Thursday, September 9, 2021

Sell in May and Go Away… Better Slow Your Roll

From the Desk of Joe Rollins

The title above is one of the most famous sayings on Wall Street.  For the decades that I have been in this business, all I have heard from professional traders is that you sell in May, go to your summer estate, and come back in the fall.  The theory was that in the old days trading stocks from the Hamptons without automation was very difficult and so rather than risk the negative effects of the market, you just sell everything in May and buy back in when you return from holiday.  In this posting, I will show you how big of a mistake that was this year.
  
I also want to cover some items that I find interesting.  At the current time the economy in the U.S. is slowing and that is a very good thing. Many would be surprised by this, so I will attempt to explain.  Also, I want to revisit the September 11, 2001, terrorist attack which was a scary time for all of us in the U.S., and a particularly scary time for stock market investing.  I want to cover that event to illustrate an important point, which is to be fully invested at all times.  I also want to emphasize the most important thing we as advisors can do on behalf of our clients.  And finally, I want to go over why China is having such a difficult time with the newfound wealth that their entrepreneurs are realizing.  The Chinese government hates income inequality, but maybe this time there are just too many millionaires to overcome their fear.  

CiCi dreaming about money

Before I cover these topics, I wanted to give you the score card for the month of August.  Remember, August, by many, is considered to be one of the worst months for investing.  While the evidence indicates that September has historically been the worst performing month and August second, this past month was quite excellent.  The Standard & Poor’s Index of 500 stocks was up 3% during the month of August and its one-year return is up 31.2%.   The NASDAQ Composite was up 4.1% during the month of August and is up 30.5% for the one-year period then-ended.  The Dow Jones Industrial Average was a lagger this month, up only 1.5% and its one-year performance at 26.8%.  

As a comparison, the Bloomberg Barclays Aggregate Bond Index, was down 0.2% for the month of August and for the one-year period it is also down 0.2%.  As you can see, all the major market indexes were up substantially during the one-year period and the bond index was negative.  You do not have to be a “rocket scientist” to figure out that a 10-year treasury today is paying 1.36% and the rate of inflation may be as high as 4% over the next year.  Even if the rate of inflation is half the projected rate, holding bonds will still give you a negative real return over the next one year.  Given that cash earns you exactly zero and the likelihood that bonds will have a negative rate of return over the next one year, investing in stocks may be the only game in town.  

Every day I hear from new investors who have no interest in investing in the market at all-time highs.  When they express this, I ask them exactly what all-time high they are referring to in the year 2021.  Just for the record, through August 31, 2021, we have had 53 all-time highs on the S&P 500 for the year 2021.  I know it is remarkable, but through 

Reid and Caroline ready 
to take on the world

August we have already generated enough all-time highs to rank 5th over the past century in the terms of record highs.  The record continues to stand at 77 in 1995, yet we are at 54 only through August.  There is a good chance that we will exceed the 1995 record closing.  So when you say that you are unwilling to invest because the markets are sitting at all-time highs, you may be disappointed as the markets continue upward. 

You may also be surprised to learn that the S&P 500 was up 3% during the month of August.  This is its 7th consecutive monthly advance during 2021.  Remember we are only eight months into the  investing year, which means only January was negative for this index.  In the history of American finance, this is only the 15th time this has occurred since 1950.  That is quite a remarkable run and coupled with the outstanding investment year we had in the year 2020, you can see the huge gains that investors sitting in cash have forever forfeited.  

Back to my comments on the title of this posting regarding sitting in cash during the slow summer months, 2021 refutes that argument in a huge way.  If you sold in May and did not return until September, you missed out on three full months.  Just look at the performance of the indexes during that fateful 3-month period.  The S&P 500 index for the last three months was up 8%.  The NASDAQ Composite was up 11.1% for the last three months and the Dow Jones Industrial Average was up 2.9%.  As you can see, the last 90 days were quite satisfying.  I know it seems like every day there is a new crisis to report in the national media, but as you can see, stock market performance continues to move higher notwithstanding the negative news everywhere you look.  I recognize that there are many things to worry about, but at the end of the day financial performance affects stock prices more than sensational news.  

As I have pointed out repeatedly, the most important component to stock prices rising are earnings.  Now we have almost the final tally of the S&P 500’s earnings for the 2nd quarter of 2021.  At the current time, we have 91% of the top 500 stocks in the U.S. reporting and a stunning 89% of those have shown year over year earnings growth.  That kind of earnings recovery hasn’t been seen since the end of the financial crisis in the 4th quarter of 2009.  

Reid excited for his first day 
of kindergarten

I do not want to sound simplistic when I say stocks may be the only game in town, but clearly that might be the case.  With market returns for the last year above 30%, I cannot imagine how investors in cash and bonds must feel.  Over the last one-year period, cash has earned virtually zero and bonds were either zero or negative.  So, in stocks you get a 30% gain and in those other assets you have losses.  It doesn’t seem like there are many other players in the investing world other than stocks.  

As I have emphasized to you, the big difference and change in Wall Street over the last few decades is the absolute tsunami of money that flows into the market daily from 401(k) plans.  No longer do the big cats control the flow of money as there is close to $1 billion a day flowing into the markets from small investors’ 401(k) plans.  This money comes in during good times and bad times and continues to stabilize the market at a higher level.  No longer can the hedge funds distort the market in a big way without suffering major risks of the small investor creating losses.  This change in the flow of money is good for all investors and provides very important stability to the U.S. retirement plans for older employees.  This could be nothing but a positive for those investing in the future.  

I referenced earlier one of the most important functions that we, as advisors, can provide to our clients.  In my opinion, that most important attribute is our ability to keep investors invested during difficult times.  I will explain that further in my analysis of the September 11, 2001, sell-off later in this posting.  But over the last couple of years, it has become self-evident.  In March 2020, we received an avalanche of phone calls from investors wanting to get out of the market. Of course, their fear in 2020 was the damage that the COVID pandemic would have on the economy.  As they called with their fear of the upcoming market, we tried to explain as best we could that they did not realize what the economy would do with an infusion of over $3 trillion from the Federal Reserve.  As we now know, the recession lasted only two months in 2020 (March and April) and at the end of the year the S&P 500 had a total return of 18.4%.  

I have several clients who call me on a regular basis panicking that they want to turn their investments into cash for various reasons, many of which are not economic.  I think my most important role is to try and calm their fears and keep them invested.  When you think about it, over the last 19 years, since 2003, the S&P 500 index has only been down two of those years.  If you calculate that, it’s roughly 10.5% odds of losing money in the S&P 500, but 89.5% odds of making money.  Therefore, you do not have to be a Philadelphia lawyer to understand you are always better invested than not invested.  An even more compelling number is that since 1970, the average rate of return for the S&P 500 has been 10.98% over that time.  Once again, history tells us that you are much better invested than trying to time the market.  If you could get rich timing the market, then you would be on the list of the wealthiest Americans.  As of today, there is not one single market-timer who makes that list.  

Caroline before her first day
 of 2nd grade

There is no question that over the summer months the economy has slowed down.  I am here to tell you that that is nothing but good.  The level we were functioning at in the first quarter of 2021, was just not sustainable.  The U.S. economy cannot grow at 6%+ without major disruptions.  We have seen that since the first of 2021, with the shortage of goods in the supply chain and the over-the-top need for employees to satisfy job positions.  There has been displacement in the automobile construction due to a lack of microchips and, of course, the shortage of construction supplies in the building industry.  The fact that the economy is now slowing will give pause to the Federal Reserve’s perceived need to cut bond purchasing and to increase interest rates.  Just as Federal Reserve chairman Jerome Powell indicated, the increases in prices most assuredly would resolve their own issue as the summer wore on.  The fact that the economy is slow now gives the Federal Reserve time to slowly transition into a more stable economy, earning a GDP more in the range of 4% rather than 6%.  

