Monday, August 14, 2017

It Gets No Better Than This!

From the Desk of Joe Rollins

Apparently, everyone is too busy to sit and read everything in the news these days so the format seems to have shifted to a more condensed, simplified version. Never wanting to be the square peg in a round hole, I too will adjust the layout of this blog and give you my top 10 reasons to invest. The first half of 2017 has been a great investment period, and those sitting around in cash must be regretting their investment choices. Before I move on to a much more interesting subject, I need to cover the first half of 2017 investment results.

The month of July was an excellent month, just as all of 2017 has been. During the month of July, the Standard and Poor’s index of 500 stocks was up a cool 2.1%. For all of 2017, it is up 11.6% and for the one-year period ended July 31, 2017 it is up 16%. The Dow Jones Industrial Average was up 2.7% for the month of July, 12.3% for the year and 21.8% for the one-year period ended July 31, 2017. The NASDAQ Composite was the best performer of the major indexes up 3.4% during July, 18.7% for the year 2017 and 24.4% for the one-year period ended July 31, 2017. All three major indexes have been significantly higher for the year 2017 and even higher for the one-year period then ended. Just for purposes of comparison, the Barclays Aggregate Bond Index was up 0.5% for the month of July, up 2.6% for 2017 so far, but down 0.7% for the one-year period ended July 31, 2017. As you can see, all of the major stock indexes were up double digits for the one-year period ended in July, while the bond index was down for the one-year period then ended. As I have been pointing out in these posts over the last few years, bond investing is currently counter intuitively more dangerous than investing in the stock market.

Look how fast they grow!

Ava (age 2)

Ava (age 6) and CiCi

Needless to say, the profitability of Wall Street has been staggering over the last few years. However, I did run across a quote that I found quite amusing. It seems that the cash held by the largest corporations in America today exceeds $2.2 trillion. One company, Apple, owns a staggering $261.5 billion in cash. Just to put that amount into perspective – that is more than the market value of 490 companies in the large-cap S&P 500. Let me try and explain it in layman’s terms so you can appreciate these amounts. If you spend $1 million of Apple’s money each and every day of your life, it would take you 716 years to go through this pile of cash. Oh, and by the way, that is assuming that your cash is earning zero going forward.

And now, my ten most important reasons why you should be invested are as follows:

1. Corporate earnings have been nothing short of spectacular. It appears that when this quarter is finished earnings will be up double digits over a similar period prior-year. This is coupled with a first quarter gain that also saw a double-digit increase. You very rarely see corporate earnings growing this rapidly with such a large base of corporations reporting. However, if there is one important thing that is controlling the upward projecting of the stock market, it is that corporate earnings continue to outperform.

2. Inflation, year over year, is virtually flat or gaining only a small amount. While this may not affect you individually, it is extraordinarily important from a monetary standpoint. With no inflation and a very strong economy, the Federal Reserve has no reason to increase interest rates any time soon. If we were in a hyperinflation mode, you would see the Federal Reserve increase interest rates to slow down the growth of the economy. We are clearly in a Goldilocks environment when it comes to inflation. Not too strong, not too weak – just right. At the current time, with inflation barely nudging up, I rather suspect that we will see only one and maybe no interest rate increases for the rest of 2017 and remain very low.

3. Compared to last year, the dollar has been falling in value for most of the year. When the dollar is falling, that means that U.S. corporations compete more favorably overseas, and therefore they have the opportunity to make more profits. It is believed now that of the Standard and Poor’s 500 Index of stocks, almost 50% of their sales are outside of the United States. With the dollar down, these companies can now compete with local manufacturers and is one of the principal reasons why corporate profits are up so significantly in 2017.

4. Congress is totally dysfunctional and that is a good thing! It has been proven by numerous surveys that the stock market does best when Congress just leaves it alone. The fact that Congress cannot get anything approved is very much a positive thing for the stock market. Some of the best years ever enjoyed by stock investing were during the President Clinton years. With a Democratic White House and a Republican Congress nothing got accomplished during that time. Now we have a similar Congress that cannot even approve a day off, and for those of us who do the investing, that is as good as it gets.

