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State of the Economy & Tax Help
Author/Anchor: Matt Scott
Date: Mar 6, 2019
Publication: FOX 61
Link to Article

A sit down with Heritage Capital LLC discussing the state of the economy and tax help.

Financial advisers take issue with Democratic plans to tax the rich
Author: Jeff Benjamin
Date: Mar 5, 2019
Publication: Investment News
Link to Article

As tax proposals become increasingly 'loony tunes,' financial planners grow more nervous about how the plans could affect their clients

As Democratic contenders line up for a chance to take on President Donald J. Trump in the 2020 presidential election, the increasingly populist tone of calls to tax the rich is not lost on the financial planning community.

"Those moving further left think there is something fundamentally wrong with capitalism, but this kind of thing has been tried before and it doesn't work," said Dennis Nolte, vice president at Seacoast Investment Services.

Like a lot of financial advisers, Mr. Nolte has clients who fall into the high-net-worth ranks that are being targeted by some of the leading contenders for the Democratic presidential nomination. But Mr. Nolte said his primary opposition to proposals such as a top marginal tax rate of 70% is that they still fall well short of the money needed to finance promises like free college and a government takeover of health care.

"There aren't enough rich people for the 70% tax rate to help," Mr. Nolte said. "The money is in the middle class, so they'll have to go after them as well."

The early campaign proposals being floated include Vermont Sen. Bernie Sanders' suggested 45% tax on estates valued at between $3.5 million and $10 million. The tax would increase to 77% for estates valued at more than $1 billion.

Massachusetts Sen. Elizabeth Warren is proposing a 2% tax on households with wealth above $50 million, and a 3% tax on households above $1 billion.

New York Sen. Kirsten Gillibrand wants a 50-basis-point tax on stock trades and a 10-basis-point tax on bond trades.

Although she isn't running for president, Alexandria Ocasio-Cortez, a freshman representative from New York, is pushing for a 70% tax on income above $10 million. Fellow freshman Rep. Ilhan Omar of Minnesota wants that top marginal tax rate pushed to 90%.

"They are trying to get the attention of a base that will go out and vote for them, and it seems like things have to keep getting more and more audacious in order to get attention," said Matt Chancey, wealth manager at ClaraPhi Advisory Network.

"Obviously, more people in this country are not impacted by taxing the rich because they aren't rich, so the Democrats are trying to get elected by demonizing the high-income crowd," Mr. Chancey added.

Chris Chen, founder of Insight Financial Strategists, admits he isn't familiar enough with any of the tax proposals to take a firm position, but believes "we've had a lightening of the load by the well-off in terms of how they contribute to society."

"The question isn't do they deserve to keep their money, the question is do people who make a lot of money have an obligation to contribute to society accordingly, and I would say as long as we are in a democracy, the answer is yes," Mr. Chen said. "I don't favor communism or socialism, but a different way would be to have tax reform that would cut the loopholes that exist out there."

Kashif Ahmed, president of American Private Wealth, recognizes that the "proposals will continue to get more and more loony tunes," but he also takes offense at Democrats' efforts to fuel class warfare for political gain.

"My wife and I are immigrants to this country, and we consider ourselves to be living the American dream because we came here, and we work very hard to be successful," Mr. Ahmed said. "A lot of people say a lot of things, but you have to consider what is possible. You're talking about confiscating money that people have worked hard for. And the people who are really for this kind of socialist nonsense are people who don't have any money."

Paul Schatz, president of Heritage Capital, takes issue with the populist claim that the wealthy need to be taxed at higher rates because they are not paying their fair share.

"They are preying on the populist theme that the rich can certainly afford to pay a little more," he said. "While that may play well on the surface, it's very anti-growth and anti-capitalist."

The fair share argument is also a matter of perspectives.

According to a study by the Tax Foundation, the top 10% of earners in the U.S. pay two-thirds of the income tax that's collected, while the bottom 50% of earners pay just 3% of all income tax.

"The left will say that they just want to restore tax rates to where they were under Bill Clinton or Ronald Reagan when the economy was humming on all cylinders, but what matters to the economy is the trajectory of taxes as much or more than the rate," Mr. Schatz said. "I have heard detractors say that the Trump tax cuts are going to cause a recession, but it is fiscally impossible to put more money in people's pockets and have that lead to less GDP growth."