On Friday, the Federal Reserve of Atlanta reduced its estimate for the growth in the 3rd quarter to 3.7% GDP.  Only the previous day, that estimate was 5.3% growth.  Yes, these are huge moves to the downside, but are warranted by the supply chain issues and the shortage of products in the production cycle.  Also, quite frankly, it has a lot to do with summer vacations and a general slowdown in activity during those months. But I think this is getting ready to move to a higher level come the 4th quarter.  

Finally, this week the supplementary unemployment benefits will end and workers that were on long-term unemployment will be faced with either finding a job or doing without.  In addition, across the country schools are starting and childcare, which was such an enormous issue during COVID, will now decline.  At the current time there are roughly 11 million job openings posted and only 8 million unemployed.  At some point those numbers have to become closer.  

Last week the job report for August was a disappointing one at 235,000 new jobs.  But you must realize that this survey is taken in the middle of August and as we all know, August is a major vacation time up until the time school gets back in session.  But there were whirls of good news in this report that the media seemed to ignore.  For the month of August, unemployment dropped from 5.4% in July to 5.2% in August.  When I was studying economics back in the dark ages, the U.S. economy was considered fully employed at 5%.  We are very close to that level.  

In addition, during the financial boom before COVID, unemployment was around 4% and we are quickly reaching that higher level of employment.  There was also great news for wages in the report.  Wages went up 0.6% in a month and have increased 4.3% from a year ago.  When you consider the number of people employed in the U.S. a 4.3% increase in wages will do a lot to create additional commerce where these people have a discretionary income to support their families.  If you were expecting that I would write that the economy had slowed and that was a bad thing, you do not follow the Federal Reserve’s actions very closely.  In respect to Federal Reserve increasing interest rates, “bad news is always good news” and “good news is always bad news”.  This report very clearly will slow down the Federal Reserve’s action to slow the economy since it is slowing with its own momentum and, more likely than not, any interest rate increases will not be until 2023.  Even though the consensus growth of GDP for the year 2021 is at 6.6% growth, it would not surprise me to see that lowered to a more sustainable and more important growth of 4-5%.  

Fresh air isn’t so bad after all…

This year we will observe the 20th year of the terrorist attack in the United States on September 11, 2001.  I watched several features over the last week about September 11th on Netflix and Apple TV that were quite excellent.  If you do not remember the sense of terror we all felt on that day, I recommend you go back and watch these specials to reflect the anxiety and fear we all experienced.  

Many do not remember that the attacks were on a Tuesday around 9:00 am.  The stock market was just getting cranked up when the full impact of the terrorist attack was realized.  In fact, the New York Stock Exchange was within the shadow of the World Trade Center and many feared that the U.S. Stock Exchange would be damaged or destroyed when the two towers fell on that fateful day.  I vividly remember watching the second plane strike the second tower in my office at Colony Square.  Within the hour security guards came to our suite and told us to evacuate the building given the unknown nature of the attacks.  I thought to myself, if they are abandoning a B-rated office building in Atlanta over the attacks in New York City, we must really be in trouble.  I went home like most Americans and watched continuous television for hours before finally going to bed. 

It was a foregone conclusion the next day when the U.S. Stock Exchange could not open due to the damage in the building.  In fact, never in the history of the New York Stock Exchange had it been closed four continuous days, and it looked like this would be the first time this would happen.  We received an enormous avalanche of phone calls expressing outright fear and a desire to liquidate as quickly as possible.  I think we did our best work in convincing our clients that as horrible and as devastating as this attack was it was likely to be short lived.  This was a prime example of my philosophy of staying invested at all times.

On September 10, 2011, the Dow Jones Industrial Average closed at 9,605.51.  After finally opening six days later, the market bottomed on September 21st at 8,235.81 suffering a 15% decline in the 10 days after the attack.  I vividly recall the market swinging at hundreds of points a day during this sell-off.  A 100 point drop today is not as near important as 100 points were during 2001.  However, with the Federal Reserve’s help the market was stable even though it was highly volatile.

Do you realize how long it took for the market to fully recover after this sell off?  Exactly 90 days - after the September 11, 2001 attack, the Dow Jones Industrial Average closed up 9,888.37 for a 1% gain form the day preceding the attack.  If you sold into this sell-off, you clearly would have done a disservice to your investments. What was even better news on March 11th, exactly six months after the terrorist attacks, the market closed at 10,611.24 which was exactly a 10% gain from the day preceding the attacks.  Therefore, in the intervening six months after the worst terrorist attack ever on American soil, the Dow Jones Industrial Average had increased 10% over the levels preceding the attack. 

For Ava, the sky’s the limit!

Having been in this business for nearly five decades, I have seen many selloffs and many recoveries.  If you think about it just for a second, the day after the markets opened after the September 11th attack, the market closed the Dow Jones Industrial Average at 8,235.  Today that same index is 35,369 which means it has gained 368% in the intervening 20 years.  If you had stayed invested during that entire time, your portfolio would have increased almost four times the September 11th value.  

There has been a lot of publicity and questions by U.S. investors as to what is going on in China and their crackdown on some of their most high-profile companies.  Do not believe for a second that China is not a communist economy.  It is absolutely true that the government in China is controlled by the communist party, but their economy is clearly the second most powerful in the world.  What has developed over the last 40 years is an economy in China that is growing exponentially and correspondingly adding millions into the middle class.  Anytime you read statistics about the Chinese economy, you need to think that in the United States we have 330 million people, but China has 1.4 billion people.  Therefore, everything they do would need to be almost four times greater than the United States to be in a comparable basis.  But what has happened to the economy is very much hated by the communist government.  As you know one of the bedrock philosophies of communism is that everybody would be treated equally and there will be no winners or losers in that economic race.  Because of the newfound wealth of the Chinese companies, multibillionaires are being created on a regular basis.

The Chinese government now has decided that they have seen enough prosperity with their entrepreneurs, and they are anxious to get back involved in these businesses so they can ensure their wealth.  They recently shutdown an IPO of Jack Ma for no other good reason other than this IPO would have created too much wealth in one person’s hands.  Interestingly, Jack Ma has not been in the public eye since the Chinese government pulled the plug on this IPO for him.  

Chinese government has been coming out against cryptocurrency in every form or fashion.  They have shut down the miners of cryptocurrency and have closed down any exchange that allows for the trading of it.  The reason for this is very clear. One of the major advantages for those illegally moving money is cryptocurrency does not leave any audible trail.  Therefore, the Chinese government cannot control the movement of cryptocurrency exporting China into the United States, etc.  Rather than try to fight the trend it is easier to outlaw the trade, making it nearly impossible for those wanting to transfer funds out of China and into overseas markets.  

Elizabeth Flores’ three-legged pup
 smiling big for the camera

In recent weeks, the Chinese government has attacked some of the best-known industries in the world located in China.  They have basically shutdown the Uber of China and have placed enormous restrictions on any internet-based company located in China.  As you know, many of the U.S. based internet companies are forbidden by the Chinese government to operate there.  

