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FOX BUSINESS segments with Schatz:

LATEST - 11/21/2019

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CNBC segments with Schatz:

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Charles Schwab, TD Ameritrade merger could be worth $5 trillion
With: Charles Payne
Date: Nov 21, 2019
Publication: FOX Business
Link to Article

Sources tell FOX Business Charles Schwab is trying to buy TD Ameritrade for $26 billion. FOX Business' Jackie DeAngelis, Point View Wealth Management David Dietze and Heritage Capital president Paul Schatz discuss the trend of 'merger mania.'

Waiting For Starbucks To Go Below 80
With: Nicole Petallides
Date: Nov 18, 2019
Publication: TG Ameritrade
Link to Article

Schatz on TD Ameritrade's The Watch List

Paul Schatz: Waiting For Starbucks To Go Below 80

The Watch List with Nicole Petallides offers investors a midday look at the most relevant stocks, sectors and commodities.

Major indexes in the red despite strong earnings reports
With: Alexis Christoforous and Brian Sozzi
Date: Nov 14, 2019
Publication: Yahoo! Finance
Link to Article

Yahoo Finance's Brian Sozzi, Alexis Christoforous and Jared Blikre discuss the latest market action with Heritage Capital's President & CIO Paul Schatz and Fross and Fross Wealth Management's Thomas Fross on The First Trade.

Shifting to value stocks just in the nick of time
Author: Jeff Benjamin
Date: Nov 11, 2019
Publication: Investment News
Link to Article

Signals are flashing that growth stocks are giving way to value strategies

Without officially admitting or denying that growth stocks' decade-long run has come to a close, some financial advisers and market watchers are giving a committed nod toward value stocks as the next train to ride.

Last week at Charles Schwab Corp.'s annual conference in San Diego, Jeffrey Kleintop, Schwab's chief global investment strategist, pegged the shift in momentum from growth to value to the inverted yield curve, which he said has historically triggered such transitions.

Mr. Kleintop, who was making the point that an inverted yield curve can signal more than just a looming recession, showed that growth and value swapped leads following each of the past three periods when the yields on longer-term bonds fell below those on shorter-term bonds.

"This is part of a longer-term trend that most investors are going to miss," he said.

Mr. Kleintop's is not the only data showing that the shift toward value is underway.

Research from CFRA chief investment strategist Sam Stovall shows that from Aug. 23 through last Friday, the S&P 500 Value Index gained 12.3%, beating its growth-stock counterpart by a margin of two-to-one.

Investors and financial advisers can be forgiven if they aren't yet fully on board because growth stocks have been overshadowing value for more than a decade.

Since the start of the year, large-cap growth mutual funds, as tracked by Morningstar, averaged a 25% gain, which compares to 21% for large-cap value funds.

Over the trailing 10 years, the growth fund category had an annualized gain of 13.3%, which compares to 10.8% for the value fund category.

"It makes perfect sense that the market will start changing toward the value side, but we've seen a growth bias for a while and so far, we haven't seen enough to change that," argued Tim Holsworth, president of AHP Financial Services.

Mr. Holsworth added that his rationale for sticking with his growth-stock overweight in part reflects "our deep love for tech and health care, which are sectors that automatically put us in the growth camp."

While advisers like Mr. Holsworth might have momentum on their side, much of the data favors value.

According to CFRA, the S&P value index is trading at a 4% discount to its average price-to-earnings ratio since 2003, while its growth index counterpart is trading at a head-turning 24% premium.

In comparing the valuations with the broader market, Mr. Stovall finds that the value index's relative price-earnings ratio is 10% below its 15-year average, while the growth index's P/E ratio is 13% above normal.

"I'm seeing it and I have already allocated into it," Vance Barse, wealth strategist and founder of Your Dedicated Fiduciary, said regarding the recent shift in momentum toward value.

Mr. Barse believes the shift is a combination of "smart money" strategies and macroeconomic factors, including three interest-rate cuts this year that make dividend-paying stocks more attractive relative to bonds.

"Historically, value has outperformed growth during recessions and bear markets," he said. "The smart money may be aiming to capture the higher dividends offered by value equities while positioning portfolios a little more defensively."

Paul Schatz, president of Heritage Capital, said there is a strong case for allocating to value in the later stages of a bull market, but he also noted that investors have been fooled in the past by similar-looking data.

"The growth-value relationship recently was as rich as at any time since the dot-com bubble peaked" in early 2000, Mr. Schatz said. "Since bottoming in 2007, growth has steadily marched higher versus value. In 2009, 2011 and 2015, pundits called the end of the growth rally, only to be proven wrong, and here we are again."

Mr. Stovall of CFRA said investors and advisers who might not appreciate the growth-value momentum shift should take some solace in knowing that the market is transitioning, "rather than cashing out altogether."

Federal Reserve cuts rates 1/4 point
With: Charles Payne
Date: Oct 30, 2019
Publication: FOX Business
Link to Article

FOX Business' Edward Lawrence reports on the Fed also signaling a pause for future rate cuts. Former Dallas Fed adviser Danielle DiMartino Booth, Bulltick Capital Markets' Kathryn Rooney Vera, former JPMorgan Chase chief economist Anthony Chan, Heritage Capital founder Paul Schatz and FOX Business' Charles Payne discuss the American economy as a whole.

Paul Shatz's Stock Picks
With: Nicole Petallides
Date: Oct 30, 2019
Publication: TD Ameritrade
Link to Article

Schatz on TD Ameritrade's The Watch List

Paul Schatz's Stock Picks: ALEX, AMD, RTN, PFE

The Watch List with Nicole Petallides offers investors a midday look at the most relevant stocks, sectors and commodities.

Lower bond yields leave advisers pursuing controversial income strategy
Author: Jeff Benjamin
Date: Oct 30, 2019
Publication: Investment News
Link to Article

Dividend-paying stocks are becoming the go-to replacement for fixed-income allocations

As the Federal Reserve announces its third interest-rate cut of the year, after more than a decade spent trying to push rates higher, financial advisers are being forced to get creative when searching for income-producing investments for their clients.

In many cases, that means shifting out of traditional fixed-income allocations and into dividend-paying stocks, a practice that has become increasingly popular and somewhat controversial.

"There are dozens, if not hundreds, of quality, blue-chip stocks with dividend yields of at least 3%, with many above 4%," said Paul Schatz, president of Heritage Capital.

Even though Mr. Schatz recognizes the risks of supplanting bonds with stocks, he is doing exactly that for some of his clients who want more income than they're able to get from bonds.

"Those stocks will decline significantly during the next bear market," he said. "Investors need to buy with their eyes wide open. And, as we learned with GE and many others, when the company struggles, the dividend may get cut or eliminated."

The trend toward loading up on dividend-paying stocks has been unfolding all year, said Todd Rosenbluth, director of mutual fund and ETF research at CFRA.

"Bond yields have fallen, and investors have been searching for income alternatives," he said, citing the popularity of ETFs such as iShares Core High Dividend (HDV) and Vanguard High Dividend Yield (VYM), two equity funds with dividend yields above 3%.

According to Mr. Rosenbluth, this year through Oct. 29, dividend-focused ETFs have experienced $12 billion worth of net inflows.

That compares to $5 billion for all of last year, when the market was worried about the Fed raising rates.

Even though dividend-focused funds are typically more heavily allocated to defensive sectors like consumer staples, health care and utilities, the funds still hold stocks, which introduces some risks that bond investors don't have to worry about.

"I think it's not a great idea" to substitute dividend-paying stocks for bonds, said Christine Benz, director of personal finance at Morningstar.

"Even though there's a lot to like about dividend-paying stocks, bonds and dividend-paying stocks aren't fungible," she said. "High-quality bonds have a much lower volatility profile than stocks, and most investors own bonds for their shock-absorbing characteristics and their ability to diversify equities, not just for income."

To put the volatility differential into perspective, Ms. Benz cited the 10-year standard deviation of the average intermediate-term core bond fund tracked by Morningstar of about 3, versus the standard deviation of 10 for a basic dividend growth fund and 11 for a basic equity-income fund.

The appeal of dividend-paying stocks in a low-rate environment is understandable and even multifaceted.

For example, while bonds can be held to maturity and produce a predictable income stream, stocks present the potential for capital appreciation, and dividends are taxed at a lower rate than is bond income.

Tim Holsworth, president of AHP Financial Services, has watched the trend toward dividend-paying stocks versus bonds, and warns that it's not just about seeking out a source of income.

"Dividends are great, but stocks don't provide the stability of bonds," he said. "Now we're back to matching risk tolerance to investment choices."

Caleb Silver And Paul Shatz Discuss How McDonald's Record Run Cools Off
With: Nicole Petallides
Date: Oct 3, 2019
Publication: TD Ameritrade
Link to Article

Schatz on TD Ameritrade's The Watch List

Petallides hosts a panel of experts, including Heritage Capital founder Paul Schatz to discuss McDonalds stock run.

The Watch List with Nicole Petallides offers investors a midday look at the most relevant stocks, sectors and commodities.

