and we will dissect your portfolio to uncover concentrated positions, areas of unexpected overlap, and provide detailed insights into your portfolio’s diversification, illuminating what is truly driving your portfolio’s risk and performance.

Chart of the Week

The odds right now seem to favor a Biden presidency, a Republican Senate, and a Democrat House. The chart below, from LPL Financial Research, shows how a split Congress has been historically good for the stock market.

As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.

CLICK Here To Download Towerpoint Wealth PDFs

– Steve, Jonathan, Lori, Joseph, Raquel, Nathan, and Matt

Towerpoint Wealth Our Team Sacramento Wealth
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The *Unreal* Real Estate Market of 2020

For a myriad of reasons, 2020 has been both a surreal and unreal year, and the growth in the value of residential real estate is illustrative of that. According to USA Today and the National Association of Realtors (NAR), despite the hard economic times caused by the COVID-19 pandemic, home prices rose in the first quarter of 2020 in 96% of U.S. metro markets. A few of the local Sacramento-area agents we work with have commented that “this [real estate] market is even hotter and crazier than it was at its peak in 2006.

The environment 14 years ago was very different – during the U.S. housing bubble, real estate prices were artificially inflated due to speculative fervor, lax lending standards, and arguably negligent regulations. But when we fast forward to 2020, we find four reasons for this red hot market:

Historically LOW interest rates. Money is extremely “cheap” right now, as interest rates on mortgages continue to hit record lows.

Cheap money is analogous to low interest rates, meaning it doesn’t “cost” much to borrow. Mortgage rate cuts have given house hunters ~ 25% more buying power in less than two years, and that does not appear to be ending soon. The less it costs to borrow, the more a buyer may be inclined to do so when buying a home. Alternatively, the less it costs to borrow, the lower the homebuyer’s monthly mortgage payment. Adding this all up provides major stimulus to and demand for buying real estate.

Urban exodus. Just a few years ago, demand for city living was high, and people were piling into major metropolitan areas throughout the United States; now, the opposite is happening, and they are filing out in favor of suburban life.

Rent decreases are accelerating, as seven of the top ten priciest rental markets saw apartment prices drop 5% over the same time last year. Cultural and social opportunities that often draw people to metropolitan areas have largely shut down due to coronavirus. The perceived health concerns associated with public transportation and dense city living, high city taxes, the safety concerns and stress caused by demonstrations devolving into riots and other increases in crime, the desire for more space, and the ability to work remotely have all created a huge outflux from the cities, and concurrently, an influx of cash that has pushed up real estate prices in the ‘burbs.

Telecommuting / virtual working. Before COVID-19, only about 5% of workers did their jobs remotely. That figure has jumped to nearly half. Google, Twitter, and Facebook have led Silicon Valley in announcing plans to let, or even require, employees to work from home, at least for the next year, if not indefinitely. New York-based financial giants J.P. Morgan and Morgan Stanley have offered their employees a similar option. Telecommuting is no longer a trend, it is a full-blown movement. And that has allowed, or better put, freed people to live where they desire, and not feel geographically-tethered to their job location.

Inventory shortage. There is an imbalance. There are more buyers than sellers. Postponed purchases from March and April due to home-buying restrictions have created intense demand. Families are looking to upgrade, and, understanding we are all spending more time in our homes that before, people simply want more space. There was a nationwide industry shortage even before the pandemic hit, and the COVID-19 crisis has only exacerbated the problem. U.S. home values grew to $256,663 in August, an 0.7% increase from July, the largest increase since 2013, and inventory is 29.4% lower than a year ago! Builders are racing to catch up with demand, and rising prices should encourage more potential sellers to come off of the sidelines and list. But until those things occur, the shortage of inventory will continue to tilt the housing market in favor of sellers. Economics 101: When demand outstrips supply, prices go up.

How long this lasts remains to be seen. At Towerpoint Wealth, we believe that things will only begin to change in the real estate market when the uncertainty surrounding the job market, economy, and COVID-19 epidemic begin to subside.