It is pretty clear to me that the Chinese government is scrambling to regain control of their industries from the American securities markets.  Shortly after the Chinese version of Uber went public, the Chinese government moved in and essentially shut it down since they were forced to remove their app from further use by consumers.  Shortly after the IPO in the United States, the stock dropped close to over 40% and would you be surprised to know, after that drop the Chinese government agreed to invest in that company.  What is clear is that the Chinese government will do whatever necessary to ensure that individuals are not more powerful than the government.

As we enter September, which historically is the worst month of the year, you need to reflect on the fact that we have had seven straight positive months in the S&P 500.  This unprecedented run after the banner investment year of 2020 has left the S&P 500 almost 40% higher from when it began in January 2020.  While I do not expect that the market will move dramatically higher immediately, I do expect that the market will trade higher by the end of this year than it is today.  While it would not be a straight line up, I believe the market will grind on a slow basis with high volatility throughout the rest of the year.  As pointed out above, even with the extraordinary volatility, an investor is always better of being invested than not. 

As always, the above comments are based on my personal research and opinion and certainly no one can forecast the future accurately.  However, the realization that the economy has already turned should be self-evident and those who are sitting on cash should be moved to make appropriate investments. 

On that note, come visit with us and discuss your goals and financial plans. If you are interested in discussing your specific financial situation, please feel free to call or email.

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

Best Regards,
Joe Rollins 

Thursday, September 2, 2021

Happy Labor Day!

In observance of Labor Day, the Rollins Financial office will be closed on Monday, September 6th. Please note that all major U.S. stock exchanges and banks will also be closed due to the Labor Day holiday.


Our offices will reopen for business on Tuesday, September 7th 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 jrollins@rollinsfinancial.com
Robby Schultz at rschultz@rollinsfinancial.com
Eddie Wilcox at ewilcox@rollinsfinancial.com
Danielle Van Lear at dvanlear@rollinsfinancial.com

Please be safe, and have a great holiday weekend!

Best regards,
Rollins Financial

Wednesday, August 11, 2021

Economically, This Is As Good As It Gets!

From the Desk of Joe Rollins

As the above title indicates, economically we could not be in a better place than we are today.  We are seeing a ramp up of the economy that is virtually unprecedented.  We have not enjoyed an increase in GDP as good as we have now since the Ronald Reagan years.  We are seeing the workforce go back to work and earnings of major corporations are quite spectacular.  Things are so good economically that I sit and wonder virtually every day why everyone is in such a bad mood and has such a bad attitude.  

Rather than criticize the media in this posting, I want to just give you hard facts.  I could talk about the ramp up of the economy and all the potential problems in the world, but I really believe that the best story of this economy is in the numbers themselves.  So, in this posting I would like to give you some hard facts about how employment is roaring back and will get better.  

Ava, Age 2,  first day of school in 2013 
and Ava, Age 10, first day of school in 2021
They grow up so fast!

I also want to talk about earnings and give you some specific examples of earnings that have never been higher. I will also discuss how the GDP was anticipated to grow over 9% but has been downgraded for a very unusual and unprecedented reason.  I also want to mention another recognition given to our Firm by the national media.  As you know our walls are covered from recognitions we receive from independent sources, and this month brings another.  Finally, I want to relay a personal story that a client asked me to include.  I normally do not venture into that area, but he thought it was interesting enough that I should share it with everyone.  

Before I get to all of that completely amazing and interesting information, I must cover the very excellent financial results from the month of July.  The Standard & Poor’s Index of 500 stocks was up a very satisfying 2.4% during the month of July. Year-to-date that index is at 18% and the one-year return is 36.4%.  The NASDAQ Composite also returned a positive return in the month of 1.2% and is up year-to-date 14.3%.  The one-year return on that index is 37.6%.  The Dow Jones Industrial Average was also up during July of 1.3%.  For the year it is up 13.3%- and one-year performance of 34.8%.  Just for a basis of comparison, the Bloomberg Barclays Aggregate Bond Index was up 1.1% during July and year-to-date is -0.7%.  The one-year return on the bond index is -0.9%.  Once again, I will point out to you that all of the major market indexes were up an excess of 30% for the one-year returns, while the one year return for the bond index was -0.7%.  

On Friday, the labor department announced that during the period ended in July, that there were 943,000 new jobs added during the month.  In addition, they revised the June numbers to reflect a total of 938,000 new jobs in the month of June.  Therefore, in back-to-back months U.S. employment has increased over 900,000 jobs in each month.  Even though the continuing message from Washington, D.C. is that American workers are hurting and all we can do is continue to subsidize them, that is clearly not supported by the facts.  Just look at the numbers as reported.  

Harper Wilcox , Age 11, first day of school

The unemployment percentage dropped to 5.4%, from last year’s 10.2%, for a total decline of 47%.  But even more important, the number of people unemployed one year ago was 16.3 million, and today only 8.7 million.  The numbers that I look at on an ongoing basis are what are called continuing claims.  These are the people that have exceeded their normal unemployment time but have been allowed to continue to claim for various reasons.  One year ago, 15.9 million Americans were in this classification; today only 2.9 million are, for a fall of 81%.  During virtually any other time, a 5.4% unemployment rate in the United States would be quite satisfactory and very desirable.  For reasons absolutely unclear to me, Washington still finds that number to be excessive, and even though I totally agree with putting everyone back to work that wants to work, I am against artificial governmental stimulus to accomplish that goal.  

I also believe that these unemployment numbers will get better in the very near future.  Finally, the supplementary unemployment benefits will expire on September 6th, and millions of Americans will lose their unemployment benefits, which have been a crutch financially for many.  In addition, schools are now gearing up and starting back and childcare will not be a major concern as it was this time last year.  The unemployment for July clearly emphasized that there are 26 states that no longer provide for these extended benefits and employment was strong in their states.  When the rest of the states fall in line with no extended unemployment benefits, I fully expect to see more jobs added.  As emphasized in so many of my postings, the more Americans that go to work, the more economic benefits to the economy.  These workers support their families and other businesses which create GDP for the economy, and higher income taxes to the government.  These are extraordinarily beneficial economic benefits for just one incremental job created.  

What is the most baffling of the job market today is that new job postings exceeded 10.1 million in June.  It is the highest posting for new jobs every recorded in American finance.  Compare that with the 8.7 million Americans unemployed and you would assume that these unemployed would take one of the job postings and move towards full employment.  Due to all the governmental assistance to these unemployed, they soon will be forced to deal with the economic reality.  Remember during this time, student loans did not have to be paid and you could not be evicted from your house or apartment for failure to pay rent or mortgage so substantial excess cash flow was not needed to sustain normal basic financial needs.  All those government-imposed economic sanctions are ending, thank goodness, and shortly those workers will be forced to return to work.  

Earnings for major American corporations are nothing short of spectacular.  In fact, they are so great that no superlative in the English language can truly exemplify how impressive they truly are.  Based on the corporations and the S&P 500 index, earnings for the second quarter of 2021 were exceeded by a cool 90% of the reporting companies.  That number is almost hard to believe.  And you would think that with the superior earnings in the second quarter, surely we are ready to peak and fall.  However, current projections are that earnings for third quarter of 2021 will be 29.6% higher than in 2020 and the fourth quarter are seeing gains of 21.2%.  To understand how quickly this swing in earnings has come upon us, just look at the analysts’ reports at the start of July.  At that time analysts were projecting that 65.4% of the S&P 500 stocks would exceed their prior year numbers.   