5. During 2016, the U.S. economy was strengthening as the year progressed, but the rest of the world was lagging far behind. And now, in 2017, there is a big change with Europe’s economy strengthening. For the first time since the 2008 financial crisis, Europe is growing again. As I pointed out in my last blog, I personally witnessed the strong economy in Europe with money being thrown around by consumers everywhere and for the first time in a long time, growth prospects in Europe is outstanding. Also, we are seeing a rebound in Japan and virtually all of Asia. We all know China has been productive for a long time, but now we are seeing both India and Southeast Asia growing by leaps and bounds. While the U.S. market is almost fully valued, there are many gains to be realized in Europe and Asia where stocks are cheaper, the economy is growing and the prospects for profits have rarely been higher. We invest where profits are found.

6. Interest rates continue to be extraordinarily low. We are still talking about 30-year mortgages on homes at less than 4%. As pointed out in many of these blogs that I write, interest rates have never been this low for so long. I do not anticipate that we will see a major downturn in the housing market until interest rates turn around and go in the other direction. It looks like that will be years away instead of months. Therefore, my projection is for all of 2017 we will probably only see one quarter point increase and probably only two rate increases for 2018. With such low interest rates, cash is paying virtually zero to income investors. Therefore, given the very low rate of interest earned by cash and bonds, seemingly to me, stocks are the only place to invest.

7. The economy is extraordinarily strong and is only getting stronger as we move through this year. The unemployment report was recently announced at 4.3% - this is the best rate in over a decade. Every time one person gets a job, they support many people around them. Not only their families, but also the corner drug store and other places where they spend their money. Every segment of the economy now reports that it is virtually impossible to find qualified workers and that is a really good thing for stock market investing. While the consumer is 70% of the U.S. economy, the more money you put into the pockets of consumers, the more likely they will spend that money. Frankly, it just does not get any better than this financially, to have a growing economy with low inflation, low interest rates and earnings that are going up.

8. We have a current administration that is thankfully killing government regulations with both hands. For years, the economy has been bootstrapped by a congress that defers regulations without thinking of the ramifications they will have on businesses. This president is eliminating regulations and freeing business to operate as it should. There is no question that the more regulations that are dropped off the books, the more likely corporate profits will continue to grow. This is a win-win for all Americans. Maybe I should tweet it!

9. Regardless of what you hear on television, read in the newspaper, or what you actually believe, tax rates are going down. This is not a policy that is wanted only by Republicans, but by all members of Congress. Everyone wants to cut tax rates for both corporations and individuals. It most assuredly is going to happen this year in 2017. The economic effects of these tax cuts will be enormous. Corporate profits will increase dramatically and the consumer will realize improved cash flow, giving them more buying power that is likely to be turned into commerce. I can hardly put into words how important these tax decreases will become. The stock market has every reason to stay up at the current time, but throw all the good news listed above on top of that and an income tax decrease and you will see enormous profit growth.

10. It defies imagination that more people are not talking about the repatriation of foreign dollars to the U.S. as it could single handedly change the American economy. It is also hard to believe that for the last decade Congress has completely ignored this potential source of revenue. If it does happen, which I believe it will, Congress will pass a repatriation tax of 10% rather than the current 35%. It is believed by many that there is at least $1 trillion to $3 trillion in overseas accounts owned by American companies. If they get the opportunity to repatriate that money back to the United States at a tax rate of 10%, there will be enormous good created by these funds. It is hard to believe how little congress has understood about this situation in prior years. The Democrats wouldn’t approve such a repatriation tax because according to them, American companies would only use that money to pay corporate bonuses and/or dividends to their shareholders. How na├»ve are they to not realize that both of those items create substantial income tax to the U.S. Treasury? Take it one step further and assume that 100% of the repatriated tax would go directly to infrastructure building in America. Just envision how many people would be put to work at really good, high paying jobs, if say $2 trillion came back at 10% and we had $200 billion of roads and bridges to build. If you then couple those jobs with the private sector providing much of the capital over the next decade you could have infrastructure spending of close to $1.5 trillion. Meaningful money for the economy and it is coming.