Thomas Balcom, founder of 1650 Wealth Management, is concerned about the tone of the discussions, which attack people who have become wealthy.

"Saying wealthy people are not paying their fair share resonates with low-information voters," he said. "The wealthy should be put on notice that if some of these folks get in office, they will be going after them. The socialistic ideas are getting a lot of traction."

As volatility rises, United Capital gives advisers crash course in alts, options
Author: Jeff Benjamin
Date: Feb 25, 2019
Publication: Investment News
Link to Article

Firm wants to add to advisers' tool kit so they can minimize client risk

As volatility surges back into the stock market, United Capital Financial Advisers is arming its troops with more sophisticated hedging strategies, including access to options trading in client portfolios.

Building out its investing platform with recently added strategies from SpiderRock Advisors and iCapital Network, United Capital has spent the past two months hosting two-day symposiums in Dallas to teach advisers ways to use alternative strategies to hedge market risks.

"There's a lot of concern about the increased level of volatility in the markets, so we started looking at some defensive strategies, and ways to be innovative," said Kara Murphy, who took over as United Capital's chief investment officer nine months ago.

By mid-March, United Capital will have trained 120 of its 200 advisers in the two-day symposiums. Some additional training is required for options trading.

Since the first training session during the third week of January, "we've had over $180 million worth of client proposals on the platform, and half have been executed so far," Ms. Murphy said.

In April, the program will be extended to independent financial advisers accessing the United Capital platform through the affiliated FinLife Partners, which combine to manage more than $20 billion.

"The genesis for this was to provide a clearer investment path with a more defined set of outcomes," said Ms. Murphy, who emphasized that options introduce a host of new strategies, including income streams, downside protection, and reduced market exposure.

In addition to the options trading, the United Capital platform has an alternative investing overlay strategy and provides access to a dozen hedge funds.

"I don't care which of our tools a client uses, I just want to make sure it's appropriate and that we have a full set of tools, so we can react to their needs," Ms. Murphy said. "Prior to this, what we offered was pretty straightforward."

Options-trading experts say it should be a part of every adviser's tool kit.

"I'm a big believer in the product, because they can be used by investors and advisers at any level," said John Smollen, executive vice president at the options exchange Miami International Holdings.

Steve Williams, president of Blackstone Wealth Management, said, "Anyone not using options is leaving money on the table."

"It's a good way to hedge your portfolio," he added.

The general appeal of options strategies is that they allow for customized risk exposure and investment objectives in virtually any market environment.

A basic option collar strategy, for example, could be used by a financial adviser to move risk-averse clients toward more equity exposure.

A collar strategy might involve selling a call option for a "strike price" above the market price of an underlying security and simultaneously buying a put option at a below-market price.

The call option piece of the collar will limit the upside gain, but it also provides income to cover the cost of the put option, which limits investment loss.

"You sell calls against a stock you own to create an income stream," Mr. Smollen said. "And a put option is essentially an insurance policy."

However, according to Paul Schatz, president of Heritage Capital, options trading goes beyond plain-vanilla investing, and is not for everyone.

"Very few advisers use options either from a speculative position or for hedging, although the latter is more popular," he said. "I have used options to hedge in the past with varying degrees of success, and they are not part of my normal routine. I prefer the ETF and/or mutual fund route to hedge risk."

This stock-market gauge just hit an all-time high - and that's bad news for bears
Author: Mark DeCambre
Date: Feb 21, 2019
Publication: MarketWatch
Link to Article

Bear markets 'never ever' begin when A/D line is hitting all-time highs: analyst

One widely used signal of the health of the stock market has hit an all-time high, potentially setting the stage for a further rally by U.S. equity benchmarks, say technical analysts.

The New York Stock Exchange's advance/decline line touched an all-time high on Wednesday, as seen in the chart below from StockCharts:

Heritage Capital - StockChart AD Line

Paul Schatz, the president of Heritage Capital, told MarketWatch in a phone interview that "bear markets never, ever, ever begin when the A/D line is making an all-time high."

The Woodbridge, Connecticut-based investment manage also said the A/D line "is historically 90% accurate in predicting large-scale bear markets."

Among technical analysts, the A/D line is the most widely used indicator measuring market breadth and represents a cumulative total of the number of stocks advancing versus the number of stocks declining. When the A/D line rises, it means that more stocks are rising than declining, and vice versa.