Lucy Wilcox, Age 9, first day of school

So rather than focus on some generic index, I thought I would give you a couple examples of earnings.  I elected to pick companies that we knew well during 2020.  The technology companies were never really impacted that much by COVID and their earnings during 2020 were excellent.  But if you thought 2020 was good, just look at the 2021 numbers.  For the quarter ending June 30th, 2021, Apple had $81 billion in sales and net income of approximately $22 billion.  During the same quarter a year ago, Apple sales were $60 billion and net income was $11 billion.  Please make sure you understand that we are talking billions and not millions.  Therefore, for the year over year analysis, Apple’s sales were up 36% and its net profit was up a cool 93%.  

Apple was not isolated.  Microsoft sales for the quarter ending June 30th, 2021 were $46 billion and in the prior year $38 billion, for an increase of 21%.  Net income for this year was $16 billion, last year $11 billion, for an increase of 47%.  Facebook sales for June 30th were $29 billion and in the prior year they were $18 billion, for a 56% increase.  Net income for Facebook for this year was $10 billion, and for last year it was $5 billion, a 100% increase in earnings.  

The numbers for Google were almost impossible to believe.  Google’s sales for June 30th, 2021, were $62 billion and their net income was approximately $19 billion.  Sales for the prior year were $38 billion and their net profit was $7.4 billion.  Therefore, their sales increased 62% for the one-year period, but unbelievably their net income was up 150%.  

Ava swimming her way 
through the ball pit

I have written over and over in these postings that there are three important components to stock prices - interest rates, earnings, and the economy.  Reflect on what you’ve read thus far.  The economy is absolutely as good as it gets.  Earnings are spectacular by anyone’s definition.  As for the last component, a ten-year treasury is now selling at 1.2%, nearly the lowest percentage ever recorded in American finance.  People ask why I continue to be constructive on the market moving higher and I give them the above numbers.  I am not influenced by financial media or the writings of the so-called “conspiracy editors.”  I rely on hard economic facts and those facts today indicate a higher market.  

I had a client that owned Amazon stock call me the other day and express concern about the negative financial news surrounding Amazon for the quarter ended June 30th.  I first cautioned the client to be careful of the information they get from the media.  In the first place, most of that information you get has substantial “conflicts of interest” behind it.  The people that appear on the financial news are not paid correspondents.  They do it for free to promote their own agenda.  Oftentimes the information presented is tainted with that “conflict of interest” and, therefore, misleading.  Any time you have a question regarding those types of reports, look at the facts and quit listening to the commentary.  

We all know that Amazon had a tremendous year in 2020.  They were the benefactor of the COVID stay-at-home world.  How could they possibly ever improve upon the performance of such a banner year as 2020?   Looking at the figures for the quarter ended June 30th, 2021, Amazon had sales during the quarter of $113 billion.  In the prior year’s quarter, they had excellent sales of $88.9 billion.  Therefore, they increased their sales from the gangbuster 2020 by a cool 28%.  However, more importantly, their net income for the year 2021 was $7.8 billion.  In the prior quarter in 2020, their net income was $5.2 billion.  Simple arithmetic tells you they increased their net income by 48% during the one-year period.  I am not sure exactly which planet those commentators live on, but if you can increase net profits by 48% in one year, that, by far, is a spectacular return.  

Dr. Ketan and Payal Patel and
 family enjoying a Braves game
 
The reason I elected to write this section in this posting was it may be very possible we will never see an earnings quarter as great as we saw this past quarter.  While I fully understand the projections are still higher for the rest of the year, if those projections even prove to be moderately correct and earnings continue to accelerate at these levels, frankly, the market today would be underpriced and not so overpriced as you hear every day from the media.  It is pretty simple. Review the facts and do not listen to the commentary when making a financial judgement.  

In prior postings I expressed the opinion that it is highly likely that the GDP in the United States will exceed 9% for the 2021 year.  I now have to back up from those numbers since there is more evidence regarding the economy.  The current projection on the GDP for the whole year of 2021 is up a sterling 6.8%; still the highest returns on the GDP since the 1980’s.  So, what has led to this drop in projected earnings when the economy continues to be running at a very high and excellent pace?

Strange things have happened coming out of the Covid lockdown.  Corporate America could never have projected that sales were going to ratchet up so quickly that we have created shortages throughout the U.S. economy.  It is very rare to see wholesalers and retailers project their potential sales so poorly.  Suddenly, we have created shortages in many basic building supplies and appliances.  This is not due to a lack of manufacturing; it is just that the demand has so far exceeded the supply that we just cannot catch up.  Just to give you an example, wholesale sales in the June 30th quarter were up almost 28% over the prior quarter last year.  Basically, those numbers come down to a prior year wholesale sales of $461 billion as compared to $588 billion this year.  Just think about that for a second.  That is $100 billion in additional sales and quite frankly we were not geared up to handle such volume.  

35-year clients, Janice and Gary Thompson
 and family in Jackson Hole, Wyoming

We are also having a huge shortage in microchips for many segments of the market.  During the quarter there were multiple times when the car companies could not manufacture since they did not have the appropriate chips.  You saw production lines shut down entirely since there was no sense manufacturing without the appropriate parts. You saw retailers run out of refrigerators, dishwashers, and other basic appliances for your house.  With so many Americans staying home rather than commuting to work, it was a good time to upgrade your home appliances and retailers could not have possibly kept up with that demand.  

Car sales are just unbelievable at the current time.  I recently bought a used car and the salesman told me a story.  He said that a friend of his bought a pickup truck exactly one year ago from the date that I was in the store.  The salesman indicated that the exact same customer drove the pickup truck for one year, brought it back and resold it to the same store for $3,000 more than what he had purchased it for one year ago.  There is this huge shortage of previously owned automobiles in America.  The demand for them is unprecedented and one of the major components of the increase in GDP and inflation has been the upward revision of the prices of used cars.  

New car sales continue to be spectacular.  You would think logically that if new cars are selling well, that those people would be trading in used cars and creating an oversupply of used cars.  If you think logically, you are missing the point.  The reason why used car sales are so great is that people have excess cash and the people buying the used cars are the ones that previously had no car.  So yes, you see trade down from people buying new cars to used cars, but the much bigger demographic today is people buying cars that never had owned one previously.

Did you realize that right now it is very difficult to rent a car from a major rental car company?  I quit trying to rent cars in Tampa, Florida since they just don’t have any to rent.  Virtually all the major rental cars went bankrupt last year during the pandemic.  During those bankruptcy proceedings they were required to liquidate their inventories and now they cannot get the cars back in the rental pools. Not only are rental cars extraordinarily scarce, the prices are absolutely ridiculous.  On our ten-day trip to Montana, the rental car we used cost in excess of $3,000 for the 10 days.  You could have made a substantial payment on a used car for a car we only had in our possession for 10 days.  

Birdie, Blooper and Ava
 catching a Braves game

Therefore, my forecast on the GDP while based on current information would never have contemplated the shortages we have in the economy today.  Given those shortages, GDP will be held up, but continues to be extraordinarily healthy at 6.8%.  Another interesting statistic is that the International Monetary Fund has upgraded the world economy significantly over the last 90 days.  Their projection now is that the world economy will grow at 5.6% during the 2021 year.  Put that in perspective.  An entire world economy was shut down due to the effects of Covid in 2020.  Even with those lingering problems, the projection is that the world economy will operate in 2021 at a level that ranks as one of the best of all time.  