Major indexes lower with U.S. imposing tariffs on Europe
With: Alexis Christoforous and Brian Sozzi
Date: Oct 3, 2019
Publication: Yahoo! Finance
Link to Article

Paul Schatz on Yahoo Finance

Major indexes are lower today with the United States imposing tariffs on Europe, and September job reports are due out tomorrow, with 148,000 expected. Heritage Capital founder and President Paul Schatz and AllianceBernstein Portfolio Manager-High Yield Will Smith join Yahoo Finance's Brian Sozzi and Alexis Christoforous to discuss.

Major indexes lower with U.S. imposing tariffs on Europe
With: Alexis Christoforous and Brian Sozzi
Date: Oct 3, 2019
Publication: Yahoo! Finance
Link to Article

Paul Schatz on Yahoo Finance

Major indexes are lower today with the United States imposing tariffs on Europe, and September job reports are due out tomorrow, with 148,000 expected. Heritage Capital founder and President Paul Schatz and AllianceBernstein Portfolio Manager-High Yield Will Smith join Yahoo Finance's Brian Sozzi and Alexis Christoforous to discuss.

The case against gold
Author: Jeff Benjamin
Date: Sept 23, 2019
Publication: Investment News
Link to Article

Some advisers shun the precious metal, arguing that it's simply a trading vehicle

With the price of gold up nearly 18% since the start of the year, some market watchers are calling it a "crowded trade." That's just one of the reasons some financial advisers give for steering clear of the precious metal at this point in the market cycle.

"Gold is a little overbought and everybody is asking about it, and if there's a consensus out there, it's best to bet the other way," said Dennis Nolte, vice president of Seacoast Investment Services.

"You just don't want to buy something when everybody's eyes are on it," he said.

In juxtaposition to the so-called gold bugs, who tend to be persistently enthusiastic about the prospects for gold, some financial advisers view gold as at best a trading vehicle.

"We use bonds to temper down volatility, not gold," said Tim Holsworth, president of AHP Financial Services.

"I don't speculate, so I don't buy gold," Mr. Holsworth said. "I would only be interested in gold if I thought the markets were going to crash, and that's not the case."

For Tim Doehrmann, founder of Eagle Ridge Wealth Advisors, the biggest problem with gold is in valuing it as an investment.

"There's really no good way to value gold," Mr. Doehrmann said.

"It doesn't produce anything, the way a company can produce cash flow, earnings, and dividends," he said. "It's been a store of value for thousands of years, but that value has just bounced around."

This year, the price of an ounce of gold has been as low as $1,270 and as high as $1,542, which is just above where it is currently trading.

Last year was a relatively mundane year for the price of gold, which ended 2018 down 1.2%.

There have been some big swings in recent years, and each one typically triggers a debate about the value of investing in gold.

Gold gained 12.6% in 2017, lost 27.8% in 2013, gained nearly 28% in both 2009 and 2010, and spiked 31.6% in the run-up to the recession in 2007.

"Some people think gold is a secure thing, and they usually want to turn to it in inflationary and recessionary periods," Mr. Doehrmann said. "But people have been calling for a recession since that last recession. And if you have no idea what the market is going to do and you can't value commodities like gold, how will you know when to invest in them?"

While gold has a reputation as a hedge against inflation, so do Treasury Inflation-Protected Securities, which would be Mr. Doehrmann's preference for his clients.

As a commodity, gold is unique in that, unlike most commodities that are used up, gold is virtually perpetual. Once it's mined, whether it's stored as bullion or used to make jewelry, it doesn't ever go away or expire.

But while gold might last forever, the tailwind behind its price does not, said Paul Schatz, president of Heritage Capital.

"Gold typically has long super cycles and a terrible long-term track record to buy and hold, and it doesn't produce earnings or pay dividends," Mr. Schatz said. "Contrary to popular opinion, gold is not a great hedge against inflation because it typically rallies long before inflation appears and declines long before inflation ends."

Mr. Schatz said that while he isn't anti-gold, he doesn't believe in leaving a gold allocation in a portfolio as a long-term position.

"Gold is best used as a trading vehicle or strategic or tactical holding," he said. "I would never permanently allocate to just owning a gold fund or the physical metal."

Stock markets are reacting less to US 'trade-tariff tantrum': strategist
With: Joanna Campione - Producer
Date: Sep 12, 2019
Publication: Yahoo! Finance
Link to Article

Paul Schatz on Yahoo Finance

Investors are getting mixed signals on progress in the U.S-China trade war.

A day after President Donald Trump said he would delay additional tariffs on China to October 15 from October 1 as a "gesture of goodwill," White House officials denied a report that they are considering an interim trade deal with China.

But the U.S. stock market continued to climb throughout Thursday's trading session.

"As we go on in this trade tariff tantrum, the market's reaction is increasingly less and less," Paul Schatz, Heritage Capital president, tells Yahoo Finance's On the Move. "A couple months ago, news like this would've broken, and stocks would have gone down 1% to 2%."

Instead, stocks hovered closer to record highs as investors mulled on other news: a sweeping stimulus package from the European Central Bank and U.S. core consumer prices hitting its highest level in a year. The Dow, S&P 500 and Nasdaq all closed the day up.

Schatz says investors don't seem to be reacting to every twist and turn in the trade saga as they did a month to three months ago.

"Investors should worry less about the tweets and more about other things in the markets. You know, earnings and the economy, and certainly sentiment," he says. "But I don't think it's the clear-and-present danger it was several months ago."

A new round of talks is scheduled to take place in Washington in early October. Ahead of those talks comes reports that the Chinese may cut out some of the non-trade issues that have complicated progress, including U.S. involvement in the Hong Kong protests. That comes along with reports that China made its biggest purchase of U.S. soybeans since June, which could point to a willingness to come to a deal.

"I'm not sure the Chinese are actually in a position of strength, per se," says Schatz. "But they're not in the position of weakness that the administration is selling."

That's because, he says, there is no incentive for them to make a deal in the next 14 months leading up to the 2020 presidential election. "They know what they have in Trump. If they try to wait him out and he loses, perhaps they will get a better deal with somebody else," Schatz say. "But frankly, 14 months to the Chinese is nothing."

ECB cuts a key rate for first time since 2016
With: Julie Hyman and Adam Shapiro
Date: Sep 12, 2019
Publication: Yahoo! Finance
Link to Article

Paul Schatz on Yahoo Finance

The European Central Bank cut one of its key interest rates for the first time since 2016, pushing it into record negative territory. Yahoo Finance's Oscar Williams-Grut reports. He talks to Julie Hyman, Adam Shapiro, Andy Serwer and Heritage Capital's Paul Schatz

Paul Schatz On Why Tesla's His Short Pick
With: Nicole Petallides
Date: Sep 12, 2019
Publication: TD Ameritrade
Link to Article

Schatz on TD Ameritrade's The Watch List

Heritage Capital founder Paul Schatz is on The Watch List with Nicole Petallides to discuss the market moving forward.

Stocks near all-time highs
With: Charles Payne
Date: Sep 12, 2019
Publication: FOX Business
Link to Article

Heritage Capital founder Paul Schatz and Point View Wealth Management's David Dietze discuss a possible trade deal and how it's affecting the stock market.

When strong performance sends ETF investors to the exits
Author: Jeff Benjamin
Date: Sept 6, 2019
Publication: Investment News
Link to Article

Investors are bailing out of concentrated ETF strategies in favor of safety and diversification

In the latest sign of growing investor caution, strong performance is not enough to keep assets from moving out of some focused exchange-traded funds.

For example, the $105 million Amplify Traditional Data Sharing ETF (BLOK) is up 21.5% from the start of the year but has experienced $15 million in net outflows.

Similarly, the $66 million Reality Shares NexGen Economy ETF (BCLN) is up 18.5%, matching the S&P 500 Index, but has seen $20 million in net outflows.

Dennis Nolte, vice president of Seacoast Investment Services, said part of the problem with smaller ETFs is that investors could be concerned about liquidity, which is why they are taking profits while times are still good.

"A lot of times there might be enough interest in the sector to create a certain type of fund, but if they don't get enough sponsorship there will be lower trading volume and potential for liquidity issues," he said. "That's the caveat on any of these newer thematic funds."

That point makes sense to a certain degree but doesn't fully explain the $122 million in net outflows this year from the $1.5 billion Prime Cyber Security ETF (HACK), which is up 12.6% this year.

Paul Schatz, president of Heritage Capital, attributed the outflows to thematic funds being swept up in a general trend of equity-fund outflows.

"I think these kinds of thematic strategies are fine at the margin or on the fringe of a portfolio for a very distinct and concentrated view, but many of them are trendy or hot sectors, which often lead to fleeting returns and outsized volatility," he said, touching on a subject that investor and financial advisers have been increasing trying to avoid.

"Given how negative people are and have been for more than a year, I'm not surprised by the outflows," Mr. Schatz added.

Even Brian Giere, director at Amplify ETFs, which manages the blockchain fund BLOK, understands the growing appeal of "plain vanilla and low-volatility strategies."

"The blockchain theme is still viable, but the drop during the fourth quarter of last year scared a lot of people and diverted their attention from the asset class," he said.

Todd Rosenbluth, director of mutual fund and ETF research at CFRA, agrees that the themes are not going away, but said the timing might be a little off at this point in the cycle.