The number of stock gaining ground is outnumbering decliners 1,673 to 1,079 on the NYSE and 1,492 to 1,168 on the Nasdaq, while volume in advancing stocks represents 64.8% of total volume on the Big Board and 64.5% of the Nasdaq's total volume.

The bullish A/D reading comes after stocks extended a rebound that has taken the major equity benchmarks to their highest levels of 2019, after suffering the worst declines on record for trading session immediately before Christmas.

The Dow Jones Industrial Average DJIA, +0.70% is up 18.8% from its Dec. 24 low, the S&P 500 SPX, +0.64% also has gained by about 18%, the Nasdaq Composite Index COMP, +0.91% has advanced 21% from that nadir.

Declines had been attributed to the a combination of mounting fears of economic disaster emanating from China’s trade spat with the U.S., and worries that the Federal Reserve was moving too aggressively in normalizing monetary policy and creating ripples in financial markets.

Now, those issues have abated with Wall Street investors expecting that Beijing and Washington will soon strike a tariff pact, even if an imperfect one, and the Fed has declared a wait-and-see approach to raising borrowing costs for investors.

"Week by week, the bearish case is crumbling; everything that the bears were hanging their hopes on is falling apart," said Schatz. "It doesn’t guarantee that stocks continue to rip higher, but it insulates the stock market against a large-scale decline." he said.

J.C. Parets of the All Star Charts blog also is sanguine about the record A/D reading. "This expansion of upside breadth continues to point towards higher stock prices from any sort of intermediate-term perspective," he wrote on Wednesday.

To be sure, worries about the durability of the current rally persists, particularly given the apparent speed at which stocks snapped back from ugly lows.

Skepticism about the current rebound is partly rooted in the belief that stock gains have renewed worries about stock valuations as earnings aren’t expected to shine the coming periods. The S&P 500's price-to-earnings ratio, a popular measure of stock values, over the next 12 months is at its highest since October, at 16.27, after touching a low of 13.59, according to FactSet data (see chart below):

Heritage Capital - FactSet Price to Earnings Ratio chart
Source: FactSet

Moreover, there is also concern that the more the markets improve on the back of a U.S.-China trade agreement, the more likely the Fed may be to resume its apparent pause in interest-rate hikes, which could potentially fuel a fresh rout.

"Bulls hope a surprisingly strong U.S.-China trade breakthrough keeps consensus earnings estimates from drifting down as 2019 progresses just like the tax cuts kept profit forecasts buoyant in 2018. The problem is that, even if that happens, at 16.5x 2019 CY earnings, large-cap stocks appear fairly valued given only 4.2% consensus 2019 EPS growth forecasts," wrote Alec Young, managing director of global markets research at FTSE Russell, referring to the late-2017 tax cuts signed into law that offered a fillip to corporations.

Americans — particularly millennials — are alarmingly late on car payments
With: Aarthi Swaminathan
Date: Feb 18, 2019
Publication: Yahoo! Finance
Link to Article

A record seven million Americans are more than 90 days late on their auto loan payments, and millennials are clearly leading delinquency rates, according to a report by the New York Fed.

The NY Fed found that the number of new auto loans and leases appearing on credit reports in 2018 reached a new peak - the highest level in the 19 years they have monitored the data - at $584 billion.

Looking at the number of auto loans in serious delinquency, the researchers noted that there was a "sharp worsening in the performance of the loans held by borrowers under 30 years old between 2014 and 2016."

And as seen in the graph below, borrowers between the ages of 18 and 39 - Pew Research identifies millennials as anyone born between 1981 and 1996 (ages 23 to 38 in 2019) - have the worst delinquency rates as compared to other demographics.


The researchers said that overall, the end of 2018 saw "more than a million more troubled borrowers than there had been at the end of 2010," when the overall delinquency rates were at their worst on record. Auto loans have also surged by almost 35 percent since the Great Recession according to additional data.

"The substantial and growing number of distressed borrowers suggests that not all Americans have benefitted from the strong labor market and warrants continued monitoring and analysis of this sector," the report concluded.

Delinquencies concentrated in the southeast

A Yahoo Finance analysis of the NY Fed data revealed that many of the higher delinquency rates are concentrated in the southeast, with states like Alabama, Georgia and Mississippi looking at the highest levels.

Vicious cycle of low credit ratings

Millennials with poor credit may be a key contributor to the trend.