As many of you that read my postings know, our Firm has received numerous recognitions in the national media over the last several years.  I want to make sure that everyone realizes that these are not paid surveys.  In fact, we do not even give them the information, they gain it from published regulatory reports.  We were very fortunate to receive high recognition from CNBC and The Financial Times in prior years.  I have spoken about those before.  Our walls are covered in our office with many of those recognitions we have received. 

This month we received another recognition for which we are proud.  We received the recognition that for the year 2020, we were the 41st fastest growing firm in the United States by Financial Advisor magazine.  Take into perspective that this is a national recognition for a firm located here in Atlanta.  We did not advertise, ask, or pay for this recognition, and to be so honored is quite rewarding.  What was the most important fact to come out of this recognition was that in the year 2020, our net assets under management grew by a stunning 41%.  We were up almost 50% in assets that we manage for clients over the last 18 months.  While these numbers are quite impressive, even I have to admit that none of this would have been possible without our clients and our staff.  We have absorbed the 41% in growth and assets and moving into the 2021 year, we have grown substantially since the first of the year.  We are very thankful and appreciative to all those clients and staff that have made that happen. 

Dakota and Ava at the famous Antler Arch
 in the center of Jackson Hole, Wyoming

I recently told a client a story about my adventures in France which he found amusing and thought I should relay it in one of my postings.  It all begins when Dakota and I elected to take a tour throughout France.  While I have been to Paris many, many times, I have never ventured into the interior part of France or over into the east side where the Alps are located.  The trip started with a few days in Paris and then a bus ride over to Normandy.  If you have never been to Normandy, France believe me it is well worth your trip.  Once you see the beaches where the D-Day battle occurred, you will understand why so many died getting to the cliffs.  The beaches are expansive, and those soldiers were easy targets for the machine guns sitting on top of the hills.  You will never get such a humbling feeling after looking at the beaches and walking though the U.S. cemetery where 11,000 Americans are buried.  Interestingly, the land in which that cemetery sits is not a part of France.  That cemetery is actually American soil on the beach of Normandy.

We traveled down the east cost of France on the Atlantic Ocean to see the castles and the spectacular cathedrals that were built generations ago.  The most interesting part to me was actually traveling though the interior of France.  We stopped at an American grill and you would have thought we were in Indiana.  The fields were covered with corn and other plants and the fields were worked by workers that could have easily been in the Midwest.  From there we went south to the world-famous French Riviera.  Yes, I know the French Riviera is quite a disappointment if you have ever been to the Redneck Riviera on the Gulf Coast of Florida.  

The beaches in Nice, France are famous and legendary throughout the world.  Did you realize that there is no sand on the beaches in Nice but only small pebbles?  I saw more than one person going to the water on these beaches fall as the rocks slid out from under their feet.  Believe me if you had a choice of beaches, the Gulf coast is far superior to the beaches in Nice.  Not that you can truly compare the two, if you move away from the beaches there is nothing in Panama City, Florida that looks anything like Nice, France.

A mother and baby black 
bear roaming Yellowstone

From there we moved north through the Alps and ended in Dijon, France.  Dijon is, of course, famous for the mustards that they ship around the world.  I didn’t realize that mustard was actually made with white wine which maybe explains why I like that form of mustard.  There were other interesting facts to come out of Dijon, France.  First there is no mustard made in Dijon, France; it is made in huge factories in other parts of France.  Also interestingly, the mustard seeds are not grown in France, but are actually grown in Canada.  In order to make mustard in France, they have to import out of Canada.  While the city was the origin of the famous mustard, none of it is actually manufactured in that city any longer.  

What Dijon, France is now known for is the best escargot.  They load this dish down with so much garlic you can walk down the street and smell the garlic in the streets.  However, as you would suspect in any tourist trap, two orders of escargot and a bottle of wine is extraordinarily expensive and not for your average lunch price.  But from that point the story gets more interesting.  

We had booked tickets on the bullet train that goes from Dijon back to Paris to complete the trip.  As it would be, our seats were in the last row in the railroad car.  These high-speed trains in Europe are quite nice.  They have leather seats and comfortable surroundings and music playing at all times.  Once we got comfortable in our seats, I took note that the music playing that day happened to be Motown music.  I grew up listening to Motown in the 70’s and 80’s and it continues to be my favorite form of music.  In many cases I saw the actual artist perform at some point and have always appreciated the unbelievable story of how Motown went from nothing to one of the major music recording companies in the world.  

As we were watching the countryside fly by in this train while listening to Motown, I thought to myself how strange it was that here we are in the heart of a foreign country, yet they are playing American music.  I guess I felt a form of pride that they would so honor America by honoring its music, which I enjoyed immensely.    

A long horn sheep in Yellowstone 
losing his winter coat

At long last we reached the outlying sections of Paris and ended up in the station at the exact appointed time.  As we packed our things and walked out to the platform of the train station, I noticed that the same Motown music in English was continuing to play.  At that point I decided I needed to investigate to find out why.  What I came to find out was that during the entire trip it was actually my iPhone that had been playing inside my pocket. While a bit embarrassed, I thought to myself how nice those people in the car were. For that two-hour trip they sat by and listened to my Motown music in English throughout the French countryside.

As the holiday season is sneaking up on us, we have had quite a spectacular financial year so far.  When I look at all the indexes above that have one year returns of an excess of 30%, I wonder what the people at home that have cash are thinking.  How bad could you feel if you have substantial cash balances in a money market account earning zero when the indexes are up over 30%?  I understand that so many people express the opinion that they are waiting for a correction before they invest.  Those same people said that two years ago and the market is up close to 60% over that two-year cycle.  If you have excess cash, you should invest it.

I had a client the other day who said to me, “I didn’t know that I could make an IRA contribution.”  Just to set the record straight, if you have earned income, everyone, without exception, can make an IRA contribution.  Why this matter is so complicated is because it is intertwined with the question of whether it is tax deductible.  Therefore, your options regarding the IRA are in this order: tax deductible IRA, Roth contribution of an IRA, or nondeductible IRA.  If you have excess cash, putting money on a tax deferred basis is very smart.  We often set up Roth accounts for minor children that have some earned income.  Think about the financial repercussions of such accounts.  If a teenager could put away tax free money for life at an early age, by the time they reach retirement, just imagine the amount of tax-free income available to them.  If you have not been making IRA contributions for fear that you are not allowed to, please call us to discuss. 

As always, the above comments are based on my personal research and opinion and certainly no one can forecast the future accurately.  However, the realization that the economy has already turned should be self-evident and those who are sitting on cash should be moved to make appropriate investments. 

On that note, come visit with us and discuss your goals and financial plans. If you are interested in discussing your specific financial situation, please feel free to call or email.

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

Best Regards,
Joe Rollins 

Monday, August 9, 2021

Rollins Financial Advisors Named to 2021 Financial Advisor Magazine Top 50 Fastest-Growing Firms

Atlanta-based Independent Investment Adviser ranks among the top 50 fastest growing Registered Investment Advisers (RIA)

Rollins Financial Advisors, LLC is pleased to announce it has been named to the Financial Advisor Magazine’s 2021 RIA Survey & Ranking of the Top 50 Fastest-Growing Firms (with more than $500 Million in Assets Under Management).  Rollins Financial ranked #41 on the list after having an impressive growth of 41.38% in assets in 2020.  This is the first year the firm has been included in this exclusive list recognizing some of the top independent RIA firms in the U.S.