What’s Happening at TPW?

The TPW crew enjoyed a “robust” teambuilding potluck earlier this week, highlighted by grass fed tri-tip marinated in “The Sauce for All Seasons,” Pearson’s Premium!

Our Partner, Wealth Manager, Jonathan LaTurner, our Director of Research and Analytics, Nathan Billigmeier, our new Wealth Advisor, Matt Regan, and our Director of Tax and Financial Planning, Steve Pitchford, enjoyed an early morning TPW team-building golf outing at William Land Golf Course!

TPW Service Highlight – Roth IRA conversions

While 2020 will rightfully be remembered for the challenging and unprecedented COVID-19 battle we have all been impacted by, at Towerpoint Wealth, we have continued to proactively work with clients to identify economic opportunities presented by the coronavirus crisis. Specifically, we have identified a “silver economic lining” tax planning strategy this year, one that is designed to take advantage of today’s low income tax rates, which we feel are temporary, while at the same time leave our clients better positioned for tomorrow’s higher income tax rates, which we feel are inevitable.

Below you will find 2020: The Perfect Year for a Roth Conversion, our newly-published white paper that discusses what a “Roth conversion” is, who may benefit from a Roth conversion, why 2020 is a potentially great year to do a Roth conversion, and how to utilize important tax planning tools to evaluate this opportunity.

Graph of the Week

While we obviously need to continue to remain disciplined, and understanding there is still more work to be done, the United States COVID-19 hospitalization numbers below, from Bespoke Investment Group, are encouraging. Less than one person per 10,000 population (or less than 100 people per 1MM population) is currently hospitalized with coronavirus.

As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.

– Nathan, Raquel, Steve, Joseph, Lori, Jonathan, and Matt

Towerpoint Wealth Team : Sacramento Financial Advisor
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Will Who We Elect Make the Market Correct

It’s right around the corner, and it isn’t going to be pretty, so let’s discuss the election’s impact on the stock market now and get it out of the way.

For a good part of this calendar year, we have counseled you that it is prudent to give advance thought to the range of potential economic, regulatory, taxation, spending, budget deficit, societal, and financial market implications of the national election results, depending on whether Republicans or Democrats win one or more of the White House, the House of Representatives, and the Senate

After Labor Day, the campaign is likely to reflect increased amounts of political vociferousness, perhaps some degree of vehemence, and even apportionments of vitriol (we hope and pray not too much), with the potential to cause meaningful shorter-term shifts in financial asset prices. That is precisely why we recommend forming beforehand, and sticking to, a well-reasoned and disciplined asset allocation plan and investment strategy tailored to your personal and financial circumstances, time horizon, objectives, and temperament.

November 2020: The 59th Quadrennial Presidential Election

September, October, and then, the Election: With the VIX volatility index (see the Graph of the Week below) having risen an average of four points ahead of each of the last seven presidential elections since this measure was created, important issues to consider in the upcoming weeks ahead include:

  • How clearly (and energetically) each political party’s convention message was received, perceived by, and responded to by their respective loyal voter bases;
  • The nation’s reactions to the anticipated three presidential debates and one vice presidential debate;
  • Assessments of the strength of party identification among various segments of the voting population, as well as in the composition of the overall electorate; at the same time, taking into account the ability of each ticket to generate serious backing from less-supportive voter populations; 
  • Which candidate voters (considering demographic attributes, where they live, how they classify themselves on the political spectrum, and other characteristics) think can better confront America’s broad challenges, including the coronavirus pandemic, the economy, social issues, and pressing global concerns;  
  • The effectiveness of voting procedures, trust in mail-in balloting, the degree of putative social media and foreign-based election interference, actual voter participation, and the perceived veracity and legitimacy of the results; and 
  • The potential consequences of prolonged uncertainty associated with a contested election (should it occur) for social order and the financial markets.