"If you look at the positive flows into some of the broader-category ETFs, it shows that investors have become more comfortable staying in the more diversified ETFs right now," he said. "However, we think, going forward advisers are going to increasingly find thematic ETFs as good replacements for single-stock bets."

The upside of betting on inflation
Author: Jeff Benjamin
Date: Aug 29, 2019
Publication: Investment News
Link to Article

Treasury inflation-protected securities are gaining popularity as a yield play

With both interest rates and inflation near the floor, fixed-income investors are finding the best opportunity for yield in Treasury inflation-protected securities, or TIPs.

"Right now, smarter people are jumping into TIPS because real rates are at all-time lows," said David Gingrich, vice president of the adviser consulting group at Advisors Asset Management.

"The global powers have been trying to stoke inflation for many years, and it's typically not wise to fight those powers," Mr. Gingrich said. "Combine that with the inflationary impact of tariffs, and you're not giving up much opportunity cost by going with TIPS over a Treasury bond."

TIPS are structured to take advantage of inflation by paying investors the rate of inflation in addition to the fund's stated yield.

According to, the Schwab U.S. TIPS ETF (SCHP) led all other ETFs during the week ending Aug. 26, with net inflows of $973 million, while the Vanguard Short-Term Inflation-Protected Securities ETF (VTIP) had net inflows of $507 million.

The TIPS play is in some ways a double-edged sword, because the protection that kicks in when inflation rises can cut the other direction if inflation declines.

For example, the five-year Treasury bond is currently yielding 1.4%, which compares to 1.5% for comparable TIPS.

But, according to Mr. Gingrich, "if inflation dropped 100 basis points tomorrow, the TIPS yield would be in the neighborhood of 50 basis points."

On the flip side, if inflation jumped by 100 basis points, that same TIPS yield would jump to near 2.5%.

"Most people are saying we're running pretty close to lows as far as inflation goes, so they're seeing more upside than downside with TIPS," Mr. Gingrich said.

Paul Schatz, president of Heritage Capital, described the recent rush into TIPS as "just another yield play, as Treasuries went up 8% more than TIPS in August alone."

"Some people likely view TIPS as a better value compared to straight Treasuries right now," he said. "I don't see inflation picking up until the other side of the next recession. I'm much more concerned about disinflation or mild deflation when the economy recesses."

Marc Pfeffer, chief investment strategist at CLS Investments, expects that the Federal Reserve's current monetary policy, combined with the global trade wars, is likely to spark some inflation.

"There is some perceived value in TIPS, however they have underperformed nominal Treasuries," he said. "In all candor, I've not been in favor of TIPS over nominal Treasuries."

Instead of picking sides, David Hultstrom, chief investment officer at Financial Architects, keeps most of his client portfolios evenly balanced between TIPS and Treasury bonds to cover all the bases.

"I don't ever think I'm smarter than the market, so unless you think the market is mispricing inflation, you might as well own both TIPS and nominals," he said. "I like to be neutral with respect to inflation, unless a client has some unusual inflation exposure in the rest of the portfolio."

For example, if a client has a pension with no cost-of-living adjustment, TIPS will help offset the negative effects of inflation.

On the other hand, if a client owns a lot of rental properties with fixed-rate mortgages that will benefit from inflation, Mr. Hultstrom will reduce the TIPS exposure.

New poll suggests Bernie Sanders, Elizabeth Warren and Joe Biden are in a three-way tie
With: Julie Hyman, Rick Newman and Jessica Smith
Date: Aug 27, 2019
Publication: Yahoo! Finance
Link to Article

The race for 2020 is heating up, and a new national poll from Monmouth University is suggesting a three-way tie for the lead between democratic candidates Joe Biden, Elizbeth Warren, and Bernie Sanders. Yahoo Finance's Julie Hyman, Rick Newman, and Jessica Smith discuss with Heritage Capital President, Paul Schatz.

Dudley encourages Fed to get political not enable Trump
With: Julie Hyman and Rick Newman
Date: Aug 27, 2019
Publication: Yahoo! Finance
Link to Article

William Dudley, who served as the president of Federal Reserve Bank of New York from 2009-2018, encourages his colleagues not to help Trump on his "disastrous path of trade war escalation." Yahoo Finance's Julie Hyman, Rick Newman, Brian Cheung and Paul Schatz Heritage Capital President discuss.

Dow jumps more than 200 points, Target and Lowe's surge on strong earnings
Author: Fred Imbert
Date: Aug 21, 2019
Publication: CNBC
Link to Article

Stocks rose on Wednesday as strong quarterly results from retailers such as Target and Lowe's lifted investor sentiment.

The Dow Jones Industrial Average closed 240.29 points higher, or 0.9%, at 26,202.73. The S&P 500 gained 0.8% to close at 2,924.43. The Nasdaq Composite jumped 0.9% to 8,020.21. The major indexes held on to their gains even after the bond market flashed a recession signal in the last hour of trading.

The better-than-expected results come at a time when traders are worried about a possible U.S. economic slowdown. Those fears have led investors away from riskier assets like equities in favor of traditionally safer assets like gold and Treasurys.

"A very mild recession could begin in 2020 but the stock market data don't support that just yet. That could change in the next rally, but it doesn't support it right now," said Paul Schatz, president at Heritage Capital.

Target shares surged more than 20% to a record after the retailer posted second-quarter results that topped analyst expectations. The company's same-store sales, a key metric for retailers, expanded by 3.4%. Analysts expected growth of 2.9%.

Lowe's jumped 10.4% on its second-quarter earnings report. CEO Marvin Ellison said the company capitalized on strong "holiday event execution and growth in Paint and our Pro business to deliver strong second quarter results."

"We're in the camp that there is strength in the broad-based consumer. It's underpinned by low inflation, decent wages and jobs growth," said Tom Martin, senior portfolio manager at Globalt.

The Dow is down more than 2% in August amid worries over a possible recession. The S&P 500 and Nasdaq Composite have both lost more than 1.5% this month. Gold, meanwhile, has jumped more than 5% this month while the benchmark 10-year Treasury yield is down about 40 basis points, or 0.4 percentage points.

But Bank of America CEO Brian Moynihan thinks the U.S. consumer is strong enough to keep the economy growing.

"The underlying consumer is doing well and making more money. More importantly, they're spending more money," he told CNBC's Becky Quick, noting the bank's consumer base has spent $2 trillion in 2019 thus far. "The U.S. consumer continues to spend and that will keep the U.S. economy in good shape."

Investors on Wednesday digested minutes from the Federal Reserve's meeting. The minutes showed the Fed has no "pre-set course" for cutting rates. The Fed cut rates by 25 basis points in July, while signaling that it was only a "midcycle adjustment" and the central bank was not returning to the stimulus era.

The major indexes maintained most of their gains following the release of the minutes.

The U.S.-China trade war remained on investors' radars after President Donald Trump made new comments about the trading relationship with the European Union. "Dealing with the European Union is very difficult," Trump told reporters at the White House.

"We have all the cards in this country because all we have to do is tax their cars and they'd give us anything we wanted because they send millions of Mercedes over. They send millions of BMWs over," he added. Trump is due to meet with other EU leaders this week at the G-7 meeting in France.

Volatility reignites debate about market timing
Author: Jeff Benjamin
Date: Aug 15, 2019
Publication: Investment News
Link to Article

Advisers shrug off the threat of an imminent recession

Increased stock market volatility, including the market's 3% drop on Wednesday, has put financial advisers back into a position of defending buy-and-hold investing strategies to nervous clients.

"A big part of our job is convincing people they're on the right path and to stay on that path," said Tim Holsworth, president of AHP Financial Services.

"Nobody has figured out how to successfully move in and out of the market, or if they have, they're keeping it to themselves," Mr. Holsworth said.

Financial markets, which had already been on edge amid ongoing trade wars and tariff threats, reached a new level of anxiety on Wednesday when the spread between the two- and 10-year Treasury note yields turned negative.

Historically, an inverted yield curve is considered an indicator of a looming recession, although most advisers are quick to point out that the indicator lacks the crucial element of timing.

"An inverted yield curve is absolutely a warning sign, but there's no reason to panic right now," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

"Typically, when 2-10 inverts, it will lead a recession in around 14 months on average," Mr. Zaccarelli said. "But that range has been between seven months and 20 months, so it's more of a yellow light than a red light."

Mr. Zaccarelli said that he isn't recommending "drastic portfolio changes" in response to the inverted yield curve, but that "it is a good time to reevaluate where you are with your portfolio allocations to trim positions that no longer make sense to hold through a recession."

The stock market's relative sense of calm through midday Thursday in the midst of an otherwise volatile week is part of a normal market cycle that needs to be closely monitored, said Paul Schatz, president of Heritage Capital.

"I think we've seen most of the price damage, but stocks will go lower in the short term, then scream higher," he said. "On balance, we'll go higher for rest of the year, but not in a straight line,? and volatility will remain high through at least Halloween."

Mr. Schatz expects the stock market to gain another 9% by the end of the year, and he does not expect a recession this year.

However, he is advising clients to embrace a barbell approach to equity investing, which involves investing in things like semiconductor companies on the aggressive side and consumer staples, utilities and real estate on the conservative end.

