​It’s been a long summer and thank God Fall is here.  Kids go back to school.  Traders return from vacation and market volume and sanity returns!
 
Summer is just no fun anymore for investment professionals and their clients!
 
So, the million-dollar or maybe billion-dollar question (adjusting for inflation) is where are we in this whole mess?  Is a recession on the way?  Are markets going to crater?  What’s up with interest rates?
 
Let me start by saying if I had all the answers, I would just be managing my own riches.  However, I do believe I have a few cues that might help you understand what has happened and where we might be heading.
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​Many of you might have heard on the news that the yield curve inverted.  What the heck is this?
 
Simply this is chart where the 10-year treasury bond yield is plotted relative to the 2-year treasury bond interest rate or yield.  When the 10-year yield dips below the rate of the 2-year, the markets are forecasting that longer term growth prospects are weaker than current growth prospects.  This is called a yield curve inversion, as seen below.

All prior recessions have been forecast by a yield curve inversion with 100% accuracy. 
 
Here is the rub though, it is always delayed.  It is not immediate!

​As you can see, the average time to the recession is 21 months.  The markets still advance and gain an average of 15% according to a Credit Suisse report.  So, it is not time to run for the hills and cash out of stocks as the media has led many to believe!
 
Yes, a recession is probably in our future, but business and market cycles do not usually last forever.
 
The good news is that the media and market commentators have be become so negative that there is likely nowhere for the markets to go here but up.  Remember, the markets are said to “fool most of the people most of the time.”  Believe me, I have been the fool many times!
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​I already discussed yield curve inversions, above, and we learned that that signal alone does not spell the end to stock markets.  In fact, it can mean additional returns over the next 21 months on average.
 
The stock market is still trading in what we call a series of higher highs and higher lows.  This is the definition of an uptrend.
 
In the chart below notice the pattern of green circles is primarily forming higher highs and higher lows.  The only exception was the October through December correction, but that did not last long enough to change the overall trend of the market.

​As much as you may hate the volatility, this market is still trending higher.  In fact, just recently it broke higher from a trading range that many were forecasting was the start of a market that wanted to trend lower.  They were, unfortunate for them, incorrect.

​However not all is well, growth has slowed globally due partly to the trade war between the U.S. and China and partly due to normal business cycles that rise and fall.  This could eventually lead to lower stock markets.
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​​The slower growth has led Central Banks around the world to reduce the interest rates they charge their member banks, which then makes capital cheaper for consumers and investors.
 
Many of these same Central Banks have reduced rates to negative yields or even re-implemented stock or bond buy back programs (i.e. quantitative easing programs) to simulate growth.
 
I warned our clients in our last quarterly letter that global Central Banks will not ride off into the sunset quietly (for some unknown reason).  They are primed to enter a fight to the death.  A tug-a-war with the economic cycle in an attempt to prop up markets.
 
As an example, Central Banks have delivered 32 interest-rate cuts globally this year as a worsening U.S.-China trade war has dragged down global economic growth.  Even the U.S. Federal Reserve has reduced the interest rate they charge member banks by one-quarter point and are expected to lower rates again in September by another one-quarter point when they meet in a few weeks.
 
So why are rates lower?  The markets tend to lead and attempt to force the hand of Central Banks globally based on the economic and business data available.
 
Here in the U.S. the yield on the ten-year treasury bond has fallen from a high of 3.2% in October of last year to a recent low of 1.47% (see below chart) in an attempt by the markets to forecast slower growth in the future.    In doing so, these lower rates stimulate economic activity and can essentially do the work that it believes the U.S. Fed should be doing.

Great question!  Here is my guess.  It is just a guess as only God knows what is truly happening and he is not talking (at least not to me on this subject).
 
I believe interest rate and quantitative easing programs around the globe are creating a currency war of sorts.  It generally benefits an economy to have a weaker currency.  These programs weaken their currencies relative to other currencies and the lower rates, in theory, stimulate growth.
 
Here in the U.S., our Fed has been resistant to make the same kind of interest rate reductions and engage in the same types of quantitative easing programs as other countries.  This has resulted in a stronger dollar, which has negatively affected our international trade.
 
However, it does draw investors to our treasury bonds as the higher relative rates attract buyers from around the globe.  The strong dollar, however, is a negative from U.S. growth especially for global companies based here in the U.S.
 
I believe eventually the U.S. Fed will have to follow suite as growth here continues to slow.  In Europe, they have negative yielding bonds where the holder pays the ECB for the right to hold that debt.  Why someone would buy such bonds is beyond me, but the bet is on an assured return of capital even if a Euro is returned at something less than a Euro.
 
If I am right, this means interest rates here will continue to head towards zero and maybe even negative yields.  The U.S. Fed has already stopped selling bonds from its portfolio (a form of quantitative tightening) and they will with time reverse course and start buying bonds and maybe equities.
 
This is the tug-a-war I mentioned.  Poor economic data and negative market action will force action by Central Banks, this action will encourage markets and temporary stimulate ever weaker growth. 
 