Some Implications of Potential Scenarios

Roughly one in five workers are currently receiving jobless benefits, and early expectations of a V-shaped recovery have been hindered by renewed coronavirus outbreaks. Regardless of who wins the 2020 election and in what manner, financial asset valuations appear to be reflecting expectations that whenever the coronavirus pandemic ends, some degree of economic acceleration is likely to take place in the U.S.

As we have counseled for some time, it is important to devote thought and attention to the taxation, regulatory, economic, asset allocation, and investment strategy implications of the three leading potential electoral outcomes outlined below (while noting that both political parties have expressed interest in promoting the development of generic drugs, lowering drug prices, and containing healthcare costs; and the two parties have also been focusing on antitrust, platform liability, and privacy issues relating to many of America’s biggest technology enterprises):

  1. If President Trump is re-elected and wins the White House, Democrats keep control of the House of Representatives, and Republicans keep control of the Senate, such an outcome would likely favor securities in the following sectors: technology, defense, finance, healthcare, and energy, while potentially putting pressure on sectors and companies that could be harmed by further deterioration in  U.S-China relations;
  2. If Vice President Biden wins the White House, Democrats keep control of the House of Representatives, and Republicans keep control of the Senate, such an outcome would likely favor companies and sectors that would be deemed to have thereby avoided increased taxes and a heavier regulatory burden;
  3. If Vice President Biden wins the White House, Democrats keep control of the House of Representatives, and Democrats take control of the Senate(sometimes referred to in the media as a “blue wave”), such results would substantially raise the odds of higher taxes. Offsets to the latter outcome could come in the form of substantial additional spending on infrastructure, education, and healthcare. Securities in the following sectors, among others, are perceived to be disadvantaged by a “blue wave” Democratic sweep: defense, healthcare, financials (via increased regulation) and energy (with expectations of restricting fracking and limiting drilling on federal lands in Texas/New Mexico’s Delaware Basin and Southeast Montana/Northeast Wyoming’s Powder River Basin), while giving a lift to sectors and companies that could be helped by improving U.S-China relations.

The Pre- and Post-Election Tax and Spending Outlook

As shown in the panel below, the current taxation and spending policy positions of Vice President Biden contain numerous base-broadening elements that increase taxes by approximately $4 trillion, while increasing spending to the tune of approximately $6 trillion in areas including healthcare, infrastructure, education, energy research, and other initiatives.

Released on Wednesday, July 9, the 110-page report of the Unity Task Forces (created and staffed by individuals designated by Vice President Joe Biden and Senator Bernie Sanders) contains a detailed set of policy recommendations in six domestic policy areas: 

  1. Health care (while not supporting Medicare for All, the report proposes a public option, a government-administered plan “like Medicare” that would be available to all Americans; on drug pricing, the report recommends appointing a government board to set prices that Medicare would pay for new drugs);
  2. The economy (with $400 billion pledged for procurement of domestically made goods and $300 billion to support high-tech research);
  3. Climate change (here, a total of $2.0 trillion over four years is earmarked to shift millions of jobs into clean energy, with the goal of cutting emissions from power generation to zero by 2030, having net zero emissions by 2050, and introducing new fuel-economy standards);
  4. Criminal justice (proposing reforms to law enforcement and policing practices);
  5. Education (including universal preschool for three- and four-year-olds, at a cost of $775 billion over a decade), and 
  6. Immigration (proposing to end travel restrictions against 13 countries, and to maintain protections from deportation for approximately 700,000 young immigrants known as “Dreamers”).

Should Vice President Biden win the White House, financial asset prices in general, as well as specific industries and companies, are likely to be affected by the speed and degree to which the new Administration and Congress (whose degree of support depends on which party controls the House of Representatives and which party controls the Senate) might be able to implement priorities in these and other areas.

For further granularity, the following panel sets forth eight elements of personal taxes and four elements of corporate taxes: (i) under the current U.S. tax regime, which would not currently be expected to change much under President Trump (although the President has endorsed the idea of payroll tax reductions; tweeted about a potential capital gains cut; and vowed to extend the Tax Cuts and Jobs Act of 2017, which capped the so-called SALT (State and Local Tax) deduction at $10,000); and (ii) as currently outlined as taxation policy under a Biden administration.