In addition to being ranked in the Top 50 Fastest-Growing Firms, Rollins Financial was ranked #331 overall, finishing the year with $953.82 Million in Assets Under Management (as of June 30, 2021, the Firm managed in excess of $1.1 Billion).

More than 600 RIA firms completed the annual survey and ranking by Financial Advisor magazine which discussed how firms were handling the pandemic from various perspectives including technology, remote working, growth, staffing, and more.

Financial Advisor magazine is a leading publication reaching 80,000 qualified readers, including financial planners, registered investment advisors and independent broker-dealers. FA specializes in planning and investment material using market information and strategies to efficiently achieve client goals and promote firm growth.

Joe Rollins, the firm’s founder, said, “We are very appreciative of our clients and staff that have allowed us to have such an impressive growth in assets during the year 2020. We are certainly not an overnight sensation, having effectively been in the business for over 40 years. However, none of it would have been possible without our clients and staff. We look forward to equally impressive numbers going forward.”

To view the article and rankings on the Financial Advisor magazine website, please click here.

Official Press Release

Best Regards,
Rollins Financial

Thursday, July 15, 2021

“On Friday, All the Major U.S. Market Indexes Hit All Time Highs – But They Are Going Higher!” – Joe Rollins

From the Desk of Joe Rollins

Every now and again I like to quote myself because it seems over the last two years, I have been more closely predicting the outcome of the markets than people that are paid many times my pay scale.  It just doesn’t seem like there is a high level of confidence in the economic recovery, which is absurd given the overwhelming evidence to the contrary.  Everywhere you look prosperity reigns, but there is an overall skepticism that the general public just cannot shake.  It is unfortunate since so many potential investors have been sitting on the sidelines waiting for a market correction for the last 18 months and all the market has done is gone higher.  Maybe all  this passive cash sitting in checking accounts will be implemented in the coming months.  For their sake, I hope so.  

I have a lot to discuss for this posting and some of it I think is very useful information for future investments.  I must discuss why the unemployment rate of 5.9% in the United States is an illusion and we will get closer to pre-COVID unemployment ratios before the end of 2021.  I also want to discuss why inflation is really not an issue at the current time but, more interestingly, why is it that the bond market is not reflecting higher interest rates with potential inflation.  I also want to discuss why the U.S. government’s attack on Big Tech is entirely misplaced.  And for the new readers of this report, I am going to actually define socialism since it is the most misused and misunderstood term in the English language.  I have so much I want to discuss and so few pages, I need to get started.  First, I need to report on the month ending June 2021.  It was an excellent month by all standards to go along with an excellent six months of the year.  

Ava horseback riding in Yellowstone

The Standard & Poor’s Index of 500 stocks was up 2.3% during the month of June and up 15.2% for the six months ended June 30, 2021.  The one-year return on that index is 40.8%.  The NASDAQ Composite was up 5.6% for the month of June and is up 12.9% for the year 2021.  The one-year return on that index is 40.2%.  The Dow-Jones Industrial Average was flat during June but is up 13.8% year-to-date in 2021 and its one-year total return is 36.3%.  The Bloomberg Barclays Aggregate Bond Index was up 0.8% in June but is down 1.7% for the year 2021 and for the one-year return this index is down 0.5%.  As you can see, all the market indexes had a minimum of 36% returns and the bond index over the same time frame had a negative return.  I fully expect that bonds will underperform cash for the rest of the year, even though cash is earning virtually zero.  

This last month I was out in Montana at Yellowstone and the surrounding areas.  Everywhere we went there were signs begging for new employees.  It is amazing that the unemployment in the United States is 5.9% when there are so many employers begging for workers.  As of May 2021, it is reported that there are 9.3 million unemployed in the United States.  Recognizing that this is a huge decrease from the 23 million that were unemployed in April of 2020, the question everyone is asking is why are there still so many people unemployed?  

Dakota and Ava at the entrance to Yellowstone

As of May 2021, there were 9.2 million job openings in the United States.  As you can see the number of unemployed and the number of job openings are almost equal.  I forecast that there will be a major employment rush between now and the end of the year for reasons that should be self-evident.  

The basic reason why employees are not taking jobs and staying on unemployment is because it is in their best interest.  If you are a server or in the hospitality industry and you can make as much sitting at home, tax-free, as you make working 12-14 hours a day, it would be illogical to assume that people would take those work hours in lieu of the free money.  However, all of that is getting ready to end.  The major reason why the government is responsible for the unemployment rate is that it has made it too easy to draw unemployment for the average American.  During 2020, the Federal government supplemented state unemployment with a $600/week bonus.  During 2020, that amount was clearly needed to give people a bridge from unemployment to future employment.  However, that is tainted by the fraud that occurred in the unemployment system, which I will discuss later.  After the $600/week program terminated, Congress and its infinite wisdom added $300/week to continue through September 6, 2021.  Already, 24 states have eliminated that benefit and lo and behold, the unemployment in those 24 states is a very respectable 4.4%.  The rest of the states and the District of Columbia, set a later date to end the program in September and their unemployment rate is 6%.  I am not exactly sure what Congress misunderstands regarding these percentages, but it is fairly clear that ending these benefits led to higher employment and lower unemployment.  The President recently said that in his opinion these benefits were not leading to higher unemployment, but clearly the numbers do not support his conclusions.  

Buffalo everywhere you look!
Aren’t they beautiful?

There are two major events that are getting ready to happen that will drastically change the unemployment in America.  First, as mentioned, the $300/week supplement of unemployment by the Federal government will end on September 6, 2021, thankfully.  Many calls to extend this unemployment benefit have been proposed by Congress, but recently the Administration announced that there would be no extension granted.

But more importantly, the CDC has announced that all schools should be in-person and open for this term in 2021.  So, the combination of the availability of childcare and the elimination of the extra benefit will force many Americans, currently unemployed, to go back to work.  As I have mentioned often in these writings, when you employ people, you do a great deal to help the economy.  Suddenly you have a wage earner that is supporting other people and consuming goods which increases the economy.  It is now anticipated that the U.S. economy would grow at an astounding 9.6% for the year 2021, which would be the best GDP in over 40 years.  But also, it is very possible that this continued growth will carry over into 2022, which will accelerate corporate profits as the economy continues to grow.   

A gorgeous rainbow over the 
Grand Canyon of Yellowstone

We were all saddened to learn that recently it was announced that nearly 40% of all the unemployment benefits paid in 2020 were due to fraud.  The numbers are basically staggering.  It is estimated now that around $400 billion in unemployment benefits were paid to fraudulent recipients and the vast majority of this money ended up overseas in the criminal element.  I have often commented on these pages that the U.S. government does just about everything worse than anyone else.  I have commented often that the only good thing the U.S. government does is run the military.  I am not sure this is such high praise given that there is no competition for running the military and they are literally the only game in town.  Virtually everything the government does, it does worse than the private sector except one.  

