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Welcome to the April edition of The Wealth Chronicle.

Quarterly Market Commentary

The first quarter of 2016 continued with the ups and downs in the market that we experienced in the second half of 2015 - what analysts call 'volatility.'

In some respects, the declines of just over 10% in the late summer 2015 selloff and the early 2016 selloff really weren't particularly significant. Market corrections in the broader context of a bull market will happen from time to time. My goal is to manage and mitigate risk, but it can't be eliminated.

Economically speaking
One recent fear is that the economy was set to slip into a recession. Recessions will take a big bite out of corporate profits, and profits are the biggest medium and long-term factor that affect stock prices. While recent data is not suggesting the economy is running on all cylinders, it does signal that the expansion is muddling along at a modest pace. Yet, that's not what stocks seemed to be telegraphing early this year. Everything from China worries, falling oil prices, and fears about earnings seemed to be suggesting the economy was set to stall.
While markets typically process information efficiently, once in a while the collective wisdom overshoots to the upside or the downside. We see it in hindsight. Expect to see headlines screaming of an impending bear market or even a market crash. They really don't offer much in the way of solid market analysis, but they are designed to get "eyeballs," or page clicks. The old news adage, "If it bleeds, it leads," applies to sensational financial articles, too.

The case of China
China provides an excellent case in point. U.S. exports to China account for just under 1.0% of U.S. GDP, but China just seems to have this way of creeping into investor psychology with scary headlines. While China has not gotten its problems under control, its economy avoided the proverbial brick wall. Its currency, the yuan, has stabilized and has even begun to appreciate against the dollar, rising to roughly a four-month high.
More importantly, stocks have closely tracked crude oil in recent months, and the uptick in oil has benefited stocks.

On the subject of oil...
What's been going on in oil has really been counterintuitive and has defied the predictions of most analysts. Oil was supposed to act like a huge tax cut for consumers, fueling spending and growth. In reality, it's not a tax cut. Instead, it's a transfer of wealth from producers to consumers.

So far, energy producers have slashed spending and fired employees, without a corresponding pick up in spending by consumers. While I must admit that filling up for less than$2 per gallon is satisfying, we've witnessed economic pain without economic gain. And it's spilled over into the broader stock market. Furthermore, the steep decline in energy earnings has pulled down profits for the overall S&P 500 Index and wreaked havoc on high-yield bonds.

That's why the recent recovery in oil has aided stocks. As we head into late spring and summer, we are entering what has traditionally been a strong period for oil. Yet the recovery in oil is fragile. While the steep drop in prices since 2014 is starting to impact production from the more costly U.S. shale fields, oil output has been far more resilient than many had anticipated - credit innovations and efficiencies gained over the last year.
But talk of a deal to freeze or cut production among key global producers remains just that - talk.

But Wait, There's More
Just like the famous infomercial expression "But Wait,, There's More," China and Energy are not the only things going on that have to be monitored. There is the interest rate show that the Fed puts on. Britain is about to vote on a referendum of leaving the Euro Union.

Bottom line
Markets will experience periods of tranquility and markets will experience periods of volatility. In some respects, it's much like the weather. Even then, I might put more faith in the three-month temperature outlook then I'd put in the many and varied forecasts for stocks. It's noise and best to be avoided.

Everyone has financial goals. If you are to hit your goals, a plan and strategy is crucial. Unless new circumstances have arisen in your life, I strongly encourage you to stick with the plan that we have both agreed upon. This includes an exposure to stocks.

Last Call For Two Social Security Claiming Strategies

There is still a lot of confusion in the industry around Social Security claiming strategies passed in November as part of the Bipartisan Budget Act of 2015. During recent reviews, I've come across some clients who will be impacted by the April 29th deadline. I know this time of the year is as busy as it gets, but I thought to send a quick note detailing the changes in case it impacts anyone you work with.

The changes will impact anyone who has not started collecting Social Security yet. For anyone who is 66 or older they have until April 29, 2016 to decide if they would like to utilize one of the two strategies that are going away. "File and Suspend" and "Claim Now, Claim More Later".

File and Suspend allows someone at their full retirement age (currently 66) to file for his or her own benefits and then immediately suspend those benefits. That action triggers benefits for a spouse or other eligible family member while the worker's own benefit continues to grow. It also creates an option to collect a lump sum payout of suspended benefits.

The second strategy is often called "Claim Now, Claim More Later", and it allows a spouse or qualified divorce spouse to claim only spousal benefits at full retirement age - worth up to half of their spouses benefit amount - while their own retirement benefit continues to grow to the maximum amount at age 70.

Depending on their circumstance the strategies can result in tens of thousands of additional social security income.

There is a phase-in timetable based on birth dates that determines who will be able to use these strategies and for how much longer, but anyone who is 66 or older who files after April 29, 2016 will not be able to use them. If someone is already collecting social security benefits the changes will not impact them.

Is Your Financial Advisor Really On Your Side?

Many people assume that your financial advisor is bound to make recommendations that are in your best interests. Otherwise, why would you trust this person to help you save for retirement, invest wisely, and make other critical decisions about your family's money. As an advisor I adhere to this principle called, the fiduciary standard, but not all advisors are bound to it.

Many brokers, financial advisors, and insurance agents only have to follow a so-called suitability standard, which means that they have to suggest investments that are appropriate for the customer, but not necessarily the best options. The picks can include expensive or risky products that pay the advisor a high commission, despite the apparent conflict of interest.

After nearly seven years of stop-and-start efforts, the US Labor Department has issued a rule that would end the double standard. The rule still faces powerful opponents (most of the "Wall Street" firms), who will seek to have its provisions watered down or overturned.

The good news for you is that at Bautis Financial we always have your best interests in mind in any advice that we provide and nothing will ever change with that.

Watercooler

How a man outsmarted his bank

What is Tax Freedom Day?

A liquor license in Montclair recently sold for $1.2 million. Looking at the history of liquor license prices (one sold for $750k 5 years ago) and their short supply maybe it is an asset class that should be explored for investment opportunities

Please contact me regarding any of the articles above, or if you would like to discuss your personal or business finances

Sincerely,

Marc Bautis
Bautis Financial
201-842-7655

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