There you have it, my ten reasons why you need to be invested. Frankly, I could have written more. Nothing earth shattering and essentially the same facts that I have been pointing out over the last two years. With cash earning virtually zero and bonds appearing to be in a lost position, your best choice for investing is the stock market. I do not anticipate any change in that forecast for the next 12 months or so.

Once again, we invite you to visit with us. Due to the slow summer months, we have plenty of time to sit down with you and discuss the stock market, investing or any other subject you would like. Please call our offices and set up a convenient time.

As always, the foregoing includes my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.

Best Regards,
Joe Rollins

Tuesday, July 11, 2017

Fake News - Not Practiced Here.

From the Desk of Joe Rollins

I am a great admirer of Peter Lynch, the famous mutual fund investor. He has written several books on investing in the stock market, but the one that made the most impression on me pointed out that often times investment ideas, concepts, and/or economic realities seen every day are overlooked or ignored. I have found that to be true over and over again. So many people are influenced by the news (or so-called “fake news”) and pay no attention to the contradictory evidence around them. The economic aspects of the world are played out on the streets and within shops and construction companies, and should not be ignored.

I recently had the pleasure of visiting London, Paris and Edinburgh and have some thoughts I would like to share with you. So much can be learned about the world’s economic status by visiting some of the greatest cities in the world. I will share those reflections with you as well as my observations regarding economic reality in those countries.

I also want to bring you up to date on the unbelievably good economic reality we are experiencing here in the United States. All of the economic tea leaves are pointing in a positive direction. Of course, there are significant geopolitical events, but you cannot invest around “what might be”. You must invest based upon what you are looking at currently. It is important that you can differentiate between the fake news as reported on many internet services and national broadcasts, and the real economic evidence that is all around us.

First, I need to report on the month of June, which was basically a flat month. However, the overall six-month period ended June 30, 2017 was quite impressive. We have enjoyed a massive move up in the financial markets since the election of the new President, and all of the major market indexes were very favorable over this time period.

The Standard and Poor’s Index of 500 stocks was up 0.6% for the month of June and has enjoyed a 9.3% year-to-date performance and a one-year performance of 17.9%. Interestingly, the index was the lowest performing index over the major ones for the one-year period then ended. The Dow Jones industrial average was up 1.7% for the month of June and is up 9.3% for the year-to-date in 2017. It has also enjoyed a quite handsome 22.1% increase for the one-year period ended June 30th. The NASDAQ Composite was actually down for the month of June 0.9% but it is the best performing index up 14.7% year-to-date in 2017 and up 28.3% for the one-year period then ended. The top performer in the month of June was the small-cap Russell 2000 which was up 3.5% for the month of June, but has had a disappointing year in 2017 up only 5% for the year but up a very handsome 24.6% for the one-year period ended June 30th. The Barclays aggregate bond index was negative for the month of June, up 2.2% for the year-to-date, but negative for the one-year period ended June 30th, a 0.6% loss.




Economic news has turned out to be very good in 2017. On Friday, they announced the June employment numbers and they were quite extraordinary. Nonfarm payroll had expanded by 222,000 in the month of June and the jobless rate was fixed at 4.4%. As we have mentioned often times in these postings, unemployment of 5% or lower would by all standards define full employment. There is also much going on in the interest rate cycle that is affecting fixed income investors. The Federal Reserve has recently expressed their concern about a stock market that continues to go higher and has reflected that they would like to increase interest rates dramatically as the year goes on. Of course, they counter that with the opinion that if inflation does not increase and the job market stays reasonable that interest rate increases could be delayed longer than this year. It is very clear to me that the Federal Reserve has a high desire to increase interest rates and is likely to do so by the end of this year as well as a couple of times during 2018. However, even at this level, interest rates are still extraordinarily low and it is unlikely that there would be any major effect on the equity markets until interest rates were well above 3%.

