Money Managers Live

One Goes Down While The Other Goes Up

Written by Nathan White, Chief Investment Officer of Paragon Wealth Management

There was an interesting report yesterday published by NDR (Ned Davis Research) highlighting the current financial position of households through 2012.  The data shows how households have continued to recover from the financial crisis and in many cases are now in the best position in over a decade.  Households have been paying off debt aided by low interest rates, rebounding asset prices and slowly improving incomes.   The data tracked by NDR covers various household debt service and financial obligations ratios.  For example, one ratio compares household credit market debt as a percentage of total household financial assets.  This ratio is currently at 23.6% and is the lowest since the first quarter of 2002.  By comparison, at the heart of the financial crisis in early 2009 the ratio was 32.6%.  Another financial obligations ratio that includes vehicle leases, rent, insurance and property taxes is the lowest since 1981.  The debt service ratio which calculates minimum debt service payments on mortgage debt and consumer credit as a percentage of disposable income was at a record low (data goes back to 1980).  This last statistic is no doubt influenced by today’s extremely low interest rates and would not look as favorable if interest rates were higher.

So the private sector has been doing the “right” thing by deleveraging which in the short term reduces demand but in the long-term increases demand.  This deleveraging process by the private sector is one of the reasons why the economic recovery has been less than robust.

While the private sector has been deleveraging, the government has been doing the exact opposite.  Gross federal debt now stands over 103% of GDP compared to around 64% in 2008.  The average maturity for U.S. debt is around 5.5 years and the average interest rate on all interest-bearing U.S. debt is 2.487% as of the end of February (source: TreasuryDirect).  In an effort to support or “stimulate” the economy since the financial crisis government spending has increased to about 24% of GDP compared to the 66-year average of 19.7%.  Borrowing to spend means the government is taking money out of the economy to try and put it back into the economy.  In the end we are left with a bigger debt burden that will weigh on future growth.  

With these low rates, we are being given a tremendous opportunity to lower rather than increase our debt burden going forward.  The government should lock in these low rates by issuing more long-term Treasuries which would give us more time to set our fiscal house in order.  Once these conditions were set the American economic machine could soar on a firmer foundation.   

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

I Heard the Stock Market is Going to Crash!

Written by Dave Young, President and Founder of Paragon Wealth Management

Last week I received a call from a very concerned client.  He was talking to a friend who told him that the stock market was about to crash.  He had heard it from an expert on television and wanted to know if I had heard that the crash was coming!  Also, he wondered, "What he should do with his account?"

I explained that no one knows with absolute certainty where the market is going next.  The stock market is essentially a giant auction.  Everyone has an opinion on whether or not the values are fair.  Some think they are too low, some too high and some just right.

Just because the market is hitting all time highs that doesn't mean that it has to go down.  Regardless of where it is at in the cycle, it will do one of three things.  It might go up more, may move sideways or could go down.  The only thing that is guaranteed is that one of those three options will occur.

At Paragon, we go to great lengths to position our portfolios in front of the path that our analysis shows the market is most likely to go.  We are right more often than we are wrong, however, unfortunately we are not always right.

So how do you invest and keep your sanity?  You control the variables that you can control and you don't worry about the others.  One variable you can control is whether or not your risk tolerance is set properly.  We also call this your "investment comfort level".  If you are invested according to your appropriate investment comfort level then you significantly increase your potential for long term success.

If you haven't checked your Investment Comfort Level lately then I would suggest you take the Risk Tolerance Survey on our website.  Click here to take the Risk Tolerance Survey.  After you take the risk tolerance survey - then verify that your investments match your personal investment comfort level. 

This is one of the most useful exercises you can do in order to make sure you are invested the way you should be.  Call or email us if you have any question whether you are invested appropriately.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

 

Inflation Where Art Thou?

Written by Nate White, Chief Investment Officer of Paragon Wealth Management.

Could gold, the traditional and popular hedge against inflation, actually perform poorly during an inflationary period thereby frustrating its use as a hedge?  For years now many have been worried that due to unprecedented central bank easing and huge government deficits we should be experiencing high inflation.  Instead, with the CPI at 1.6% inflation is benign at best.  We can “thank” the financial crisis for that.

The price of gold seemed to confirm inflation worries by having a stellar decade long run from $300/ounce in 2001 to over $1,800 by August of 2011.  Since then, the price of gold has stalled.  Perhaps gold moved up less because of inflation worries and more because it was a recipient of the money issuing forth from the central bankers?  Now in anticipation that the easy money policies could start to end within a year or two could this be the reason that gold prices are stalling out?

What is equally interesting to me is that now as the economy is starting to strengthen somewhat as it leaves the financial crisis behind we could actually be on the cusp of inflation starting to pick up.  As confidence returns, the massive reserves in the banking system could finally start to move out into the economy as lenders open up and demand for credit increases.