"The strongest correlation is credit rating,"'s chief financial analyst Greg McBride told Yahoo Finance. "Those with poor credit ratings have much higher delinquencies. It's much more a function of credit rating than age."

McBride explained that younger people don't have a long and established credit history, which results in them being classified as non-prime borrowers in addition to depriving them of access to financing options from credit unions or banks.

"Borrowers with credit scores less than 620 saw their transitions into delinquency exceed 8 percent in the fourth quarter," the NY Fed report stated, "a development that is surprising during a strong economy and labor market."

Twitter Q4 earnings beat but guidance disappoints
With: Adam Shapiro, Julie Hyman
Date: Feb 07, 2019
Publication: Yahoo! Finance
Link to Article

Social media giant Twitter beat 4Q earning expectations but provided disappointing guidance for fiscal first quarter. Yahoo Finance's Emily McCormick reports and Aegis Capital Managing Director Victor Anthony joins Adam Shapiro and Julie Hyman over the phone. Heritage Capital President Paul Schatz and Yahoo Finance's Ethan Wolff-Mann also join the discussion.

BB&T strikes deal to buy SunTrust- largest U.S. bank merger in a decade
With: Adam Shapiro, Julie Hyman
Date: Feb 07, 2019
Publication: Yahoo! Finance
Link to Article

BB&T Corp. agrees to buy SunTrust Banks Inc., creating the sixth largest retail bank in the United States. Heritage Capital President Paul Schatz joins Yahoo Finance's Adam Shapiro, Julie Hyman and Ethan Wolff-Mann to discuss.

Semiconductor gains could give stocks ‘the all clear'
With: Alexis Christoforous
Date: Jan 29, 2019
Publication: Yahoo! Finance
Link to Article

Paul Schatz, Heritage Capital LLC President, says that if semiconductors can hold on to their gains and add to them in the next couple of weeks then “stocks may get the all clear green light for the next couple of months.” Yahoo Finance’s Alexis Christoforous speaks to him.

Top financial resolutions for 2019
With: Samantha Miller
Date: Jan 22, 2019
Publication: WTNH - NEWS 8
Link to Article

(WTNH) - If re-working your finances is part of your new year resolutions, finding a place to start might be overwhelming. Financial Expert Paul Schatz, President of Heritage Capital L.L.C., shares the money goals that should be at the top of your list this year.

1. Create, update and review your budget

2. Create emergency fund

3. Review 401K contribution

4. Rebalance investment accounts

5. Don't run from the stock market

6. Check credit report

7. Create debt service plan

8. Review credit card rates

9. Bundle insurance

10. Bundle charitable contributions

11. Review beneficiaries

12. Refinance your mortgage

13. Photograph and inventory contents of your home

14. DIY or hire a professional advisor

Finance tips for the end of the year
Author/Anchor: Tim Lammers
Date: Jan 14, 2019
Publication: FOX 61
Link to Article














Theresa May Rules Out a No-Deal Brexit
With: Julie Hyman
Date: Jan 07, 2019
Publication: Yahoo! Finance
Link to Article

Yahoo Finance's Adam Shapiro, Julie Hyman, Brian Sozzi, and Alanna Petroff join Heritage Capital President Paul Schatz to discuss Brexit.

The 10 most in demand skills of 2019
With: Julie Hyman
Date: Jan 07, 2019
Publication: Yahoo! Finance
Link to Article

LinkedIn recently analyzed hundreds of thousands of job postings for 2019 and found that employers are looking for workers with both soft skills and hard technical skills. Among the top soft skill is creativity and for the top hard skill is cloud computing. Yahoo Finance's Adam Shapiro and Julie Hyman discuss with Brian Cheung and Paul Schatz.

US, China officials begin trade talks in Beijing
With: Julie Hyman
Date: Jan 07, 2019
Publication: Yahoo! Finance
Link to Article

The US and China resumed trade talks ahead of March deadline on trade. Yahoo Finance's Julie Hyman, Adam Shapiro, and Heritage Capital President Paul Schatz discuss with China Beige Book International CEO Leland Miller.

These are the 10 biggest risks in the world, according to Eurasia Group
With: Julie Hyman
Date: Jan 07, 2019
Publication: Yahoo! Finance
Link to Article

Eurasia group released a report of the top 10 biggest risks that could impact the world in 2019. Yahoo Finance's Julie Hyman, Adam Shapiro, Brian Cheung and Kristin Myers discuss with Heritage Capital President Paul Schatz.