When it comes to using the inverted yield curve as an sell signal, Chris Schiffer, executive vice president of AEPG Wealth Strategies, said "market timing is generally a bad idea."

"The people that were hurt most by the great recession are individuals who went to cash because of a market downturn and stayed in cash," he said. "They sold when the market was down and never participated in the rebound."

Especially for investors with a longer time horizon, moving in and out of the market is considered risky because it is virtually impossible to move out at market highs and back in at market lows.

And getting it wrong can be costly.

According to a study by A. Stolz Investment Research and Thompson Reuters, over the 10-year period through January 2017, an investor in the S&P 500 Index who missed just the 10 worst trading days in that period would have enjoyed a cumulative return of 126%, which compares to 58% for an investor who stayed in the market.

However, over the same period, an investor who missed the 10 best days would have gained just 14%.

"Market timing is a really bad idea," said Devin Pope, partner and senior wealth adviser at Albion Financial Group.

"Even if the yield curve inversion ends up predicting a recession, it usually takes around 24 months for the recession to hit and the market run could around 20% from the time of the yield inversion to the peak," Mr. Pope said. "Trying to time the market now could leave a good amount of chips on the table and then if the market goes up, you will be chasing to get back in."

We are 'absolutely not' entering a bear market
With: Alexis Christoforous and Brian Sozzi
Date: Aug 15, 2019
Publication: Yahoo! Finance
Link to Article

Yahoo Finance's Alexis Christoforous and Brian Sozzi talk to Kristina Hooper, Invesco Chief Global Market Strategist, and Paul Schatz, Heritage Capital LLC President, around Thursday's opening bell.

Author/Anchor: Matt Scott
Date: Aug 5, 2019
Publication: FOX 61
Link to Article

Investment projections with Paul Schatz.

7 ways that an interest rate cut from the Fed impacts retirees
With: Sarah Foster
Date: Aug 1, 2019
Publication: BankRate
Link to Article

Borrowers may celebrate a Federal Reserve rate cut, but it just might put many retirees in a pinch.

The U.S. central bank on Wednesday reduced borrowing costs for the first time in more than a decade, and that doesn't bode well for returns on the types of investments preferred by those who have left the workforce.

When rates go down, generally so do yields on fixed annuities, certificates of deposits and savings accounts. Long-term care premiums and pensions are also squeezed. Meanwhile, retirees are typically past the stage in their life where they're thinking about making a big-ticket purchase, meaning they're not the first in line to directly benefit from cheaper borrowing costs.

"A Federal Reserve rate cut can be both a good and bad thing, same as any rate increase," says Jamie Hopkins, director of retirement research at Carson Group. "But when you look at retirees, they would really like to see rates come up. Lower and continued low interest rates make a lot of retirement income strategies harder to pull off effectively, today."

Interest rates, however, are still at historic lows, and the Fed's modest 25-basis-point rate cut only unwinds one of the nine consecutive hikes enacted since 2015. Still, for those in retirement or on the brink of it, the move is going to have a substantial effect on your wallet.

Here are seven ways the Fed's rate cut could affect both you and your money - and what you should consider doing in response.

1. Rates on fixed annuities will likely fall

An annuity is a periodic payment to an individual in exchange for an initial, upfront lump sum. It typically lasts through the individual's lifetime. There are multiple types of annuities, some are equity based and others offer a guaranteed minimum return.

Fixed annuities provide an interest rate that is set at the time of purchase, and payments stay the same over the course of its contract. Even though these annuities provide you with protection from interest-rate fluctuations, your rates would be lower if you were to lock them in now.

Interest rates, however, are already at historic lows, meaning the Fed's latest move might not feel like much of a difference.

"You'll see possibly a slightly lower payout," Hopkins says. "At this point, rates have been so low for so long. A quarter of a percent cut or 25 basis points won't change any of the annuity products out there."

Other annuities might not be so sensitive to interest rate cuts. Variable annuities, for example, invest in sub-accounts of stocks, bonds and money market funds.

"You're going to be picking a lot of market assets as your underlying portfolio and returns structure," Hopkins says. "It's not hugely impacted by interest rate cuts or hikes."

Equity-indexed annuities, on the other hand, are a cross between fixed and variable.

Regardless, you might not see any kind of impact right away. It sometimes takes more than a year, if not more, for annuity rates to reflect that reduction, according to Jeff Levine, CPA and CEO of BluePrint Wealth Alliance.

"They tend to lag a little bit behind the rate cuts," Levine says. "They're sensitive to those changes, but not to the same degree. If the Fed picks up one percent, you don't see insurers' portfolios pick up right away. It takes a number of years for rates to cycle through that portfolio."

2. Yields on savings accounts, CDs generally fall

Retirees who are taking advantage of payouts from their high-yield savings accounts could soon see their yields reduced. Some banks have already started to slash yields in preparation for a rate cut, such as Marcus and Ally Bank.

Certificates of deposits (CDs) are also impacted by a Fed rate cut. Many retirees have historically chosen to keep a large percentage of their cash in CDs, an investment seen as a "safe" option. But in a lower rate environment, it might make those returns less attractive.

Many retirees "look at their parents and grandparents, who said, when I get to retirement, I'm going to park my money in safe things like CDs and earn an interest rate and be able to live off of that," Levine says. "Clearly, today that's not going to work."

CD rates have been sliding in anticipation of a Fed rate cut. Still, rates are as high as 2.5 percent at online banks. Three-year CDs also offer higher returns than most other options on the market, currently at about 3 percent. Consider locking in your rates now, or laddering your portfolio.

"If you're a retiree who is flipping CDs every 6 to 9 months, CD rates will change," says Paul Schatz, president and chief investment officer of Heritage Capital. "But they pretty much get priced in as the market prices in a rate cut."

3. Rate cut diminishes bond yields

The other "safe" investment companion to CDs has been bonds - and those returns won't likely improve after a Fed rate cut. Typically, retirees are guided toward higher-quality bonds, such as Treasury bonds or highly-rated corporate bonds.

Highly-rated corporate bond prices have risen over the last five to six months, Schatz says, meaning their yields have gone down. That's been the case long before any official cut from the Fed.

"Even though no rates have been cut, there's an expectation of economic slowing, and that the Fed is going to have to take action," Schatz says. "A retiree who is waiting until the Fed lowers rates, most of that work has already been done."

That could only continue to be the case, with the headwinds currently worrying Fed officials being far from resolved. Officials are concerned about a slowing global growth picture, as well as weakness in business investment, low inflation and ongoing trade tensions.

"The markets are expecting continued economic deceleration, which means even lower rates," Schatz says. "If somebody thought the economy was going to reaccelerate, then you would be selling bonds, not buying them. If you were a retiree, you would be staying very patient and waiting for an opportunity."

A low-interest rate environment may make it look like junk bonds will yield higher returns at less of a risk, Schatz says. But they're an even worse investment option right now, with the cycle in its 11th year. Though the expansion doesn't look like it could be ending any time soon, there are still a number of storm clouds on the horizon.

"The time to buy junk bonds is right in the middle of a recession, not now," Schatz says. "If a retiree says, 'Oh my, I can go buy junk bonds right now, that's great.' But we're close to a recession, junk bonds are going to get hit very hard. For a retiree, they have to have an element of timing to their investment."

Similar to how you would ladder CDs, you can also fight back against the low-rate environment by staggering your portfolio with bonds of different maturities.

"You're not as susceptible to interest rates because, as your earlier ones mature, you keep rolling them forward," Schatz says.

4. Rate cuts weigh on underfunded pensions even more

It's no secret that pension funds have been struggling. Of the 103 state retirement systems that reported actuarial data for 2016, 97 percent are considered underfunded, according to a 2017 report on state pension funds by Wilshire Consulting.

Pensions depend on the sustained growth of their assets. A low-rate environment, however, makes that more difficult.

"Pension funds are stuck between a rock and a hard place," Schatz says. "Pensions have an awful lot of monies invested in fixed income, so they need higher interest rates and higher stock return rates. You need nirvana in the investing world, which never happens. So now, what do you do? That is one of the future crises that's going to hit the country."

Not all pension funds are at as high of a risk. Pensions through private employers, for example, aren't struggling as much as those from municipalities and states. At the same time, states have a greater ability to raise taxes for revenue, whereas those who live within a city or municipality could choose to move outside city lines, Hopkins says.

Current pension recipients are unlikely to see their payouts cut anytime soon, but if interest rates stay lower for longer, it could be a bigger problem for the future, Hopkins says.

"Lower rates don't necessarily help pension funds that are already struggling with their funding," Hopkins says. "If rates stay low forever, pension funds can't find ways to make up some of their funding shortfalls. There's no clear example of how they're going to fix them. Some are so massively underfunded that the only thing we expect is that at some point they will not be able to make promised payoffs."

5. Low interest rates put long-term care premiums in a bind

Long-term care insurance provides retirees with an economical way of covering a wide range of medical or assisted living services. These might get more important to you as you age, potentially saving you a substantial amount of money.