Productivity and margins are strong in corporate America and at this stage of the economic cycle as demand picks up they will have to hire more workers to keep up with sales.  This would result in the wage inflation that the Fed likes to focus on.  However, as inflation picks up and the Fed finally has to start reining in the money supply gold could actually decrease.  It would be the opposite of what happened over the past decade.  Just as stocks often price in all of the good news perhaps gold has done the same in regards to inflation?  Asset prices love to move ahead of the actual events.  Perhaps it is a good time for gold investors to lock in some gains if they were using it as a hedge against inflation.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Watch out for a Russian in a Speedo

Written by Dave Young, President & Founder of Paragon Wealth Management

I recently returned from a trip to the Dominican Republic.   The trip was for a group of 30 entrepreneurs and their wives who were graduates of BYU.

The trip was great.  It was a chance to get out of the cold.  It was good to network with an upbeat, successful group of people.  The days were nice, sitting on the beach, listening to the waves and enjoying the sun. 

In retrospect, it reminds me of the stock market the past few months.  There has been very mild back and forth movement within a general uptrend.  All in all, it has been a good time to be invested.

About midweek, I was involved in a beach volleyball game.  Everything was going great until this guy from Russia wearing a Speedo decided to go for the ball in the zone I was covering.   He hit me full force with his shoulder going into my left lower ribcage.  Both of us ended up out of bounds on the ground - with me getting the worst of it - with two broken ribs.

That sudden change of events kind of put a damper on the trip.  Much like market sell-offs put a damper on nice market up-trends. 

The moral of the story is to never be complacent.  When investing -especially when times are good- we are always looking over our shoulder and preparing for the next bad thing that might happen.  They say the best traders are somewhat paranoid.  When investing, hope for the best but prepare for the worst.  When in the Dominican Republic - watch out for that Russian in a Speedo...

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

 

Spring Housing Market Update

Written by Nathan White, Chief Investment Officer of Paragon Wealth Management

This is an interesting article for anyone interested in buying or selling a home in the current environment.  Many regions in the country are now experiencing a lack of supply which has given the sellers the upper hand.  It’s certainly a different market than the last few years to say the least.

To view the article, please visit bloomberg.com

Here is an excerpt of the article:

Strategies for the Spring Housing Scrum

By Carla Fried

It all seems so quaint now: the casual walk-throughs, the drives to check out the neighborhood, the luxury of sleeping on the largest financial decision you'll likely ever make. Trying to buy a home now feels more like being thrust into the trading pit at the Chicago Mercantile Exchange -- the frenzied bidding, the need for lightning-fast decisions, the packs of sharp-elbowed competitors.

In one fraught situation, a home near Union Station in Washington, D.C., drew 168 offers in December and sold for almost twice the asking price. In the tonier neighborhoods of Los Angeles, 20 bids per house is not uncommon, according to real estate agent David Kean. And the speed of deals can be intense. "In the middle of a snowstorm we have seen houses sell in one day," says Sam Schneiderman, owner/broker at the Greater Boston Home Team agency. "At open houses on million-dollar homes you are literally bumping into people, it's that crowded."

Finding an Edge

A dearth of homes for sale has run smack into a suddenly energized buying crowd egged on by rising values. The National Association of Realtors says the number of existing homes on the market in January -- 1.74 million -- was 25 percent lower than a year ago, and the lowest level since 1999. Over the past 12 months the inventory of existing homes for sale has dropped from a 6.2-month supply to a 4.5-month supply, the lowest level since 2005. 

Price is obviously the main lever in all deals. What’s particularly important now is to understand how the seller will handle bids. Some collect all bids and immediately choose a winner, typically the highest offer, which is often more than the asking price. Other sellers give the top three or five bidders the chance to make one counteroffer. In those instances, you want to get into the bake-off but leave yourself room to counter.

In today's tight market, some sellers are asking every bidder to counter. That's what happened to a client of Schneiderman's in the recent sale of a house in Newtown Center, Massachusetts, listed for $975,000. The seller got nine offers -- four to nine offers is the norm now, Schneiderman says -- and asked for counter bids on all nine. Schneiderman's client bid $1,016,000 and lost. The seller's agent said the winning bid was "significantly higher."

To gain an edge in counteroffers from the start, you can put an escalation clause in your original offer. With one of these, you agree to beat the top offer by $5,000, up to a limit. So if you bid $380,000 and have a $5,000 escalation clause up to $400,000, that means if another bid comes in at $385,000, you automatically agree to $390,000. 

Beyond price, buyers need to craft an offer that screams “I’m easy” to the seller. That starts with the buyer’s agent getting vital intel from the seller’s agent on what buttons to push. Some sellers are in a hurry to close. Others would love an extra month before escrow to coordinate their move. Sometimes letting the seller stay in the home for a month or more, rent-free, after a fast close can provide the seller valuable breathing room that seals the deal..........

To view the rest of the article please visit: bloomberg.com

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.