I have the ultimate high praise for the government in the handling of this vaccine.  Back in early 2020 when the Administration opened their pocketbooks and funded research on the vaccines, who would have thought vaccines could be developed and distributed within an eight-month period?  This would not have happened without the U.S. intervention into the developing process, which has led to a complete turn around in the so-called COVID financial disaster.  We certainly could agree to disagree on how it was handled, but all of us praise the fact that it is nearly finished.  As of this morning, 333 million vaccines have been administered in the United States.  There are 151 million Americans that are fully vaccinated, which represents 56% of the total population.  While cases are not eliminated, they are dramatically reduced.  It was recently reported that 90% of the current deaths from COVID are solely from unvaccinated people.  It is hard to believe people will not get vaccinated.  I assume they just like playing “Russian Roulette” with their lives.  I often wonder if these are the same people that don’t get other vaccines, such as polio, etc.  While the business world is coming back to pre-COVID levels, this could only have been accomplished with the Federal government’s funding and handling of the vaccine rollout. 

One of the many stunning falls at Yellowstone

The important event of school opening in the fall will be a huge employment gain for Americans.  So many cases were quoted as employees could not go to work due to childcare needs.  This will be alleviated in the fall and with the elimination of the $300/week Federal unemployment benefit, those unemployed will have no choice but to seek employment.  At the current time, it pays to wait.  Each of the unemployed are looking for better jobs and the Federal subsidy gives them time.  Time is running out and now they will need to be employed.  

Last month I discussed why inflation was probably not a problem in the current stock market.  This month we are starting to see the effects of the high inflation slow down.  A lot of people misunderstood the shortage of goods we had in America once the economy began again.  It wasn’t really a shortage of goods, but a shortage in the supply chain.  Ever since America started keeping their inventory on an as-needed basis, they only maintained enough inventory to get by from day to day.  When the influx of business occurred, all of a sudden inventories were inadequate and had to be built up again.  Last month I reported that the price of lumber had jumped almost 100% and shortages were throughout the building industry.  You will be happy to know that the price of lumber fell 40% during the month of June, but it is still elevated from the pre-COVID levels.  Evidence is everywhere that the demand pressure on inflation is falling.  Retails sales are estimated to have fallen 0.6% in June after falling 1.3% during the month of May.  Almost this entire reduction of retail sales is based upon lower car sales.  There have been so many cars purchased in America over the last year at some point it was almost assured to have to fall.  Now we are seeing that happen.  

Mia’s parents – Muzzy (93) and Jennie (88)
celebrating their 68th wedding anniversary

The financial world was shocked this month when the 10-year Treasury fell to 1.25%, rather than rising due to the fear of inflation.  Many on the financial shows on T.V. are scratching their heads as to this conundrum of bond yields falling when clearly they should be rising.  Most people are projecting by the end of 2021, a 2% 10-Year Treasury, but in the short-term rates are actually falling rather than going up.  However, I predict this too will be short lived.  

The Federal Reserve in their monthly meeting notes indicated that it would continue to buy $80 billion in treasury bonds and $40 billion in mortgage bonds each month.  As you can see, the Federal Reserve is almost the sole buyer of these new bonds being issued.  This has the incredible effect of keeping interest rates down both in the treasury rates and also in the mortgage rates which benefits real estate.  The Federal Reserve has a dual mandate to maintain full employment and to control inflation.  With unemployment at 5.9%, the unemployment rate is unsatisfactorily high.  

At the current time, inflation, measured at 3.4%, has the potential to be high but has not been realized by the economy yet.  It should be clear to all that with the Federal Reserve continuing to buy up virtually the entire issues of treasury and mortgage-backed securities on a monthly basis, that the minute they stop, interest rates will reverse and go higher.  The Chairman of the Federal Reserve, Jerome Powell, has indicated he will support the economy over the foreseeable future.  He has done a spectacular job in bringing the country back from recession due to COVID, to levels that may, by the end of the year, exceed the pre-COVID economy.  However, we all should be warned that the minute he withdraws support, likely in late 2021, we will be dealing with higher inflation and higher mortgage rates, but with an economy that is more-likely-than-not to be fully employed.  

Oh, give me a home….

One of Warren Buffett’s most famous sayings is “Never bet against America”.  I got to thinking about it this month with all the Federal Government’s actions to limit big businesses.  I go back to 1971 when there was a huge oil shortage in the United States and the price of oil quadrupled in over a matter of couple months.  I also remember that Congress was pounding their fists over and over again for two decades trying to develop an energy policy in the United Sates that would encourage more oil production.  I vividly remember when George Bush (Part Two) went to Saudi Arabia and literally begged the Saudi government to sell us more oil to keep the price down.  I remember during the Jimmy Carter years when the price of oil led to inflation that was close to 12% annualized.  All this chaos in the supply of oil was solved by the private sector without the government’s intervention.

With the innovation of fracked oil in the Dakota’s and the implementation of better technology for finding oil, the United States completely reversed its position and is now the largest producer of oil in the world.  In fact, the United States produces enough oil to be self-sufficient and to even export oil.  Even though the current Administration is doing everything within their power to limit oil production, there is no question that the rest of our lifetimes for the readers of this newsletter, oil will be a majority contributor to energy.  Again, it was the private sector that solved this issue.  Better technology led to higher recovery of oil and a problem that the government could not solve was solved by the private sector.  

A quiz for the readers of this newsletter: What five companies recently had a market capitalization in excess of $1 trillion?  For those that do not know the answer, it is Apple, Amazon, Microsoft, Google, and Facebook.  Just in their short lifetime, these companies went from nothing to a $1 trillion valuation due to extraordinary technology and entrepreneurs that were willing to challenge the existing technology.  If there is one classification that the Unites States is “leaps and bounds” ahead of the rest of the world it is technology.  The software created in the United States is currently used around the world in all countries.  

Ava at “Old Faithful”

While China has proven to be an extraordinary copier of technology and software, they have yet to even scratch the surface on creating this technology juggernaut.  You will notice that wherever you see technology running, Microsoft Windows is generally behind it.  With Facebook’s 2.6 billion active users, they reach around the world, yet they sell no products.  These five companies are prime examples of entrepreneurs in the United States creating vast wealth for them and their shareholders due to a better idea.  And now our government wants to punish them.  

Rather than punishing the successful we should be praising them.  By virtue of their accelerated growth, they have made many Americans massive amounts of wealth to solve the retirement issue.  It is rather sad to see the government line up to oppose these companies and to treat them as the bad guys when in fact they should be praised by the government itself.  The beauty of these companies is that they are forever changing.  I do not even think for a second that any governmental actions could do much to harm these companies since they will just migrate around the problems for years to come.  Recently the FTC challenged Facebook to complain that they had a monopoly in the field.  The courts quickly threw out that case since it was clearly a desire of states and the FTC just to blackmail money from Facebook.  I am positive there will be thousands more lawsuits coming in recent years, but I am convinced that these dominant companies will only grow and prosper in the future.

Ava and Dakota at Steamboat Geyser

We all must give a vote of gratitude to this evolution of technology by the American companies.  It makes Americans stronger by improving their financial wealth and it continues to make America the leader by far in technology.  The one thing that we can never do as a country is to take away our desire to innovate and implement new process.  Who would have ever believed that 10 years ago electric cars were even possible? Now every major car manufacturer has vowed to only produce electric cars by 2030.  

There is a simple reason for them converting.  Electric cars are cheaper to build and cheaper to drive.  This entire concept was thought up and implemented by Tesla.  Who would have thought that one small company with one kind of weird CEO could influence the rest of the world in transportation?  Yet, it has happened, and it has happened over the last decade.  Hopefully, future government administrations will understand that you should not punish success, but you should reward it for the benefits it has provided to all Americans.  

