Sometimes Small Can Be Pretty Big

Despite a few high-profile market debacles – 1929, 1987, and 2008, October has historically been kind to stocks, according to that same batch of data. This year was no exception, as major indexes, measuring both large and small company stocks, set or nearly set new highs as the month headed to a close (Wall Street Journal).

Notably, smaller company stocks have easily outperformed their larger counterparts. According to data compiled by Bloomberg and the St. Louis Federal Reserve, the Russell 2000 Index has advanced 15.7% since June 24, while the Dow Jones Industrial Average is up 6.1%. Three of the last four times we’ve seen this type of outperformance by small-cap stocks, the economy has picked up speed in the following year (Investment News). One reason – smaller companies are more U.S.-focused, while larger firms have more of an international presence, which suggests the U.S. economy may continue to outperform. The Russell 2000 gets 84% of its sales from the U.S., versus the 30 companies in the Dow, which receive 55% of revenues domestically (Bloomberg, Investment News).

Smaller cap stocks do carry more risk, though.  In a down market or in a liquidity crunch, sellers can overwhelm buyers in thinly traded markets, resulting in steeper losses for those who invest heavily in smaller businesses...

Beat the Year-end Rush!

As we transition from October into November, getting that much closer to 2014, now is the perfect time to review your year-end financial goals!

Here are a few key items, you may want to review, prior to December 31st:

1. Insurance policies  It’s imperative that your coverage will correctly compensate you at the time of your loss; it’s important to review your policies with your insurance professional, on an annual basis, to maintain adequate coverage.

2. Beneficiary information  Over time, your beneficiary information may need to be refreshed due to a divorce, or the loss of a loved one. It’s important to review this information on your IRA or 401(k) to make sure you have correctly chosen your beneficiaries: you would never want to put your heirs in a position to be denied their inheritance! (It’s also suggested to review your beneficiary information on any Life Insurance policies you hold.)

3. Budgeting  With a new year, brings new hope that you can get your budget under control: start planning your budget NOW, for the coming year! Don’t try to throw together, in a day, what usually needs months of planning to prepare: allowing yourself a few months' time will enable you to make any necessary adjustments, to your budget, prior to the start of the year.

4. Charitable donations  Now is the perfect time to take a weekend and dedicate it to weeding out your personal inventory. Charitable organizations count on donations, more than ever, over the Holiday season. Making your donations, prior to December 31st will enable you to utilize them as tax deductions for 2013. Make sure to keep your receipts!

5. Required Minimum IRA Distributions  IRA account owners who turned 70 1/2 prior to 2013 must take their annual RMD by December 31, 2013. IRA owners who turn 70 1/2 during 2013 have until April 1, 2014 to take their first minimum distribution.

6. Gifting & Taxes  For 2013, it’s possible to gift up to $14,000 in cash or securities to another individual FREE of Federal gift tax. To qualify for the 2013 Tax year, make sure your gifting (deposit) is made by December 31st.

There are many other things a person can do to get their financial life back up to speed; hopefully these suggestions will help you transition into 2014 with the confidence you need to make it your best year ever!


Please enjoy the latest summary. If you have any thoughts or comments or would like to talk about any other matters, please feel free to contact me.

A rocky road in D.C.

The beginning of October typically brings us cooler weather, the changing of the leaves, and a football season that is in full swing. October 1 is also the start of the new fiscal year for the federal government. Currently, there is no budget in place. Without an authorization for new spending, non-essential services will come to a halt on Tuesday if Congress and the president cannot come to terms on what’s commonly called a ‘continuing resolution,’ or a bill that would fund government operations.


Weekly Return %

thru Sep 27, 2013

YTD Return %

thru 9.27.13




NASDAQ Composite2



S&P 500 Index3



Bond Yields

*Yield % a/o

Sep 27, 2013

Yield - % a/o

Dec 31, 2012

3-month T-bill

0.02         +0.01


2-year Treasury

0.34           Unch


10-year Treasury

2.64         -0.11


30-year Treasury

3.68         -0.09



Sep 27 Price   & Weekly Change

Year end 2012

Oil per barrel4

$102.81     -2.00


Gold per ounce5

$1,341.00 -8.25


The added uncertainty the government might shutdown for the first time since 1996 created modest headwinds for stocks last week, and that added uncertainty provided modest support for Treasury bonds.

The sticking point – House Republicans on early Sunday morning passed a continuing resolution to fund the government through Dec. 15, 2013, which included a one year delay in Obamacare (Wall Street Journal).