Low interest rates, however, have caused the long-term care insurance industry to scramble, Hopkins says. A portion of the cost of long-term care insurance is covered through yields on investments, but low interest rates squeeze those returns. That forces insurers to hike premiums, which have already increased.

"Continued low interest rates are going to continue those premium hikes," Hopkins says.

6. Keep an eye on building inflation

But there's been one saving grace for retirees in this low-rate environment: inflation has been tepid.

The Fed indicated that it's concerned with how low inflation is, listing it as one of the reasons for its rate cut. If the rate cut, however, does indeed stoke more price pressures, it may eat away at retirees' incomes even more.

"For seniors, inflation over a long period of time is very detrimental to purchasing power," Hopkins says. "Even a very small amount of inflation still has a huge impact for retirees."

It matters because retirees depend on a fixed-income stream during their years out of work. If that purchasing power diminishes over time, those payouts may not be worth as much. That, matched with rate cuts that bring down yields, makes it even more difficult for this demographic.

"If we start to see inflation creep up, that would be steep for retirees," Levine says. "They're living on this fixed income, and all of a sudden, prices are going up around them when rates are low."

But some evidence already suggests that seniors have been experiencing more price pressures than the typical demographic. A subindex of the consumer price index that tracks the typical basket of goods purchased by seniors has picked up more than other typical categories, mainly on rising health care costs, Hopkins says.

7. Avoid jumping headfirst into risky investments just to boost your returns

The low-rate environment is leading some retirees to place more emphasis in their portfolio on equities or real-estate - investments that might not be quite as safe for individuals who have a lot more to lose and generally can't afford to take on as much risk.

"Lower rates can cause investors to chase returns in the market," Hopkins says. "This can put some retirees and those nearing retirement into a higher equity allocation than might otherwise be advisable because they aren't getting the returns they want or need in the bond and CD markets."

So far in the current expansion, retirees haven't had to confront much stock market declines. The bull market celebrated its 10th anniversary this year, and most stocks have recovered from the sell-off at the end of 2018. But there's no telling how long that could last - equities typically come with more volatility and risk.

"My big concern is, if we go back to lower rates, retirees are going to start reaching even further than they have before" into volatile and risky assets, Levine says. "At some point, that's going to catch up with them. You're going to see a sustained pullback at some point."

It's important to assess not just your appetite for risk but whether you can also afford to take it, Levine says. Work with your financial adviser or planner on crafting a portfolio that's right for your situation.

"Risk capacity is something that you actually have to sit down and do a plan for," Levine says. "If you have to make 7 percent return every year in order to make your retirement goals or to be reasonably happy in retirement, only a financial plan can dictate that."

Bottom line
But regardless, modest rate cuts aren't going to change the picture too drastically. It's important to identify the right buying opportunity, but waiting for rates to come up just might be like waiting for rain in a drought.

"People waiting in cash now for the market to come down and rates to come up," is a big issue according to Hopkins. "This is unfortunately because we can't market time like this well. Really, you are just missing out on returns [by] sitting on the sideline."

ECB keeps rates unchanged, FED expected to cut rates, Facebook earnings beat expectations
With: Alexis Christoforous and Brian Sozzi
Date: Jul 25, 2019
Publication: Yahoo! Finance
Link to Article

The European Central Bank kept rates unchanged, meanwhile the FED is expected to cut rates. Facebook and Tesla are also out with their latest earnings reports. Facebook beat Wall Street Estimates, but Paul Schatz, Heritage Capital Founder & President, says it's 'no longer the rocket it once was.' Yahoo Finance's Alexis Christoforous and Brian Sozzi talk to Schatz and Michelle Girard, Chief US Economist at NatWest Markets, around the opening bell.

Elon Musk should be like Bill Gates - but not in a good way
With: Alexis Christoforous and Brian Sozzi
Date: Jul 25, 2019
Publication: Yahoo! Finance
Link to Article

On its earnings call Wednesday, CEO Elon Musk was quick to announce that Tesla (TSLA) delivered 95,000 vehicles last quarter. The 80% increase in deliveries year-over-year was possibly the brightest moment in the second-quarter earnings call.

The electric car company posted revenue of $6.35 billion, compared to analysts' expectations of $6.44 billion. It also saw an adjusted loss of $1.12 per share, more than analysts' expectations of a 31-cent loss.

Tesla's quarterly report, after a year of immense stock volatility, is the newest concern about the longevity of the company's leader. And shares took a beating after the announcement, and are down more than 14% on Thursday to $227.

'Not a future leader' When asked if Tesla was worth buying after an ugly quarter, Paul Schatz, president and chief investment officer at Heritage Capital, told Yahoo Finance, "It has very idiosyncratic behavior, but no, [Musk] is not a future leader."

"You're going to have Mercedes and BMW and all the real car companies competing with them in the next five years, and I think they are much more well-positioned financially," compared to Tesla.

Schatz pointed out that while Tesla may have had a head start out of the gate, the company is not taking full advantage of that position. Management is a major concern - the latest example in a series of departures is the company announcing on its earnings call that Chief Technology Officer JB Straubel was stepping down from his position and transitioning to an advisory role.

Graphic by David Foster/Yahoo Finance

Schatz compared Musk to Microsoft founder Bill Gates - or at least suggested the Tesla leader should aspire to be like Gates in one particular way. "All great entrepreneurs eventually, like Bill Gates, all step back and say, 'I've taken my company as far as I can go and need to bring in somebody that has a corporate backbone to it,'" he said. "The wrong guy is running the company."

As for whether investors should bet on the car maker, "unless you're a nimble trader, I think it's lunacy to go near Tesla," Schatz said, adding that he doesn't see it "as a sustainable long-term business model."

"I still think it's going sub-$100," Schatz said.

Advisers scramble to help retirees navigate looming Fed rate cut
Author: Jeff Benjamin
Date: Jul 15, 2019
Publication: Investment News
Link to Article

The Fed's first interest-rate cut in a decade has advisers warning against chasing the bait of risk over safety

For the first time in more than a decade, financial advisers are having to prepare client portfolios for an interest rate cut by the Federal Reserve, and the general consensus of advice is to try and not panic.

"Stay away from bank-loan bonds and high-yield bonds, because it would be a mistake to reach into the triple-B rated bonds for more yield. Just stay with investment grade bonds and take less yield," said Paul Schatz, president of Heritage Capital.

Mr. Schatz, who is not a fan of the current direction of the government's monetary policy, said the expected quarter-point rate cut at the end of this month will box the Fed into a corner if the economy falls into a recession.

"We've never started a rate-cut cycle with rates this low," he said. "There's only so much room between here and zero."

The Fed's short-term rate, which is currently hovering around 2.25%, is already putting pressure on people who are in or near retirement and are looking for relatively safe retirement income.

Natalie Pine, managing partner at Briaud Financial Advisors, said she has been buying brokerage certificates of deposits to lock in yields of around 2.3% for 2-year CDs.

"We're trying to lock in that rate because we expect money market rates to fall," she said. "I think a rate cut will push people into riskier investments because they can't earn as much on short-term money."

Dividend-yielding stocks is another area where investors can find some income as bond yields decline, according to Robert Greenman, lead adviser and partner at Vista Capital Partners.

"Instead of relying on yield, we look to create income from portfolios by employing a total return approach," he said. "Dividends from stocks accompanied by the occasional return of principal from asset sales. This approach allows portfolios to provide reliable income in any rate environment, and it allows for portfolio construction to not be influenced by changes in interest rates."

With Fed rates so low, it would be impossible to forecast a prolonged cycle of interest-rate cuts, but there could be a small, near-term boost to bond funds, according to Ryan Wibberley, chief executive of CIC Wealth.

"If the Fed lowers rates that will be a negative for savers, especially those investors with cash in high-yield savings accounts," he said. "If you own a bond fund, you will likely see the value of your fund rise. And investors with fixed annuities and CDs will be affected negatively as the current rates on those investment vehicles will most definitely be lower."

Jamie Hopkins, director of retirement research at Carson Group, said lower rates is not what most retirees are hoping for.

"Lower and continued low interest rates make a lot of retirement income strategies harder to pull off effectively," he said. "Lower rates will continue to put pressure on insurance companies, long-term care insurance premiums and annuity products."

Mr. Hopkins added that the risk is that retirees and their advisers will try to make up for the lower fixed-income yields by taking on more risk.

"Retiree clients having too much equity exposure due to continued low rates is a problem," he said. "Advisers need to do a better job leading with planning with their clients and stressing the importance of protection strategies for those heading into retirement."

Along those lines, Mr. Schatz of Heritage Capital, chastised advisers who didn't take advantage of interest rates when yields were climbing up through November.

"Hopefully you were smart enough to have a laddered bond portfolio already or bought a lot of bonds when the 10-year Treasury was at 3.25%," he said. "If you were dumb enough to stay in cash you get what you deserve."

Active managers putting pressure on index funds
Author: Jeff Benjamin
Date: Jul 1, 2019
Publication: Investment News
Link to Article

Nearly half of all large-cap active funds are beating the benchmark this year

It's too early to claim a revival for active management, but based on the solid performance this year, it might also be premature to give up on active management all together.

According to CFRA, in the first half of this year, 49% of actively managed large-cap equity funds beat the 18.5% return of the S&P 500 Index.