Ava, Joe and Dakota enjoying 
the waterfall views 

All the above paragraphs have led me to give you an explanation of socialism, so you can better understand.  It has always been perplexing to me why American students come out of school so completely sold on the concept of socialism as the future.  As they teach socialism in grade school and college, I would think that anyone with any intellect would definitely want to embrace socialism.  Who in their right mind would not want an economy with no poverty?  Who in their right mind would not want an economy where everyone was treated the same?  And there would be no rich people nor poor people, but everything in between.  Who would not want an economy where the government provided for all your natural needs such as medical, food, and other benefits?  It just sounds so perfect, who possibly could object to a socialistic economy?

I am often confronted by those that believe that socialism is the answer to all the United States’ problems, so I ask them a very basic economic question.  Name a country anywhere in the world where socialism has succeeded.  Would you name Russia, Cuba, Venezuela, Argentina, or any other third world country that operates under a socialistic scheme?  The one component that the textbooks have never been able to define is how do you build into an economy the desire to get ahead under socialism?  Under socialism, the really good worker and the really bad worker earn the same amount of money.  In Cuba, everyone is paid the same rate.  You can sweep the streets for $70 a month or you can work in the tobacco fields for $70 a month.  It is very hot in Cuba, and it is very hard work.  Why would anyone pick working in the field as compared to sweeping the streets if you will be getting paid the same amount of money?  

Joe and Ava at Teton Mountains

That is where socialism fails.  Once the average worker comes to the understanding that there is no way to get ahead since everyone is treated equally, they have no incentive to improve their lifestyle.  So, what happens is workers tend to be underproductive and eventually become a drain on the economy rather than a plus.  

There are many that point to China and say there is a classic case of where socialism has succeeded.  They could not be further from the truth.  China is very much a capitalistic economy.  There are extraordinarily wealthy people in China and a huge difference between the wealthy and the poor.  While the economy has socialistic aspects such as free medical, it has a limited retirement plan and for the most part has the older people depend on the younger people to take care of them.  It is absolutely true that the government in Russia has characterized themselves as socialist, but they also have one of the greatest capitalistic economies in the world.  

The one item that the communist government has realized is that to keep political unrest from the public, they must provide jobs.  It has been reported that China has built entire cities with no occupants because they want to keep workers working.  Currently China is one of the most indebted countries in the world and every time you read that China is a risk to take over the U.S. economy, you have to question how they can ever overcome their debt issue with their current growth in economy.  Yes, China maintains a communist government, but very much a capitalist economy.  As long as China can keep workers working and wages rising, there will be no incentive to overthrow the government to a republic government such as the United States.  

So, when you explain to the average person the difference between capitalism and socialism, you have to point out the United States.  Yes, it is terrible in the United States that there has been a large gap of wealth from the rich and the poor.  But the percentage of Americans that are classified as “super rich” is a very small percentage of the total population.  What is important is that the middle-class income is rising at an extraordinary high rate at the current time.   It is estimated that the average worker is increasing their wages at 5.6% annually.  This is going to accelerate as it becomes bidding process for new employees throughout America. 

Joe and Dakota overlooking
 the Grand Canyon in Yellowstone

The one thing that America has going for it is an economy that is growing and forever changing.  If the economy hits one roadblock, the economy bounces back and does an about turn into something else as it did with oil.  We went from telephones that did not work well to very sophisticated smart phones created by a small company in California.  If ever the Federal Government attempts to prevent entrepreneurs from creating new technology, then the standard of living in America will clearly fall.  

So, as we finish the first six months of 2021, it has been very profitable and eventful.  At the beginning of the year there was a huge switch from growth stocks to value stocks.  Recently growth stocks have come crawling back and now the market is higher, as represented by the five trillion-dollar companies above.   By earning 15% in the first half, it is highly unlikely that the second half is going to generate like returns.  However, you just never know with earnings as strong as they will be going forward.  As we start to roll out earrings in the major American companies beginning next week, I forecast that you will see earnings that will blow you away.  The reason technology and growth stocks have been accelerating recently is because their earnings will be nothing short of spectacular.  I anticipate a higher level of earning for all except those industries that specialize in hospitality or travel.  

Joe and Ava having a blast 
at West Yellowstone in Montana

As I have pointed out on numerous occasions in these postings, earnings are by far the most important component of future stock prices.  If earnings continue to accelerate as I anticipate, and the economy continues to tick on a 9.6% GDP growth, earnings will be spectacular for the rest of 2021 and most assuredly will lead the indexes higher from current levels.  While it will not be a straight line higher and there will be many days that will challenge your commitment to the market, I can only encourage you to stay invested at all times and enjoy the ride.  But by all means, call us if you are having doubts.  

People have asked me my reflections after our trip to Yellowstone.  There is no question, it is a truly beautiful place, but it is a strange combination of places around Yellowstone that I truly do not understand.  I was lucky enough to visit Yellowstone when I was 12 years old and once again visited when I was 71.  I think every 59 years is often enough to get the full feeling of the place.  Not being hypocritical, but realistically how long can you actually look at a hole in the ground.  

What is amazing about Yellowstone is the number of animals that you encounter on any given day.  Buffalo are walking in the streets and around every corner there are new wild animals to watch.  It is quite an incredible experience.  But if you want to know about the prosperity in America today, it was in full bloom at Yellowstone.  

It was reported that some days there were two hour waits just to get in the gates at Yellowstone.  Fortunately, we had a pass and did not have to make that wait.  We started out staying in Jackson Hole in Wyoming and it is truly a contradiction of any type of reality.  Even though there are only 10,000 people in the town, tourists are everywhere and it is impossible to move inside the city.  You cannot get reservations at any restaurants since they are overrun with tourists.  Frankly, it reminds me of Gatlinburg with all of the gift stores and items that just sell nothing but junk.  It must be the playground for rich people since homes are so unbelievably expensive at Jackson Hole.  

Morgan, Kari and Mia celebrating
 on  Kari’s wedding day

We moved on to a little town named West Yellowstone, just outside of the west gate of Yellowstone for the rest of our trip.  This town was the exact opposite of Jackson Hole.  The best restaurant in town was a barbeque place that had picnic benches set up outdoors, nothing fancy about this town only a few hours away from Jackson Hole.  

Every interesting place in Yellowstone was covered with tourists and parking was almost nonexistent.  In many cases cars were lined up far down the road to get into the few parking places that were available.  While truly a spectacular place in every regard, if you are going there for a short, leisurely visit, I highly recommend you go in the fall and not the summer.  

One event that clearly stands out in my mind from our trip is that when I was 12 my father made it an absolute requirement that we be there one night when “Old Faithful” goes off.  All of the publicity indicated that it was an illuminated “Old Faithful” geyser.  I vividly remember all of us getting in the ’59 Chevrolet to get to that part of the park where “Old Faithful” sits even though we were almost asleep as it finally became dark around 9:30 at night.  

We could not control our excitement of the upcoming event; actually seeing “Old Faithful” illuminated.  You could guess our disappointment when finally, after dark, “Old Faithful” did its thing and shot hot water 100 feet in the sky, but only one small light illuminated it.  For reasons that I never quite understood, this seemed to satisfy my father and that was enough for all of us since we could now go to bed.  

As always, the above comments are based on my personal research and my personal opinion and certainly no one can forecast the future accurately.  However, the realization that the economy has already turned should be self-evident and those who are sitting on cash should be moved to make appropriate investments. 

On that note, come visit with us and discuss your goals and financial plans. If you are interested in discussing your specific financial situation, please feel free to call or email.

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

Best Regards,
Joe Rollins