Even if the House bill somehow passed the Senate intact, the president has promised to veto it, putting us back to square one.

If there is a government shutdown, it’s important to point out that essential services will continue, such as Social Security and Medicare benefits.

But hundreds of thousands of government workers would be furloughed, and non-essential functions such as national parks would likely be closed.

Who might blink first? I’ll leave that to the political analysts. But this leads us to how markets have performed against the backdrop of past government shutdowns.

There have been 17 government shutdowns since 1976, ranging from 1 to 21 days (Washington Post, AP).

Though markets slipped, the selloff wasn’t anything that might be considered memorable. Still, the lengthier cessation of services seemed to heighten uncertainty, creating some additional selling.

The most recent shutdown occurred in 1995 – 1996, with the government closing its doors in two separate incidents: 5 days between Nov. 13, 1995 and Nov. 19, 1995 and a second time that spanned 21 days from Dec. 15, 1995 to Jan. 6, 1996 (Washington Post, AP, NBC).


Investors must have had their minds on other matters because the S&P 500 Index gained 4.4% from beginning to end (St. Louis Federal Reserve data), only to give back more than half the advance in the two days that followed the resumption of services.

All of this may be a moot point if the House acquiesces and keeps the government funded for say 3-4 weeks without the Obamacare provision, but we’d be revisiting the matter at the end of the month.

This leads us to the next issue – the government will run up against the debt ceiling later in the month, which means it will no longer have the authority to borrow to pay its bills by Oct. 17 per the U.S Treasury (Wall Street Journal). The Congressional Budget Office allows for an additional 5 – 14 days.

If no deal is reached, the U.S. would technically default on its debt for the first time. Unlike government shutdowns, there is no precedent for the markets.

The last bruising battle over the debt ceiling took place in the summer of 2011, sparking a downgrade in the U.S. credit rating by Standard & Poor’s. Recall the heavy volatility we experienced in equities. But the debate was also accompanied by an expanding debt crisis in Europe and a U.S. economy that appeared to be running out of gas.

Currently, the U.S. economy is plodding along and is even showing some signs of firming. There are still problems in Europe, but nothing that has grabbed headlines like we saw in 2011.

However, the stakes surrounding a technical default are very high because it could ripple through the entire global financial system.

Backed by Treasuries that are widely viewed as risk-free, the dollar is the world’s reserve currency.

Not that Treasury prices can’t fall in the face of rising interest rates, but the risk-free moniker Treasuries have earned is due to the bedrock principal that any purchase will be repaid in full at maturity, period. Not a day late or week late but on the day of maturity, including interest.

Some have suggested the U.S could prioritize payments, such as interest on the debt, social security, national defense, etc. Others argue that with hundreds of thousands of invoices paid annually, the government has no system in place to sequence outlays.

Odds still favor an increase in the debt ceiling before the deadline, even if lawmakers simply kick the deficit can down the road, since setting sail into uncharted waters brings about a whole new set of unwanted risks.

Good news: A number of leading indicators have been pointing to momentum, including today’s unexpected rise in the ISM Mfg Index: 55.7 in Sep to 56.2 in Oct. The leading indicators have been rather impressive over the last couple of months.

Warmest Regards,

Donald S. Loveless CFA CFP EA

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Choosing a Financial Advisor: a Different Perspective

As Millennials (those born between 1985 – 2000) are starting to reach the age of having some important financial choices to make, an interesting question has been voiced.  How important is it to stay with your parents' Financial Advisor?

It is important, as you transition to this vital part of your financial life, that you are comfortable with your Financial Advisor.  It may be the same advisor that your parents have entrusted over the last few decades, and has watched you grow from an infant to an adult.  You may have every confidence that this advisor understands you both as a client and an individual, and will work best to achieve your goals.  On the other hand, perhaps your financial goals & dreams completely differ from your parents, and you feel as though their advisor may not be the right fit for you?  Servicing our clients is an honor, not a right, and we advise to explore your options as far as your comfort level with the advisor that you ultimately choose.  Finding an advisor that comprehends your vision & goals will be a great first step in the long road that is financial planning. Studies have shown that more investors are transitioning to Fee-Only advisors with a fiduciary duty to their client, as opposed to a commissioned broker. These investors are finding that a custom tailored financial plan is much more beneficial to reaching their goals.  This advisor may be found a bit further down the road, or they might just be right under your nose...


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