However, there is great displacement occurring in the credit markets (bond investing). As an example, this month the benchmark German 10-year bond yielded more than double from its recent lows. It is now an 18-month high at 0.58% as of this past Friday. Please note that although the German 10-year bond has doubled in recent weeks, it still has a yield of only one half of 1%. If those types of yields do not encourage stock market investing, nothing else will. Likewise, in the United States, yields have jumped up dramatically on our 10-year treasury bond, and, as of last Friday, closed at 2.39%. What is important to understand regarding this 10-year treasury is that almost exactly one year ago the treasury was yielding a lackluster 1.37% and in that one-year period has moved up to 2.39%. Despite how much you know about the credit market and bonds in general, interest rates are usually a good indicator of future economic activity. As interest rates increase, a stronger economy is being predicted, so the Federal Reserve tries to slow it down to a more reasonable level. This upward movement of interest rates also tells you that a recession is unlikely.

There has been much in the news lately regarding fake news. Every morning when I get up and read the headlines on Yahoo, I am just blown away. Did you realize that when President Trump has people to the White House, he gets two scoops of ice cream and everyone else receives just one? Really?! Now, that is the type of news that can really move the needle economically. I read almost daily on this website that the number of people in America that would like the President impeached is greater than his approval rating. I am not exactly sure where that survey was compiled, but I am willing to bet that its authenticity is in question. But again, maybe it is these headlines that are so confusing to the investing world which creates the uneasiness that investors feel.

It is much more important to look around you and see the economic reality of what is actually going on as compared to what is reflected. There is nowhere in Atlanta that traffic does not dictate your every movement. Everywhere you look, construction is ongoing, even in downtown Atlanta. This would not be the case if economic activity was down.

I just got back from London and Paris and both of those cities are covered up by tourism. Around Westminster, you can hardly walk the streets due to the number of tourists visiting. In Paris, the line to tour the Eiffel Tower winds around the block. Everywhere you look, tourists control ever restaurant, hotel, museum, and tourist attraction. Despite what you might suspect, the fear of terrorism is not deterring visitors from all over and the tourism industry is continuing to boom. It does not take a rocket scientist to realize that tourism would not be at all time levels if economies around the world were not in strong economic conditions.

President Trump recently criticized Germany’s Chancellor, Angela Merkel, by exclaiming that Germany was not a good trade partner with the United States. Of course, as always, the press widely criticized our current President with the exclamation that Germany was a strong ally of America and any criticism of Angela Merkel was sexist, uninformed or just downright nasty. I am here to tell you that I saw with my own eyes that President Trump was correct. If you drive around Atlanta, you do not have any problem finding an overwhelming supply of international cars. Mercedes, BMW, Volkswagen, and of course the Japanese automobile makers probably sell 50% of all cars actually sold in the U.S. However, in London and Paris, you see zero American cars. There are no Fords, Chevrolets, Buicks, or any type of American cars in London and Paris. Virtually all of the cars are either European made or are from Japanese manufacturers. That is exactly the point that the President was making, which was missed by the general press.

The point is that it is perfectly okay to import cars into the United States, but you must let us export them to Europe. If you are going to restrict our cars coming into your country then we must restrict your cars from coming into our country. It is such a basic concept that I am amazed anyone would have an issue with it. We are not talking about open trade – everyone votes for open trade. What we are talking about is equal trade. If you charge our goods a tariff, we will charge your goods a tariff – and frankly, it is already happening.

Around the world, companies are looking to come to the United States to manufacture since there will be obstacles put in place for countries that do not trade fairly. The fallout of this will clearly be a benefit to American employees as you will see more manufacturing jobs in the United States. The President recently announced plans for exporting liquefied natural gas to Poland. It is hard to fathom that anyone could criticize us exporting natural gas, creating fabulous new jobs in America and providing Europe with a commodity they desperately need at a competitive price. These types of subtle changes in the way business is transacted will greatly enhance America’s economy in the upcoming years.

As for the stock market, it would not surprise me to see flat summer months. We have had an extraordinarily good run in the last six months but a flat summer would certainly not be surprising. However, I feel very strongly that the market will end up higher at the end of the year than it is today. Almost every day I am approached by investors who want to know about the ultimate pullback. First off, there is no economic news anywhere to support a pullback. Yes, there are geopolitical concerns that none of us can forecast and certainly none of us can invest for going forward. However, if the economy is an indicator of the stock market, there is clearly no downdraft in place.