Volatility will be the result!  Better get some Tums!
 
Ultimately, Central Banks will lose this tug-a-war.  However, that could be years down the road.
 
In the process of losing this battle, global currencies will be debased.  Sovereign nations will be even more indebted as a percentage of their GDP and there will be no way to ever repay all the debt outstanding for most nations.
 
The result, in my opinion, will be some kind of debt reset and the roll-out of some kind of new global currency.
 
The problem, I have no idea the timing!
 
The good news for investors is that I do believe inflation, not deflation will be back with a vengeance at some point.  The only way to survive the inflation will be to have assets that go higher with inflation.  Equities, commodities, real estate and precious metals should do very well.
 
Not necessarily a pretty picture, but that is what I see!
 
Let us know how we can help you achieve your goals while navigating what looks to be a very interesting time in our history!

​Do you want to shave your tax bill, while also benefiting your favorite charity? 
 
I know I get excited anytime I can knock out two or more items with a single punch (i.e. the old kill two birds with one stone analogy).   I am sure many of you are like me. 
 
In fact, this weekend is a great example as we celebrated Father’s Day for my father-in-law and combined that with my daughter’s 22nd birthday.  How much more bang for the buck can you get unless maybe you were also celebrating everyone in the family’s birthdays the same weekend!  I am sure my wife will not let me get away with that one!
 
Today, I am going to give you three strategies that can help you kill two birds with one stone.   They are two-fers (i.e. two for one ideas)!

​Did you know that in Florida whatever property or assets that do not have a beneficiary designation, a joint title or are not titled in the name of a trust, must go through the probate process at your demise?    
 
It does not matter whether your estate is taxable for Federal Estate purposes or not.
 
Why do you care?
 
Simple, in Florida the cost of probating an estate can be expensive.  It is also required that an attorney probate an estate.  There is no do-it-yourself option, especially if you are the “dearly departed” one.

These fees are only for “ordinary” services. Anything the lawyer does that isn’t ordinary—for example, handling a will contest or giving tax advice—is presumed to justify a larger fee. If a lawyer follows the fee schedule, the fee may be almost unrelated to the amount of legal work done. It may be the same amount of work to handle a $1 million brokerage account as it is to probate a $100,000 account—but under the statutory fee schedule, the bill for the million-dollar account would be ten times larger.
 
Now you may be ready after reading this to immediately go “those dirty rotten attorneys” and quite frankly this article is not intended to denigrate our estate attorney friends.  It is to merely point out that this process can be expensive and like much in life, a little advanced planning goes a long way.
 
Here are few things you can do in advance to lower that cost:
 
1)  Establish Your Beneficiaries

The simple answer to this issue is to make sure every asset you own that can have a beneficiary designation has one.  This includes every retirement account such as 401(k)s, 403(b)s, IRAs and even your life insurance policies.
 
Be sure to name both a primary and contingent beneficiary in case you and your primary beneficiary would to perish at the same time.
 
2)  Joint Ownership for Some Property

The next not so simple answer is to consider how your taxable accounts and assets are titled.  For example, if you own a home and many Americans do, consider holding it in joint tenancy with the right of survivorship with your partners.  If you live in a state, such as Florida, that allows tenancy by entireties for married couples, consider holding the title to the home or vacation house as tenants by entirety.
 
3)  Pay-On-Death or Transfer-On-Death Designations

If you own a bank or investment account, it is now possible to designate someone as a beneficiary on many of these accounts.  This is called either Pay-On-Death (POD) or Transfer-On-Death (TOD).  Unlike some joint ownership structures, the POD or TOD beneficiary has no rights to this property while you are still alive.
 
4)  Fund that Trust

How about those ownership interests in businesses, partnerships or other investments where there are no POD or TOD options?
 
Ideally these assets are titled in the name of your revocable trust.  You know revocable trusts are not just for the affluent.  They can be a viable option for anyone! 
Let me give you a recent example from one of our families.
 
We recently started working with a new family with a successful medical practice.  When we started looking at her ownership interests in various entities, we noticed that they were all in her name personally.
 
When we sat down with her and explained that her $12.1 million in entity values would have to go through probate on her demise she seemed disinterested. 
 
We then explained that these assets would be in the public record at her demise, she perked up a little.  However, she figured she would be gone anyways and who cares what the public knows at that point.
 
However, when we explained that these assets would cost her estate an estimated $215,000 in legal fees based on the statutory schedules above as part of the estate process in Florida, that is when she fell off her chair.
 
The solution is a simple assignment agreement for each of her 20 entities and probably less than $5,000 in legal fees today.
 
Would you rather pay $5,000 today to save your heirs $210,000 tomorrow?  I think just about anyone would.
 
However, the truth is the most neglected step in the estate process for the affluent is the retitling of assets, called funding the trust.
 
Conclusion
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The moral of the story today is a little advanced work, can save your heirs a lot of headache and your estate money in legal fees.