By comparison, for the full year of 2018, 36% of active funds beat the benchmark, down slightly from 37% in 2017. In 2016, just 34% of active funds beat the S&P 500.

On average, over the past five years through 2018, just 17.9% of active funds beat the index, which helps explain flow of assets out of active funds and into passive strategies.

"It's too soon to know whether investors will shift their behavior, but we've seen continued flows into lower-cost passive products," said Todd Rosenbluth, director of mutual fund and ETF research at CFRA.

In May, Morningstar data showed the fund industry was nearing the breakeven point, with assets in active funds about to be overtaken by the total assets in passive funds. Just 10 years ago, active funds held a commanding 75% of fund assets.

Morningstar's most recent data show U.S. active funds lost $15.6 billion to outflows in May, but still hold about $89 billion more in total assets than passive funds.

"We jumped the gun last month in declaring asset parity between active and passive U.S. equity funds" based on April fund data, said Morningstar senior analyst Kevin McDevitt, who explained that additional funds reported assets after the publication of May's report, resulting in a larger gap between active and passive U.S. equity funds.

Over the 12-month period through May, Morningstar reports that all categories of active funds combined for nearly $338 billion worth of net outflows, while all categories of passive funds combined for $461 billion worth of net inflows.

Paul Schatz, president of Heritage Capital, is cautious about making too much of how active funds performed over the first six months of the year because he doesn't expect active funds to keep pace as the market matures.

"As the bull market continues to age, it will be harder, not easier, for active managers to keep up," Mr. Schatz said.

While active managers that can hold cash or avoid the most expensive stocks in an index might have an advantage in a falling stock market, Mr. Schatz said active managers can get caught in a unique rut in markets that are nearing a peak.

"Usually at the end of bull markets you get increased volatility but with an upward bias," he said. "A portfolio manager with a universe of 1,000 stocks will not pick and choose from the five or 10 largest companies in an index because they don't want to be a closet indexer."

The S&P 500 is market-cap-weighting, so the largest companies make up the largest percentage of the fund. Mr. Schatz said active managers try to distinguish themselves from the index by not owning the same handful of funds that are driving most of the benchmark's performance.

But that situation in which just a handful of the biggest stocks are outperforming is the final stage of a bull market, he said.

"Participation has not started to narrow, but when that happens the index funds will really start to outperform," Mr. Schatz said. "What this means is that we're not on the precipice of a bear market."

DoubleLine CEO Gundlach sees golden opportunity to hedge market risk
Author: Jeff Benjamin
Date: Jun 19, 2019
Publication: Investment News
Link to Article

Slowing economy and a nervous Fed have advisers rethinking the controversial metal

As fears of an economic slowdown and a recession continue to climb, including new signs that the Federal Reserve? is? on track to cut interest rates later this year, financial advisers are revisiting the pros and cons of turning to gold as a market hedge.

"Gold is a store of absolute value, and when rates are going down and the economy is slowing, gold is real good diversifier," said Dennis Nolte, vice president at Seacoast Investment Services, where he is currently allocating between 5% and 7% of client portfolios to the precious metal.

Mr. Nolte, who gains exposure to gold through SPDR Gold Shares ETF (GLD), also likes the fact that gold is inversely correlated to the U.S. dollar, which has been falling in stride with the increasing odds that the Fed will cut rates by its meeting in September.

"As long as the market is saying rates will keep falling, then gold will be an even better store of value," he said. "And if all hell breaks loose, then gold will absolutely be the place to hang out."

While most market watchers are not yet calling for anything along the lines of all hell breaking loose, legendary straight talker and fixed-income manager Jeffrey Gundlach of DoubleLine Funds did give a nod toward gold during an investor webcast last week when he described 2019 as the opposite of 2018.

"I'm certainly long gold," he said, according to, which also reported that Mr. Gundlach predicted a 40% to 45% chance of a recession within the next six months and a 65% chance within 12 months.

Immediately following Wednesday's announcement from the Fed, whose wording suggested an easing move will occur later this year, Mr. Gundlach doubled down on his prediction of a looming recession.

"The bond market knows the Fed is capitulating today, and the only reason the Fed didn't cut today is because it's too embarrassing for them after being so hawkish a year ago," Mr. Gundlach said. "The Fed is now predicted to have a 100% chance of cutting rates in July."

Heading into this week's Fed meeting, the bond market had registered an 86% chance of a rate cut at the September meeting.

"I think the Fed will cut 50 basis points by September, and the only thing that would stop that is stronger economic data," Mr. Gundlach said.

But he cautioned against falling into the trap of assuming that a Fed rate cut will help the economy to avoid a recession.

"A rate cut would increase the probability of recession," Mr. Gundlach said. "There's no historical evidence that a rate cut stops a recession, it's actually an acknowledgement that things will get worse because the Fed is behind the curve."

As is usually the case, aggressive calls for gold investing also brings out criticism of gold as an investment strategy.

"There are so many misconceptions about gold; it's not a good hedge against inflation as many argue," said Paul Schatz, president of Heritage Capital.

"It can sometimes preserve value during recessions as interest rates go down and people seek other investments, but bonds are much better investments during recessions," Mr. Schatz said. "Huge secular moves in gold are usually associated with a loss of confidence somewhere."

In 2008, for example, the price of gold experienced a 30% drop, then bounced back to almost triple in value.

"Gold did very little during the 2001 recession, but soared over the following six years," Mr. Schatz said. "And gold declined during the 1990 recession."

So far this year, GLD as a proxy for the price of the commodity is up 4.84% following a 1.94% decline last year.

The S&P 500 Index, by comparison, is up 16.39% this year and declined by 6.24% last year.

While some advisers will shy away from gold as a rule, regardless of the market cycle, others view it as a permanent piece of a diversified portfolio.

"While the role of gold as a currency is ubiquitous around the world, knowing when or how much to hold in your portfolio can be a tricky game," said Jon Ulin, managing principal at Ulin & Co. Wealth Management.

"We recommend to clients to hold a small portion of gold and commodities, about 5%, in their balanced portfolios as a market hedge," Mr. Ulin said. "The addition of gold as a fear hedge may not pay off anytime in the near future.

He said that although many are betting that the bull market, having lasted more than 10 years, is coming to an end, "we remind our clients that bull markets do not die because of old age, they die because of behaviors such as overspending and overleverage."

As market indicators go, the president trumps everything
Author: Jeff Benjamin
Date: Jun 6, 2019
Publication: Investment News
Link to Article

Quantifying news reports about Trump can help predict where markets are heading

Whether you like him or not, President Donald J. Trump is having a measurable impact on the financial markets, although maybe not in the ways he expects or would prefer.

"Trump has a particular talent for causing wedges, driving markets and providing leading signals," said Zak Selbert, chief executive and co-founder of Indexica, an alternative data firm that measures the impact of news reports on financial markets.

Mr. Trump is far from the sole focus of Indexica, but he is providing the steadiest stream of quantifiable data.

Firms in the alternative data space like Indexica are obsessed with measuring things that have been difficult to measure. Some firms will measure credit card data or satellite imagery, for example. But Indexica uses textual data, where 90% of all information resides.

"It's the low-hanging fruit," Mr. Selbert said. "News data is narrating what's happening around the world."

Enter Mr. Trump.

"We built this under the assumption that anything can move markets," Mr. Selbert said. "It just turns out that Trump happens to move lots of markets."

What's unique and important to understand is that the Indexica analysis is not related to the president's social media activity or any social media reactions. Those often draw lots of attention but their impact on markets is usually short-lived.

"How Trump moves markets in the short term is that the markets react in three seconds and there's no way to predict that, so it's not helpful to pay attention to his tweets," Mr. Selbert explained. "We're paying attention to the broader conversation around Trump, because the news will continue to impact markets for weeks."

An example of how the research applies to investing is found in Indexica's BuzzSentiment metric, which measures the ratio of news related to the president.

While the metric found that most news reports related to Mr. Trump qualify as negative, the data show that a spike in the volume of news reports that are also negative toward the president is a dependable predictor of market volatility.

"If you model the BuzzSentiment of Trump to a broad index like the S&P 500, we have found when the combination is such that Trump is being spoken about more often in a negative tone, equities become more volatile, which usually implies equities will decline," Mr. Selbert said. "The key is it has to be more than the moving average, because generally he is being spoken about a lot in a negative tone."

The looming global trade war is another example of how the data are being applied.

"Some countries do well under a trade war and some won't, but you have to quantify what Trump says and how the news is responding, and then you look at how it peaks and evolves," Mr. Selbert said. "That gives you a predictive signal of how the markets react."

This kind of alternative data is currently most popular with hedge fund managers but has the potential to migrate into retail-class products like mutual funds and exchange-traded funds.

The general idea is to identify leading indicators of asset movements, which could be anything from political news to weather-related items.

"Trump happens to come up a lot because he really moves markets in a systematic way," Mr. Selbert said. "He incites extreme levels of emotion and news discourse, and he takes up a lot of space, and the discourse around him is so erratic."

Of course, not everyone is sold on the idea that news reports about the president are indicators of market direction.

"While they attempted to quantify the Trump factor, they basically said it's all short-term noise," said Paul Schatz, president of Heritage Capital.