There are so many investors that have missed this run up in stocks who are dying to get reinvested. When you see a 20% return over the last year and you have been sitting in cash for that one-year period, the last thing you want to do is admit that you have missed a major financial opportunity. If the market would pull back 3-5%, it might actually give these people back into the markets and they would jump in and be fully invested. I am sure it sounds strange to hear me say a correction is a good thing, but at the end of the day maybe a small pullback could lead to a larger move forward in the coming months.

As we close the second quarter of 2017, it appears that the earnings are projected to be up roughly 8% on the S&P 500 Index companies. That is after a 15.3% increase year-over-year in the first quarter’s earnings. It was recently announced that the GDP growth for the first quarter was 1.7%. It is difficult to perform an analysis that would not make you believe that the GDP for the second quarter would be closer to 2.5%. And we are not the only ones enjoying prosperity. For the first time in a decade, it appears that Europe is going to have a positive solid GDP growth. Japan is also higher and Asia, as a whole, is on fire. The one thing that will always baffle me about investors is that they focus on relatively minor news to form economic forecasts when it is very simple to focus on the following three questions: Are interest rates still low? Are earnings still good? Is the economy solid? As pointed out above, all three of these major market forecasters are very much positive at the current time.

I could write a whole blog regarding dangers to the U.S. economy. However, none of those dangers are things that we can forecast today. What we can forecast is what the economic cycle is at the current time. Might there be recessions two to three years out? Of course, there might be, but that would give us a long time to react with your investments between now and then. For the current time, the market appears to be stable and moving higher. I always wonder how people who have sat in cash for the last couple of years justify that position. I guess that is the old thought that you can justify your actions with some sort of negative assertion. However, unequivocally they have been mistaken. As always, we invite you to visit with us so we can make sure you are on the right path to meet all of your goals.

As always, the foregoing includes my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.

Best Regards,
Joe Rollins

Friday, June 30, 2017

Happy 4th of July!

In observance of Independence Day, the offices of Rollins Financial and Rollins & Van Lear will be closed on Monday, July 3rd and Tuesday, July 4th. We will re-open for business on Wednesday, July 5th at 8:30 a.m.

If you require immediate assistance on Monday or Tuesday, please contact Joe Rollins at 404.372.2861 or

Please be safe, and enjoy the holiday! 

Best Regards,
Rollins Financial, Inc.

Thursday, June 22, 2017

Georgia Qualified Education Expense Tax Credit

In 2008, the Georgia General Assembly passed the Qualified Education Expense (QEE) Tax Credit bill and it was signed into law by then Governor Perdue. This law provides for the creation of student scholarship organizations (SSOs) to which Georgia individuals and corporate taxpayers can contribute in exchange for a state income tax credit and potential federal charitable income tax deduction. Please do not confuse this with your child’s tuition if they attend one of the participating schools – taking advantage of this donation tax benefit will not help reduce their tuition. What this does mean is that you can potentially offset your Georgia tax liability dollar for dollar for making a charitable contribution to a participating school, for which you will also receive a federal charitable donation deduction. That sounds like a win-win-win to most of us. There are some key items to note, discussed below, but overall, this program is increasingly popular for a reason.

To get started, you must submit a tax credit application to the qualified Georgia SSO of your choice. And the time to do that is now. Two of the more popular SSOs, The Georgia Goal Scholarship Program, and Grace Scholars began and will begin accepting applications on June 1 and July 1, respectively. You can apply anytime from the SSO’s opening day through December, 2017.

Collectively, all applications received during 2017 are then submitted by the SSO to the Department of Revenue (DOR) on January 1, 2018 at which point the DOR will dole out the tax credits. For 2017, there were $58 million dollars in credits that were used up on January 1st! So, it is imperative that you get your application in to your SSO before the end of the year. It used to be a first-come, first-served program, but in order to equalize the credit distribution, they consider all applications turned in on January 1st together. This means that you most likely will not be approved for your full contribution, but you should be approved for a portion of it.

