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MONTHLY TAX NEWSLETTEROctober 2015
One bad day doesn’t make a bear market. Two bad days, however, and the prospect of more to come, may well signal one.
Bear market is a scary term, and the past several days have certainly given investors cause for concern. Rather than spend time worrying, though, let’s try to understand what has happened and what it means for our long-term financial goals.
Markets decline worldwide, but U.S. fundamentals remain strong
At times like this, it’s worth reviewing where stock prices come from. The two components are earnings (how much profits companies are making per share) and valuations (how much investors are willing to pay for those earnings). Earnings evolve with the economy as a whole, whereas valuations are much more variable.
Asian markets, particularly China’s, are suffering from a double hit. Earnings growth has slowed substantially for many companies, making them worth less even if valuations remain constant. Valuations, however, have been dropping sharply as investors lose confidence in the economy and in future growth. This double whammy has slammed markets in China and around the world, and it may well continue.
In Europe, the turbulence in China has sapped confidence, but the damage has been mitigated by relatively strong fundamental economic and corporate performance. This shows that investors are still making rational distinctions between markets—a positive sign—and also allows for confidence to recover as fundamentals continue to improve.
Right now, with the exception of energy, the U.S. economy continues to grow at a reasonably healthy rate—better than European economies. Corporate earnings, which are based on the economy as a whole, are relatively strong outside of the energy sector. Even there, lackluster earnings are due to low oil prices, which actually help the rest of the economy. In any event, earnings are expected to increase over the next year.
Just as in Europe, any declines in U.S. markets will be based on what investors are willing to pay for a given stream of earnings, and valuations may well recover as confidence improves again.
Putting it all in perspective
When we consider where we are now, compared with where we have been, it’s important to make the following distinctions:
Combined, these facts suggest we’re unlikely to see the low market valuations that we saw in the financial crisis of 2008. Although we may experience further declines, they will be constrained by the much healthier economic and financial position the U.S. now finds itself in.
A better comparison is probably to the Asian financial crisis. As that situation deepened in 1998, U.S. markets dropped substantially, only to recover shortly thereafter. The damage was real but short lived, as strong U.S. economic fundamentals supported markets and investors from other parts of the world moved capital into what they perceived as a safe haven.
Given that the problem here in the U.S. is largely related to confidence, it’s logical to think that the market will recover as fundamentals continue to improve. We’ve gone several years without a significant decline, and the first was bound to be unsettling. In reality, though, the market’s foundations remain solid.
Taking the long-range view
Over the longer term, this type of adjustment is normal and healthy. Periodic downturns clear out market excesses and set the stage for further advances. To put the recent decline in context, the market is still up substantially over the past five years. And, although down over the past 12 months, it remains above the levels of October 2014, when it dropped and then fairly quickly recovered.
As always, the key is to remain focused on your long-term objectives rather than short-term fluctuations. As unsettling as recent market movements have been, the real economy continues to improve. That, not short-term price fluctuations, is what will determine the ultimate success of your investment process.
Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged, and investors cannot invest directly in an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance is no guarantee of future results.
Matthew Metraw is a financial advisor located at 5 Burlington Woods, Suite 102, Burlington, MA 01803. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 781-273-1400 or at email@example.com.
Authored by Brad McMillan, CFA®, CAIA, MAI, chief investment officer at Commonwealth Financial Network.
© 2015 Commonwealth Financial Network®
Big changes are here for businesses that accept credit card payments from their patients. Essentially, an EMV liability shift takes place October 1, 2015 that could cost your practice a lot of money if you end up processing fraudulent transactions.
EMV is an acronym for Europay, MasterCard, Visa. And EMVCo is now the organization that will manage the standards for MasterCard, Visa, Discover, American Express, JCB, and China UnionPay.
According to EMVCo's website:
In the US, EMV may be implemented as Chip and PIN, Chip and Signature, or other variations. It is up to the issuer to choose. As always, an effective strategy to protect against duplicate card fraud is to maintain a "card-present environment".
EMV Liability Shift
Beginning October 1, 2015, if a business accepts a "chip card" without the use of an EMV capable terminal, the business will be liable for any fraud connected with those transactions even if the business receives an authorization for the transaction.
However, if a business has an EMV capable terminal, receives an authorization and later finds that a fraud occurred with a transaction, the issuer would be liable for that transaction instead.
What Does EMV Mean to Merchants?
If your practice's credit card terminal is more than 12 months old, you probably need to replace that terminal with one that is EMV-capable that supports:
What Should You Do At Your Practice?
Even though there has been slow adoption of EMV in the U.S,, POS vendors and processors are now scrambling to meet EMV implementation dates. Please make sure to talk to your Merchant Services provider, or email Phil Kluge from Transaction Resources Inc, to see if your practice is in compliance.
Transaction Resources Inc. (TRI) offers innovative payment processing solutions by combining the latest technologies, a passion for customer service and competitive rates. Located in Woburn Mass, you can contact Phil Kluge and his team at 781-496-3454. TRI also maintains CardDog.com. which helps businesses build successful gift, loyalty, prepaid cards, and discount programs.
While "Time Flies" is pretty much the industry standard, I prefer the words told to me by a Camp Director a few years back when I was dropping my son off at summer camp. "The days are long but the weeks are short," he said to each nervous parent.
What he is saying is that there is plenty of time each day to accomplish many things, but once days turn to weeks and weeks turn to months, it feels as if time just flies by.
So how are you doing hitting your goals that you set back in January? Assuming the answer is not so good, you can take comfort in the fact that there are still 3 months to get some stuff done. Please look at this 92 day window as a great opportunity to get some things wrapped up and off your to-do list before we start setting our 2016 goals and resolutions.
Here is all you need to do to get things done.
Thinking about this message reminded me of something that has been on my to-do list ever since my kids' Bar Mitzvahs back in the spring of 2012. Even though my kids were born fifteen months apart, my wife and I decided to have them celebrate their 13th birthdays together.
Without my knowing, one of my brothers was generous enough to contribute to a 529 College Savings Account for my two kids every month from the time they were born with the plan to give us those accounts at their Bar Mitzvahs, which is what he did. It was a very generous gift.
Now, here's the issue. My brother has a son who just turned 9, and I obviously need to reciprocate with an equivalent gift (everyone knows how gifts between family members generally work). Well, in 2012, my brother' son was 6, and I had 7 years to save prior to his Bar Mitzvah. Well, this account has not even been established yet, so now there are only 4 years left for me to save up an equivalent gift for my nephew as the gifts my brother gave to my kids.
What's taking so long? Especially since accomplishing this goal that I set back in 2012 to set up an account for my nephew that will be funded on a monthly basis will only actually take these three steps:
To be honest, I can't believe that 3 years have passed without my getting this done. But October 2015 is the month this will happen. And I definitely want to get this wrapped up before we lose an hour per day when we fall-back from Daylight Savings Time on November 1st. Stay tuned...
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