Eli Lilly to buy Loxo Oncology for $8 billion
With: Adam Shapiro
Date: Jan 07, 2019
Publication: Yahoo! Finance
Link to Article

In a bet on cancer drugs Pharam giant Eli Lilly announced a deal to buy Loxo Oncology which creates drugs for cancers taht can be identified with genomic testing. Yahoo Finance's Julie Hyman, Adam Shapiro, Emily McCormick, Brian Sozzi and Paul Schatz of Heritage Capital discuss.

Estimates of the gig economy gone wrong
With: Adam Shapiro & Julie Hyman
Date: Jan 07, 2019
Publication: Yahoo! Finance
Link to Article

Two leading experts of the 'Gig Economy' say their estimates of its impact were way too high due to spotty data and the recession of a decade ago. Yahoo Finance's Adam Shapiro and Julie Hyman discuss with Brian Cheung and Heritage Capital President Paul Schatz.

Market downturn puts spotlight on active management
Author: Jeff Benjamin
Date: Jan 02, 2019
Publication: Investment News
Link to Article

One of the best ways active managers can earn their money in a down market is by holding cash, something index funds can't do

The momentum toward passively managed index investing is expected to lose some steam as the volatility in the financial markets shines fresh light on the benefits of active management.

It is as cyclical as the markets themselves, and a lot of financial advisers are already making asset-allocation adjustments to bring active managers off the bench as the stock market heads south.

"No question that this downturn in the market will favor actively managed strategies going forward," said Dale Wong, president of Missio Investment Management.

"Greater volatility and dislocation in a sharp downturn typically affects all equities, even those companies whose future prospects for growth and earnings are much more attractive," he added. "This creates dislocations in the market that enhances opportunities that active managers can take advantage of with greater likelihood of asymmetrical returns over a three-to-five-year investment horizon."

A decade-long bull market for stocks has made an easy case for riding along in low-cost index funds, but the spike in volatility over the past three months is triggering some altered viewpoints.

The S&P 500 Index declined by 4.38% last year. But the number that is getting more attention is the 13.52% decline during the fourth quarter.

Meanwhile, actively-managed large-cap growth funds, as tracked by Morningstar, declined by an average of 2% last year, though they were down 15.42% in the fourth quarter.

But inside those broad averages are such extremes as a 17% full-year return by the Fidelity Advisor Series Growth Opportunities Fund (FAOFX). The $680 million fund was down 10.4% in the fourth quarter.

The best-performing large-cap growth fund in the fourth quarter was the $265 million Madison Investors Fund (MNVRX), which was down 7.63%.

"To me, active management is risk management," said Barry Mandinach, executive vice president at Virtus Investment Partners.

"When people buy index funds, most of them don't know what they're giving up in exchange for the low fee," he added. "They're taking on a valuation- and quality-agnostic approach to investing. And that's like driving a car with no brakes, which is fine if you're only going uphill."

One of the best ways active managers can earn their money in a down market is by holding cash, which is something index funds are not able to do.

"In times of market volatility and selloffs, active management is getting paid a premium to keep you from losing too much ground," said Todd Rosenbluth, director of mutual fund and ETF research at CRFA.

"They can go to cash, they can raise cash, and they can buy on the dips, whereas index funds have to track the index," he added.

Dennis Nolte, vice president at Seacoast Investment Services, said cash management is the secret weapon for most active managers.

"If a fund holds cash and is highly correlated to the S&P 500, it'll outperform during down markets," he said.

While index investing isn't yet free, it is dirt cheap, which means most active managers must gain at least 100 basis points over an index just to cover the management fee differential.

But the tradeoff, from an adviser's perspective, is the ability of an active manager to buy low during periods of market volatility.

The flipside of being able to go to cash is that active managers suffer a "cash drag" during bull market periods, which is another reason index funds are more competitive in bull markets.

"Active mutual funds typically trail in the strongest of markets and perform better and better as that tails off," said Paul Schatz, president of Heritage Capital.

"The longer the stock market becomes challenging, the more the active fund manager takes measures, whether right or wrong," he added. "One thing they certainly do is run with higher cash levels. Just that alone can help reduce fee drag. Active managers will also often reduce beta in a portfolio to reduce risk if they don't want to raise cash."

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