By the end of next January, you should find out your approved amount and then you must make your payment within 60 days to validate your contribution. This allows you to take your charitable donation and Georgia credit for the 2018 tax year when you file your returns in 2019. Seems like the deduction and credit is a long way away from your submitting your application today but this program has been so popular, it is necessary to begin the process this far out. If you went through the process last year, or this year, then you most likely just utilized your 2016 credit and you will get to utilize your 2017 credit when you file your returns in early 2018 – around the same time you are making your 2018 donation.

If you are new to this game, or even if you are not and just need a refresher, there are some things to note:

  1. There are limitations on the amount that you can take as a tax credit. These are the limitations:
    • Single individual or head of household – up to $1,000
    • Married couple filing a joint return – up to $2,500
    • Married couple filing a separate return – up to $1,250
    • S corporation shareholder, LLC member, or partnership partner – up to $10,000
    • C corporation or Trust – up to 75% of annual Georgia income tax liability
    And like we mentioned above, these are the limits for which you can apply. Given the popularity of the program, you will likely only be approved for a portion of your application amounts. But something is better than nothing.
  2. You can specify which school you want to receive your donation from an approved list. The SSOs maintain a list of qualified schools from which you can choose. And the school may be able to tell you if they are participating and if so which organization to use.
  3. Keep in mind, that you are applying for an amount to offset your Georgia tax liability. If your contribution amount exceeds your Georgia income taxes, you can carry your credits over for up to 5 years.
  4. You are entitled to a federal charitable contribution for your donation. And for anyone that typically pays alternative minimum tax (AMT), charitable donations are one of the only itemized deductions that are fully allowable under the AMT calculation. You must adjust your Georgia charitable deductions so that you are not double dipping, but hey, you are getting a Georgia tax credit which is even better.
  5. If you pay Georgia estimated taxes or have Georgia withholding, you can most likely adjust those amounts to reflect any approved tax credit amount to cover the contribution cost.
Those are the basic details in a nutshell. There are definitely more complex issues that we would be happy to review with you on an individual basis. For example, if you are an owner of a pass-through entity and want to make sure that you can apply for the full $10,000, let us know. And by the way, if both spouses are members of pass-through entities generating substantial income, you can potentially apply for a $20,000 credit.

In our opinion, this is a great way to check the box for a charitable donation to assist with school scholarships while offsetting your potential Georgia income taxes. Please do not hesitate to contact us with additional questions or if this is something that could be beneficial for you. We look forward to hearing from you.

Best Regards,
Danielle Van Lear

Tuesday, June 6, 2017

Sell in May and Go Away - but where are you going to go?

From the Desk of Joe Rollins

Josh and Ava

Reid and Caroline,
Children of Robby Schultz, Partner of Rollins Financial,
and Danielle Van Lear, Partner of Rollins & Van Lear.

The saying above has been around since I started reading the Wall Street Journal in the 1970s. The presumption was that the best traders on Wall Street would sell in May and go to their Hampton resorts and sit out on trading for the summer. They would come back after Labor Day and get reinvested going into the end of the year. There were many that argued that the best months in the stock market were always November through May because this was when the active traders on Wall Street were around to cut deals in back rooms and invest in stocks.

Those days are long gone. Now, momentum trading occurs daily. Millions, if not billions, of shares are traded by machines that exploit pricing errors on stocks, and are thankful for a gain of a cent or two. In fact, the vast majority of all shares traded on all major exchanges are done by momentum traders, not human traders. I do not say that with criticism of these investors as I have studied and read books on the subject, and I can find no real harm that they cause. In fact, they even may provide a service. They move markets and stocks when there isn’t enough volume to do so. One thing is crystal clear. The old days of stock traders cutting deals in the back room to exploit the market for their own benefit and against small investors like you are as dead as the old proverbial buggy whip. That is a very good thing.