"Markets are like a flowing river," Mr. Schatz said. "They can be temporarily diverted or held back, but in the end, they will find their own levels and end up wherever they were going in the first place."

Selling because of the trade war turbulence could cost you a lot of money over the long term
Author: Fred Imbert
Date: May 16, 2019
Publication: CNBC
Link to Article

  • Investors who tried to time the market and missed the 10 best days between 2003 and 2018 posted about half the return of those who remained fully invested, according to data from Putnam Investments.

  • Volatility spiked earlier this month as the U.S. and China hiked tariffs on billions of dollars worth of their goods. This knocked the S&P 500 from a record high.

  • But experts see this as a long-term buying opportunity as fundamentals remain positive and a trade deal is still expected.
The volatility in the stock market has recently picked up amid an escalating trade war between the U.S. and China, but regular investors with a long-term horizon are better off just riding out the tough times, even when they get pretty scary, history shows.

People who tried to time the market and therefore missed the 10 best days for the S&P 500 between 2003 and 2018 posted about half the return of those who remained fully invested, according to data from Putnam Investments. Those who missed the 20 best days saw their returns slashed by two-thirds compared with investors who stayed in.

Volatility spiked earlier this month as the U.S. and China hiked tariffs on billions of dollars worth of their goods. This knocked the S&P 500 from a record high. But many pros see this as a long-term buying opportunity as fundamentals remain positive and a trade deal is still expected.

"When you put it all together, this is a healthy time to come into the market for the long term," said Thorne Perkin, president of Papamarkou Wellner Asset Management. "We always look at these pullbacks as buying opportunities for the long term."

U.S. economic growth surged to start 2019. First-quarter GDP grew at a 3.2% annualized pace, marking the best economic start to a year since 2015.

Employers also keep hiring at a strong pace. Last month, 263,000 jobs were added to the economy while the U.S. unemployment rate fell to its lowest level since 1969. Job gains have averaged 205,000 per month in 2019.

"The fundamental backdrop is still fairly solid. The big economic - GDP, nonfarm payrolls - they keep exceeding expectations. That does not happen at the bull market's end," said Paul Schatz, president of Heritage Capital. "The underpinnings of the market are too strong for a bear market to begin."

To top it off, the Federal Reserve slashed its rate hike forecast for 2019 to zero from four as inflation remains below the central bank's 2% target.

The pivot, which came after the Fed raised rates four times in 2018, has also increased the possibility of a rate cut. Market expectations for a rate reduction between now and the start of next year are at 80%, according to the CME Group's FedWatch tool.

The strong economic data and the Fed's shift coincided with corporate earnings growth that has topped analyst expectations. Corporate earnings are up more than 1% for the first quarter. Analyst polled by FactSet expected corporate profits to have fallen by 4.2% to start off 2019.

"Year to date, there have been three things driving the market: perceived progress on trade, stabilization of the interest-rate environment and better-than-expected earnings. In the short term, the volatility is coming from the trade piece," said Craig Birk, chief investment officer of Personal Capital. "The short term is really unpredictable. Long term, a lot of the things that helped drive this rally are still in place."

The recent volatility upswing started after President Donald Trump threatened to hike tariffs on $200 billion worth of Chinese goods. Since then, the S&P 500 has dropped more than 3%. Trump later followed through on his threat and China retaliated by raising levies on $60 billion worth of U.S. products.


Higher tariffs led to increasing fears that corporate earnings growth could slow down, thus hurting the global economy.

But while tensions have flared up, strategists still expect the two sides to strike a trade deal eventually. Jan Hatzius, chief economist at Goldman Sachs, wrote in a note that he expects the two sides to reach a deal by the end of June. Trump and Chinese President Xi Jinping are expected to meet at the G-20 summit next month. Bo Zhuang, chief China economist at TS Lombard, noted "the fundamentals call for [a] deal."

"With China, it's long overdue that we keep them in check. They steal intellectual property, they do not provide fair access to markets, they don't play generally by the rules," said Perkin of Papamarkou Wellner Asset Management. "But to me, trade wars are bad. No one really wins in this scenario, but it certainly hurts China more."

Why buying Lyft or Uber stock with your mom's money isn't a good idea
With: Brian Sozzi
Date: May 7 2019
Publication: Yahoo! Finance
Link to Article

The losses are just too staggering at buzzy ride-sharing IPOs Lyft and Uber to confidently invest your money, says one market veteran.

"I wouldn't buy [Uber or Lyft] with your money," opined Paul Schatz, president and chief investment officer of Heritage Capital, on Yahoo Finance's The First Trade on Tuesday. Schatz said he prefers to wait several months on a red-hot IPO before considering to get into the stock. "Most hot IPOs see that initial burst of emotion or momentum fade out. I like to wait at least two to four months."

When it comes to both Lyft and Uber, Schatz probably has a point.

Lyft's bottom line is nothing to write home about, a factor many on Wall Street (who remain absurdly bullish on Lyft) have seemed to forget. While Lyft saw sales more than double to $2.2 billion in 2018, it lost about $911 million.

The company is widely expected to deliver another staggering loss when it reports first quarter earnings Tuesday after the close of trading. It's also likely Lyft reports continued slowing in key operating metrics such as bookings, active riders and the amount spent per active rider.

Many on Wall Street - despite the barrage of Buy ratings on the stock - don't expect Lyft to earn a profit until 2022, at the earliest.

Subsequently, Lyft's stock has reflected concerns about its losses. At $60.83, Lyft's stock remains well below its first trade on its late March IPO day of $88.60. The stock is also trading below the $72 a share it was priced at on the roadshow.

Uber's financial standing is in worse shape than Lyft's as it eyes its debut on the New York Stock Exchange later this week. Schatz believes Uber and their bankers have learned a lesson from Lyft so the "price will be more reasonable and I don't think you'll see an enormous wave of selling out of the gate."

"I think they run a better company and they got their hands in many more pods than Lyft does," he added.

The owner of Uber Eats and its eponymous ride-hailing service saw its sales spike 43% last year to $11.3 billion. But, the company lost $3 billion on top of a $4 billion loss in 2017. Overall growth continued to slow in most areas of Uber's business, too.

Uber's cash flow from operations the past three years was an outflow of $5.8 billion.

The longest bull market in history can't shake the skeptics
Author: Jeff Benjamin
Date: May 3, 2019
Publication: Investment News
Link to Article

Investors abandon equity mutual funds as the S&P 500 logs a 16% gain

With the S&P 500 Index up more than 16% from the start of the year, the current bull market is officially the longest on record. But the latest mutual fund flow data suggest retail investors might be getting tired of the run.

This year through April, global equity mutual funds have experienced more than $134 billion worth of net outflows, including more than $56 billion from U.S. mutual funds, according to the Investment Company Institute.

"This continues to be the single most hated and disavowed market of all time," said Paul Schatz, president of Heritage Capital.

"There are an overwhelming number of things to be worried about, so that has the average person pulling money out of the market," Mr. Schatz said. "But the thing is, the things people are worried about are not well-founded, and the market just doesn't care."

At least part of the pullback by retail investors can be attributed to the stock market's sudden decline of 13% during the fourth quarter, said Todd Rosenbluth, director of mutual fund and ETF research at CFRA.

"Investors that got nervous in the fourth quarter and retreated have missed out," he said. "Investors can be very bad at timing, but it is very hard to time the market."

From the March 9, 2009, low through Thursday, the S&P has produced a compound annualized return, including dividends, of nearly 18%.

"Even Warren Buffett isn't getting returns like that," said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. "You won't get that sitting in CDs."

Mr. Silverblatt believes retail investors should be getting on board the ride being provided by strong economic fundamentals and increasing corporate activity.

"The economy is still doing well, housing is doing well, and interest rates are still at historic lows, which means mortgages will stay low and corporations have easy access to borrowing," he said.

The corporate influence on the markets, Mr. Silverblatt said, is showing up as record-level capital expenditures, stock buybacks and dividends.

"Companies have more money because their taxes are lower," he said. "And, you could argue about the ways corporations are spending their money, but they are spending it, and that is driving the market higher."

While some see the corporate activity as an example of the smart money moving against the grain of retail investors, the corporate spending practices that are driving the market higher could also be viewed as a bearish indicator.

"If a corporation has run out of ideas [on which to spend money] as far as new products or new factories, then that may be a sign of bad times to come," said Kashif Ahmed, president of American Private Wealth.

"I think there is more under the surface," Mr. Ahmed said. "With many politicians, especially those on the left aspiring to move into the Oval Office, coming out with what I consider anti-capitalism or anti-free-market policy proposals like limiting buybacks, corporations may simply be trying to get ahead of any of these potential policy proposals becoming reality."

Mr. Schatz of Heritage Capital also thinks that politics is playing a role in market activity.

"Since the 2016 presidential election, people have been looking for reasons not to be invested, and that's the exact opposite of what a successful investor does," he said. "A successful investor looks for a reason to be invested because the market is positive 70% of the time."

9 popular companies that paid $0 in taxes for 2018
With: Aarthi Swaminathan
Date: Apr 15, 2019
Publication: Yahoo! Finance
Link to Article

A new report reveals that some American companies didn't just pay no taxes last year - they paid negative taxes.