Given that the process of turning taxation proposals into law takes time, it is likely to be at least June 2021 for new tax legislation to be enacted. On several aspects of tax planning (including the timing and forms of income and expenditures; tax gain-loss harvesting; and retirement, estate, and gifting strategies), it may be sensible to postpone any major moves until a judicious assessment can be made of the makeup of the post-election government and its specifically-expressed legislative agenda.

Regardless of the fireworks, and ultimate outcome, of the election, we will always believe that good, well-run, profitable companies will remain good, well-run, profitable companies, independent of a Trump or Biden win.

What’s Happening at TPW?

Happy to have him aboard, contributing, and part of the Towerpoint Wealth family, the TPW team has been indoctrinating Matt Regan, a.k.a. “the new guy,” over the past two weeks:

Our new Wealth Advisor, Matt Regan, connected with our President, Joseph Eschleman, and our Partner, Wealth Advisor, Jonathan LaTurner, for an enjoyable business lunch at the historic Sutter Club in downtown Sacramento earlier this week.

Our President, Joseph Eschleman, and his wife, Megan Eschleman, hosted Matt and his lovely wife Alyssa for an enjoyable evening of tri-tip, corn on the cob, chicken skewers, and Frank Familycabernet.

TPW Service Highlight – Social Security Optimization

Many investors are not prepared for retirement, and have not properly planned for how to structure their post-retirement income. With the popularity and availability of pension plans quickly waning, and rock bottom interest rates making it difficult to derive enough interest income from bonds, the importance of Social Security has never been greater.

Through careful planning and the development and utilization of a custom Social Security optimization analysis, our aim at Towerpoint Wealth is to help our clients structure a plan to ensure that they are not leaving any money on table when it comes to their Social Security benefits. According to the Annual Statistical Supplement to the Social Security Bulletin, 70% (!) of all retired workers started taking benefits before their normal retirement age. For some this may make sense, but for many, this will result in the forfeiture of tens, if not hundreds of thousands of dollars over their lifetime.

Let us help you scientifically analyze the myriad of Social Security claiming strategies available to you, and develop a customized plan to ensure you have properly maximized this hugely important retirement income benefit.

Graph of the Week

The market anticipates some pretty incredible fireworks (as we probably all do) leading up to November’s elections. With Joe Biden’s lead over President Trump drifting lower since the late summer, there is now even more expected volatility around Election Day, and things almost assuredly will only heat up further as we get closer to November.

The graph below reflects the historical activity and pricing of the VIX, a popular index that measures future stock market volatility, used by investors to hedge against it. Currently, November’s election is the most expensive event risk on record. With many more absentee and mail-in ballots expected to be cast in this election, the possibility certainly exists that we do not know who the winner is on Wednesday, November 4.

Quoting Cameron Crise, Bloomberg macro strategist, “In the history of VIX futures contracts, we’ve never had an event risk command this sort of premium… That obviously suggests that markets anticipate some pretty incredible fireworks.”

Don’t say you haven’t been warned, keep your seatbelt firmly buckled, and most importantly, don’t be surprised nor overreact to the upcoming craziness!

As always, we sincerely value our relationships and partnerships with each of you, as well as your trust and confidence in us here at Towerpoint Wealth. We encourage you to reach out to us at any time (916-405-9140, info@towerpointwealth.com) with any questions, concerns, or needs you may have. The world continues to be an extremely complicated place, and we are here to help you properly plan for and make sense of it.

– Nathan, Raquel, Steve, Joseph, Lori, Jonathan, and Matt

Towerpoint Wealth Team : Sacramento Financial Advisor
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President Joseph Eschleman Cited As Expert

Our President, Joseph Eschleman, recently penned a white paper for Towerpoint Wealth that discussed 14 different strategies to consider during the coronavirus crisis. Joseph was cited as an expert by MutualFunds.com for his work and content on the subject, who published his commentary on their website on June 11.