Once again, I have to report that the month of May was an extraordinarily good month for investing. The Standard and Poor’s Index of 500 stocks was up 1.4% for the month of May and up 8.7% for the five months ended May 2017. It is also up 17% for the one year period ended May 31, 2017. The NASDAQ Composite was up a banner 2.6% for May and is up 15.7% year-to-date. For the one year period, it is up a sterling 26.7%. The Dow Jones Industrial Average was up a meager 0.7% for the month of May, 7.5% year-to date and up a very strong 21.2% for the one year period then ended. Just for purposes of comparison, the Barclay’s Aggregate Bond Index was up 0.7% for the month of May, 2.2% for the year-to-date and 1.4% for the one year period ended May 31, 2017.

To answer the title of this blog, I thought I would go through a few asset classes to see if I could solve the age-old question, “If you sold in May, where would you go?” What is interesting now is that the economy is starting to pick up and the anticipation of lower tax rates, capital improvements to our roads and bridges and the expatriation tax are all fueling the market higher, contradicting the so-called “experts” that you see daily on the financial news.

Let us briefly look at the other asset classes:

1. Cash – Over the last several months as bond rates have increased, the earnings that money market cash accounts earn has gone up. About this time last year, cash was earning virtually zero, but now it is up 0.8% annualized and roaring ahead to a 1% annualized yield. Just for comparison, I would point out that the S&P 500 Index made 1.4% for the month of May, nearly twice the current rate of cash on an annualized basis. However, most people that are holding large cash balances are not doing so in money market accounts. They do so in non-income producing checking accounts under the misguided presumption that you need an emergency fund. That may have been true in the days before lines of credit on your house, credit cards and other investment accounts were around to provide a safety blanket. Holding cash in a non-interest-bearing money market account at the current time has no economic benefit.

2. Residential Real Estate – I am always baffled by people who obtain wealth suddenly want to own real estate. It could be for a number of reasons for their wealth such as inheritance, sale of business, life insurance or other new-found wealth. The one thing they almost always purchase is more residential real estate. I never understood why a couple would need a 10,000 square-foot house in the $5 million range. First off, someone would have to clean that house, which would be expensive. Second, the number of people that can actually afford that house is virtually nil. However, that is the first thing that wealth seems to want. It actually goes back as far as Gerald O’Hara’s famous quote to Scarlett in Gone with the Wind, “Why, land is the only thing in the world worth working for, worth fighting for, worth dying for, because it’s the only thing that lasts.”

In any case, residential real estate is currently borderline bubble territory. There is very little available residential real estate to purchase, and what is available to purchase is extraordinarily high-priced. As with every residential real estate boom and bust that I have seen, just as prices reach high levels, contractors flood in to build homes to satisfy this desire. In my 40 years of living in Atlanta, I have seen many residential real estate booms and busts. Almost invariably at these levels, you see the supply of houses increase and the value of houses decrease. The law of supply and demand. I am not suggesting that it would happen overnight, or even in the next few years. But I do know when the price of houses gets so expensive that the average homebuyer cannot afford to purchase, you are at the very top of the market and there is likely to be a downward trend for years to come. So, we are today.

3. Bonds – Every day I talk to clients about investments and bonds. You will find countless textbooks that say you should be invested in bonds based on some hypothetical age – however, I beg to differ. The Federal Reserve has already announced that there will be at least three interest rate increases during 2017. Currently, interest rates continue to be at all-time lows with a current 10-year Treasury note at 2.16%. But we also know that the labor market is outstanding, the economy is growing significantly and that the Federal Reserve is moving interest rates higher. At the current time, the position in bonds is more likely than not to produce a negative or marginal rate of return in the upcoming year, as it has over the last one-year period.

4. Commercial Real Estate – Of all the asset classifications in the real estate arena, commercial (non-residential) real estate probably has the greatest potential. Rents are just now beginning to catch up with the economy and are likely to increase. Since the average investor cannot invest in commercial real estate except through other entities, I will not bother to discuss these in greater detail.