The report by D.C.-based think tank Institute on Taxation and Economic Policy (ITEP) looked at how Fortune 500 companies have been affected by U.S. President Donald Trump's 2017 Tax Cuts and Jobs Act (TCJA) and found that 60 of America's biggest corporations paid $0 in taxes this year.

In other words, instead of having to pay the standard 21% corporate tax rate (which is down from 35% after the new tax law), these companies collectively enjoyed a roughly -5% average effective tax rate from $4.3 billion in rebates.

Notable consumer names on the list include Gannett (GCI), IBM (IBM), Activision Blizzard (ATVI), JetBlue Airways (JBLU), Deere (DE), Delta Air Lines (DAL), Whirlpool (WHR) and Netflix (NFLX). One company that got a lot attention, Amazon (AMZN), brought in the most profit at $11 billion in 2018 and paid an effective tax rate of -1%.

Here's the top of the list, ranked by effective tax rate:

The 60 companies ranked by their effective tax rate (Source: ITEP analysis of SEC filings).

Gannett biggest beneficiary of relative tax rates

Overall in 2018, corporations paid just 7% of their profits as federal taxes, according to data provided to Yahoo Finance by research firm Oxford Economics. That's the lowest effective tax rate since at least 1947.

The top beneficiary - in terms of effective tax rate - was media company Gannett. While it only earned $7 million in income in 2018, it also earned tax credits of $11 million, netting a -164% effective tax rate.

The company, which is in the process of evaluating a hostile bid from hedge fund Alden Global Capital, consists of more than 100 daily newspapers, from USA Today to the Detroit Free Press.

Gannett has been granted nearly $19.9 million in state and local tax subsidies over the years - with more than half coming from New York state - according to D.C.-based nonprofit Good Jobs First, which tracks public subsidies to companies.


Computing giant IBM ranked second with an effective tax rate of -68%. It was followed by Activision Blizzard, infrastructure company AECOM Technology (ACM), and technology company Pitney Bowes (PBI).

IBM has secured a number of subsidies over the years from state and local governments that ring to the tune of $1.4 billion.

The company also has in its pocket federal loans, loan guarantees and bailout assistance at around $5.4 billion. Again, New York gave IBM the most money over the years.

The company came under fire in 2014 after it was reported that it had parked some of its earnings in low-tax countries to boost profits.

After routing almost all its sales in Europe, Middle East, Africa, Asia and some of the Americas through its Netherlands unit, it gradually reduced its tax rate over 20 years - at the same time pretax income quadrupled.

IBM wasn't the only one playing this game - which at the time was technically legal. Big blue-chips like Apple, Pfizer and Microsoft also stashed trillions offshore to pay higher corporate taxes domestically.

Energy and airlines

Out of all the companies on ITEP's list, while Duke Energy (DUK) didn't have the lowest effective tax rate, it got the biggest federal income tax rebate of $6.47 billion.

The Charlotte, North Carolina-based utility giant that operates oil and gas utilities in 7 states, on top of owning nuclear power plants and gas transmissions lines was one of the companies that used accelerated depreciation - where it writes off the cost of their capital investments much sooner than the investments actually wear out - to reduce their tax rates.

Duke also enjoyed $129 million in renewable energy production credits in 2018, according to ITEP.

Interestingly, in January Duke also offered its own rebates to customers who chose to install solar panels on their roofs in North Carolina.

Airlines were also featured heavily further down the rankings. While Alaska (ALK) and Delta (DAL) earned federal tax credits of less than 5%, New York-based carrier JetBlue netted -27% in effective tax.

Stock market darlings Amazon and Netflix also made a cameo, having paid no taxes in 2018. This isn't the first year that these tech companies are enjoying tax breaks. In an earlier story, we reported that Amazon had also paid $0 in taxes in 2017 as well.

'Nothing obviously illegal' "Reducing tax through incentives usually results in corporations doing something good with the money either through CAPEX or hiring or comp or buybacks," Heritage Capital President Paul Schatz told Yahoo Finance. "And it's not a one shot deal in one single year. That's a permanent reduction that plays out over a long period which is supposed to result in better growth for the companies and the economy."

Kyle Pomerleau of D.C.-based think tank Tax Foundation told Yahoo Finance that going after incentives - something Senator Elizabeth Warren is proposing - wouldn't necessarily help increase tax revenue, pointing out that there was a nuance in ITEP's understanding that was missing.

Financial profits - the measure used by ITEP - is meant "for investors to understand how well a company is doing in any given year," Pomerleau said, but "it is not the same as taxable profits reported to the IRS."

That means some of these companies getting these rebates sometimes are doing so because they have incurred heavy losses in previous years. Or companies could be utilizing accelerated depreciation - which was introduced as part of the new tax law. And those actions aren't necessarily intended to deceive.

"The fact that these deductions create a wedge between financial and taxable profits is somewhat irrelevant," Pomerleau said.

Consequently, according to Pomerleau, reducing incentives in a way Warren proposed wasn't a fantastic idea.

"In fact, I actually think raising taxes on the rich is more efficient than eliminating expensing for companies," he said.

ITEP asserted that while "there is, to be clear, nothing obviously illegal about the vague language these companies use to describe their tax provisions... lawmakers interested in enacting true tax reform should critically assess the costs of each of existing tax break - including those discussed in this report - and take steps to ensure that profitable corporations pay their fair share of U.S. taxes."

Schatz also admitted that out of all the subsidies, perhaps it was time for the U.S. to stop coddling one industry:

"The energy industry is doing just fine as are those corporate behemoths in farming and it's about time we remove those sector specific tax breaks," Schatz said. "We should stop picking and choosing winners."

Amazon Employees are Listening to Conversations of Users Through Alexa: RPT
With: Julie Hyman, Adam Shapiro, Sibile Marcellus & Andy Serwer
Date: Apr, 11 2019
Publication: Yahoo! Finance
Link to Article

Alexa, Are You Recording Me? According to a Bloomberg report, Amazon employees are listening to conversations of users through Alexa. Yahoo Finance's Adam Shapiro, Julie Hyman, Andy Serwer, and Sibile Marcellus join Heritage Capital President Paul Schatz to discuss.

Amazon vs. Walmart: Retail competitors call each other out
With: Julie Hyman & Adam Shapiro
Date: Apr, 11 2019
Publication: Yahoo! Finance
Link to Article

Yahoo Finance's Jared Blikre reports on the 2018 Amazon Letter to Shareholders released by CEO Jeff Bezos. YF's Kristin Myers also joins Julie Hyman, Adam Shapiro, and Heritage Capital President Paul Schatz to discuss Amazon and Walmart calling each other out for worker pay and tax returns.

EU extends Brexit Deadline to Halloween
With: Julie Hyman & Adam Shapiro
Date: Apr, 11 2019
Publication: Yahoo! Finance
Link to Article

Yahoo Finance's Oscar Williams-Grut reports to about the EU's vote to extend the Brexit deadline. Heritage Capital President Paul Schatz joins the panel to further discuss with Yahoo Finance's Adam Shapiro, Julie Hyman, and Andy Serwer.

EU extends Brexit Deadline to Halloween
With: Julie Hyman & Adam Shapiro
Date: Apr, 11 2019
Publication: Yahoo! Finance
Link to Article

Yahoo Finance's Oscar Williams-Grut reports to about the EU's vote to extend the Brexit deadline. Heritage Capital President Paul Schatz joins the panel to further discuss with Yahoo Finance's Adam Shapiro, Julie Hyman, and Andy Serwer.

Uber hopes for valuation of $90-$100 billion
With: Julie Hyman & Adam Shapiro
Date: Apr, 11 2019
Publication: Yahoo! Finance
Link to Article

Managing Director of Equity Research at Wedbush Securities Dan Ives explains what's in store for Uber as it aims for a valuation lower than analyst expectations. Heritage Capital President Paul Schatz joins the panel to discuss with Yahoo Finance's Adam Shapiro, Julie Hyman, and Andy Serwer.

Uber seeks IPO valuation of $100 billion
With: Adam Shapiro & Julie Hyman
Date: Apr, 11 2019
Publication: Yahoo! Finance
Link to Article

Heritage Capital President Paul Schatz and Ironsides Macroeconomics Managing Partner Barry Knapp join Yahoo Finance's Julie Hyman and Adam Shapiro to discuss Uber's IPO valuation.

Disney Investor Day Preview
With: Adam Shapiro & Julie Hyman
Date: Apr, 11 2019
Publication: Yahoo! Finance
Link to Article

Yahoo Finance's JP Mangalindan gives Adam Shapiro, Julie Hyman, Ironsides Macroeconomics Managing Partner Barry Knapp and Heritage Capital President Paul Schatz a preview of what to expect for Disney Investor Day.

China Offers to Open Its Cloud-Computing Sector: RPT
With: Adam Shapiro & Julie Hyman
Date: Apr, 11 2019
Publication: Yahoo! Finance
Link to Article

Yahoo Finance's Adam Shapiro, Julie Hyman, and Andy Serwer join Heritage Capital President Paul Schatz to discuss tech and the trade war.

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