5. REITs, Hedge Funds and Oil Pipeline ETFs – REITs have had an incredible run over the last year, but that has ended. With rising interest rates and the beating that retail shopping centers are currently taking, it is not likely that REITs will have much of a return going forward. Hedge funds, by all standards, have been a tremendous bust. Even though I review the reported results of hedge funds on a daily basis, most do not even come close to the financial returns of the S&P 500. In my opinion, the oil industry is going to be slow-growing for years to come. The advancement of technology in oil has revolutionized the industry, and going forward, the demand for oil will be well below the supply produced by the companies that frack oil in America. There is a great amount being done with Hybrid cars. Increased mileage and no need for oil coupled with the oversupply of oil around the world, I suspect to see oil prices depressed at this level for at least a decade. I am not surprised at all that some of our friends in the Middle East are suffering from an economic meltdown. We knew it was going to happen at some point, but no one expected it would last this long. And now they too are suddenly cutting corners and pinching pennies. It could not have happened to a nicer group of investors.

As for the stock market moving forward, there is excellent potential. As the first quarter comes to an end, earnings for the first quarter on the S&P 500 were 14% higher than the same quarter last year. The much-respected Federal Reserve Bank of Atlanta is now predicting the GDP growth in the second quarter will be 3.4%. Didn’t I just hear on T.V. last week from almost a consensus of democratic congressmen that 3% growth was unattainable?

The unemployment report from last Friday was nothing short of spectacular. With an unemployment rate of 4.3%, almost all of America is now fully employed and when you have employment, you have consumer spending. Basically, the U.S. economy is at full-employment and throughout the U.S., employers are reporting the lack of qualified employees to fill positions. Of course, there are isolated pockets of unemployment, but in the good manufacturing markets, unemployment is down close to 3.5%. Something is going on in manufacturing that no one has forecasted and can only be good for the stock market.

You may remember that many forecasters said that Hillary Clinton was a “slam dunk” to win the election. I might have even said that myself. One of the things that they all agreed upon was that you could not stop illegal immigration in the United States. I guess the news that illegal immigration has slowed to a trickle into this country would be surprising. It is interesting to me that it was not necessary to build a wall, but to simply enforce the laws that currently exist.

The rest of the world is rushing to manufacture in the United States. There is a simple reason that the current administration continues to enforce fair trade rather than open trade. Over the next ten years, we will see an explosion of foreign manufacturers in the United States in order to avoid tariffs, making the manufacturing outside of the United States unprofitable. This is a great thing for the U.S. and for U.S. employment.

Therefore, the three important components of higher stock prices are clearly and unmistakably in place. Interest rates continue to be extraordinarily low and earnings appear to be excellent and getting much better. Most importantly, the economy is strong and getting stronger. Therefore, the trifecta of economic importance of higher earnings is firmly in place, and I expect the market to trend higher going to the end of the year.

Every day I meet with potential investors who state that they do not want to experience another year like 2008. Believe me; I would not want that either. However, if you look back at the economy in 2008, which was experiencing a financial meltdown, as compared to the economy today, how could you even contemplate that the stock market would perform at the same levels? Back then, the economy was fragile and breaking; today, it is strong and soaring. There is zero comparison between 2008 and 2017.

This morning, I heard someone on T.V. exclaim that it would be hard for the market to rise since there is such a high percentage of financial resources allocated to stocks. Actually, the exact opposite is true. In 1998, 60% of adults in the U.S. were invested in the stock market. In 2008, 65% of those adults were invested. Yet today, less than 54% of the U.S. population is invested in stocks. There is an avalanche of money, cash and resources that will come into this market over the next few years. This will create a backstop for any swift decline. While you will certainly see swings up and down as we move forward, I fully anticipate that over the next year markets will be higher than they are today. The one thing I am confident about is that if you have a 20-year period before you actually need the money, the markets will be significantly higher than they are today.

As always, the foregoing includes my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.

Best Regards,
Joe Rollins

Friday, May 26, 2017

Happy Memorial Day!

In observance of Memorial Day, the offices of Rollins Financial and Rollins & Van Lear will be closed on Monday, May 29th. Please note that all major U.S. stock exchanges will also be closed in honor of those who died in service for our country.

Our office will re-open for business on Tuesday, May 30th at 8:30 a.m. If you require immediate assistance on Monday, please do not hesitate to contact our staff via email:

Joe Rollins at
Robby Schultz at
Eddie Wilcox at

Please be safe, and have a great holiday weekend!

Best regards,
Rollins Financial, Inc.